The ISA Navigator
May 2004-September 2004 Highlights

From the June 28th ISA Navigator Newsletter (Monday):

Rydex asset flows showed a modest $4MM shift out of the Dynamic Bull funds and a $17MM shift out of the Dynamic Bear funds. This was across the board, and as I look at some of the other index funds, there was some fairly aggressive buying. This despite the decline. The speculators aren't shorting it, and in fact they're covering their shorts. This may be a function of the good performance of the Nasdaq and perhaps the closing flurry of selling (after cut-off), but I'm not so sure. This is two day's worth of Bullishness in the face of sloppy trade. To me, that's Bearish, at least short-term. That's a short-term Sell.


From Tuesday, June 29th issue:

Rydex asset flows showed a respectable $23MM shift into the Dynamic Bull funds and a tiny $0.66MM shift out of the Dynamic Bear funds. Across the board, things were pretty quiet, save for some fairly aggressive buying in the Nova and Velocity funds, despite the decline. We have a daily MACD sell and speculators aren't shorting it, and in fact there are many who are buying it. The RSO shows significant Bullish asset shifts as the market has lost momentum and drifted lower. That's a short-term Sell.


And Wednesday, June 30th:

The RSO shows ongoing significant Bullish asset shifts even as the market has lost momentum and drifted lower. This is a bigtime sign of complacency.


Thursday, July 1st:

...The Dollar-weighted P/C ratio is back down near where we topped in April. The VIX is flirting with a Sell, too. We can top any time. Be alert, though, that it may be after the Holiday...Across the board, there were rather Bullish shifts. The RSO shows ongoing significant Bullish asset shifts, and yesterday was particularly large. There are too many Bulls and we are definitely setting up a top. Window dressing may be putting it off, however.


Friday, July 2nd:


Rydex asset flows showed a modest $5 MM shift INTO the Dynamic Bull funds and a surprising $15MM shift out of of the Dynamic Bear funds. This was mostly due to the Nasdaq funds, but the other funds' Bearish shifts were rather modest. That's not consistent with a low. The RSO shows only a tiny shift to Bearishness. That's a strong sell signal.


Monday, July 6th:

Rydex asset flows showed a solid $34MM shift out of the Dynamic Bull funds and a $23MM shift into the Dynamic Bear funds. This was pretty much across the board, too, and to be expected. It is not excessive and in fact only reflects part of the reality of the trend change. I don't see much aggressive shorting anywhere. I suspect that we'll not see folks aggressively shorting until it's too late. The RSO showed a standard bearish shift.


Tuesday, July 7th:

Rydex asset flows showed a surprising $11MM shift INTO of the Dynamic Bull funds and a solid $37MM shift into the Dynamic Bear funds. The Bullish shift was again mostly related to a large Nasdaq trade. Otherwise, most of the shifts were conservative shifts out of the Bull funds, not to the Bear funds and that bodes ill for the coming weeks. The shifts only reflect part of the reality of the trend change, not much. Until we see aggressive shorting, there's likely more downside.


Thursday, from July 8th:

Rydex asset flows showed a tiny $0.11MM shift into of the Dynamic Bull funds and a decent $17MM shift into the Dynamic Bear funds. The tiny Bullish shift was again mostly related to a large Nasdaq trade. Otherwise, though, the rest of the shifts were rather mixed. There's a good deal of confusion with a Bearish bias in the Rydex funds. Until we see aggressive shorting, there's likely more downside over the intermediate term. Gross asset levels are simply too Bullish.


Friday, July 16th:

Rydex asset flows showed another solid $29MM shift out of the Dynamic Bull funds and a decent $14MM shift into the Dynamic Bear funds. This shows a bit of growing Bearishness. The overall fund shifts were consistent with all funds showing more of a loss of Bullish assets than a shift to Bearish funds. That implies more to go before "the" bottom. The RSO showed a decent Bearish shift on a modest down day, which again is a little bit Bullish. Overall, I view the RSO as consistent with the trend, but near-term, I'm open to a rally. Longer-term, we're a bit more than 1/2 way to adequate Bearishness, if my guess is correct.


Wednesday, Aug 4

Rydex asset flows showed a goodly $25MM shift out of the Dynamic Bull funds and a solid $27MM shift into the Dynamic Bear funds. The overall fund shifts were a little bit mixed but mostly a matter of Bulls bailing, but not getting Bearish. The non-Dynamic S&P Bull fund lost plenty. The most Bearishness was shown in the Venture fund. The RSO showed a modest Bearish shift on the day. The RSO is probably going to show much more Bearishness over the coming days. If it does, we can THEN start looking for a better low.


Friday, August 6th:

Rydex asset flows showed a large $34MM shift out of the Dynamic Bull funds and a $43MM shift into the Dynamic Bear funds. The overall fund shifts were large and consistently out of the Bull funds and into the Bear funds. The RSO showed a big Bearish shift on the day. We were looking for the RSO to show much more Bearishness over the coming days, and it's beginning to. It won't be long, at this rate, before we can start looking for a better low. Maybe another $300 million shift from the Bull funds to the Bear funds.


Tuesday, August 10th:

Rydex asset flows showed a large $28MM shift out of the Dynamic Bull funds and a larger $30MM shift into the Dynamic Bear funds. The overall fund shifts were also solid out of the Bull funds and large into the Bear funds. This is what the Bulls need to see. The RSO showed a rather large Bearish shift on the day, which was surprising given the rally. This and the $-Weighted P/C ratio say that we need to be on the look out for a turn.


Thursday, August 12th:

The RSO and the $-weighted P/C ratio have given us a solid indication that we should be looking for a low, but I think we're going to be exhausted before it come in, or at least before the market moves higher in a sustained fashion. The message board polls are still showing too little aggressive shorting, but the non-Dynamic Rydex Bear funds are getting big chunks of money. Those guys are usually an intermediate-term fade. So, look for more chop, and soon a low.


Friday, August 13th:

Rydex asset flows showed a $13MM shift out of the Dynamic Bull funds and a much larger $59MM shift into the Dynamic Bear funds. The overall fund shifts were measured in their Bearish shifts the Nasdaq Dynamic Bear fund took in large amounts of money. I'm inclined to think that we may be close to a low on the Nasdaq. The RSO showed another fairly large Bearish shift on the day, which is now roughly $400MM more than at the May low. Overall Bearish asset levels are above where they were at the 2003 low.


and,
...The RSO and the $-weighted P/C ratio have given us a solid indication that we should be looking for a low, and the message board sentiment is close. I'm thinking, however, that usually when most believe we are close to the low, it's already in. The Senticator is Bullish and suggests a high probability of a rally today. I think it's OK to probe long now. Cautiously look for a low.


From the morning of Tuesday, August 17th:

The RSO and the $-weighted P/C ratio have both set us up for a nice rally, and the trigger to buy is confirmed this morning. There is plenty of fuel to drive this market higher. I was looking for a sell-off Today or Wednesday, but given the buy trigger and the good internals, I think we aren't going to get much of a pullback for a bit.



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