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Market Will Follow the Money


Are Rydex sectors over- or under-invested compared to other sectors of the S&P?


Keys To This Week, one of 6 different reports produced for Asbury Research's subscribers, provides a bulleted list of key factors that are most likely to influence the direction of the US stock market and market sectors, US interest rates, and the US Dollar.

To construct this chart, I took the daily assets invested in the 18 RYDEX sector funds and then distributed them into one of the 9 select sector SPDR ETFs that they best pertain to. The end result is a proprietary investor sentiment indicator used to determine how over- or under-invested any one of these sectors are, relative to the other sectors of the S&P 500.

Here's the distribution of these "sector bet assets" as shown on the chart through the end of last week:

  • Materials: 30%
  • Technology: 23%
  • Energy: 14%
  • Consumer Discretionary: 12%
  • Health Care: 7%
  • Financials: 6%
  • Industrials: 3%
  • Consumer Staples: 3%
  • Utilities: 2%

The key to understanding this data, and to using it to identify investment opportunities, is context. I produce this context by comparing the current percentage of assets invested in each sector to: 1) end-of-quarter asset distributions going back to 1999 (when the select sector SPDRs began trading), and 2) to historic averages for each sector. This tells me whether the percentages that appear in the pie chart and on the bulleted list above are historically normal distributions, or if they represent over- or under-invested extremes.

This chart, and these data, also show where investor assets are moving from, and to. I've found that "following the money" via these data typically leads changes in broad market direction.

At 23% of all sector bet assets invested, the technology sector currently comprises its largest percentage of the pie since the second quarter of 2000.

In memory of our fallen friend and trusted colleague, Bennet Sedacca, 100% of the donations made to the RP Foundation through April will be channeled to philanthropic endeavors consistent with the RP mission, working closely with the Sedacca clan in the distribution of those funds. We thank you kindly for your support as we strive to effect positive change in the lives of children.

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No positions in stocks mentioned.

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