Here is an interesting chart.
This particular sentiment indicator is based off of information from the Rydex family of Mutual Funds. Because of the highly leveraged nature of some of their funds, these vehicles have become quite popular among market timers. The public data, published each night, shows us whether investors are choosing to move their money into low beta or higher beta funds. From a contrarian perspective, we can use this information to conclude whether market participants are “beta chasing” and looking for higher prices, or are nervous and fear has set in.
From Sentiment Trader:
“When the Index reaches a high extreme of around 2.8 or higher, it means that speculation is beginning to exceed its normal trading range, and that usually spells trouble for the market (especially in the context of a downtrend). Conversely, we normally see an index reading somewhere around 1.0 when prices have fallen and the Rydex timers are more concerned with falling prices than catching the next wave higher. Not surprisingly, higher prices are often the result.”
Monday’s readings for the Rydex Beta Chase Index came in just a touch above 1.0, a level where fear and uncertainty have often peaked over the last 18 months.