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Last night, traders shifted money into the Rydex Electronics fund (which tracks semiconductor and electronics stocks) to a level not seen since March 2002. This is somewhat unusual, since the amount of assets in that fund was $115 million on September 8th, but last night it reached $122 million. It's not unusual to see the level of assets reach new highs as the underlying stocks do, but this time assets reached a new high while the underlying was still below the previous high set last week - this tells us these traders are anticipating a breakout to new highs in the semi's and other high-beta securities.

The chart below plots the Semiconductor Holdrs Trust(SMH) against an adjusted ratio of these fund assets. The ratio is simply the level of assets in the Electronics fund divided by SMH, which eliminates some of the distortion from trends in SMH. Last night, this ratio hit 3.25, which is the highest in nearly a year, and certainly a big difference from the excessive pessimism we saw in February when the ratio actually dipped below 1.0.

Previous spikes in this ratio above 3.0 have corresponded quite well with at least short-term exhaustion points in SMH, so this occurrence bears watching as well. When these traders become so optimistic, it's best to have one hand on your wallet.

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