I have talked about the Rydex Nova/Ursa ratio in previous postings on Moneynews.com, but in the past when I have mentioned this sentiment indicator it has almost always been because of an overly optimistic reading.
This time it caught my attention because of an overly pessimistic reading.
The Rydex family of funds has the Nova Fund, which is a bullish fund and targets a return that is 150 percent of the return of the S&P 500. The Ursa fund is a bearish fund and targets a negative 100 percent correlation of the S&P 500.
The ratio is simply the assets of the Nova fund divided by the assets on the Ursa fund. The higher the ratio, the more bullish investors are and the lower the ratio, investors are more pessimistic.
The recent readings on the Nova/Ursa Ratio were down around the 0.25 level which are the lowest readings in a long time. Last August the ratio was down to the 0.26 level just before the market took off on the four-month rally that closed out 2010.
I look for a similar outcome this year.
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