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RYDEX PRECIOUS METALS FUND NET CASH FLOW SPELLS TROUBLE AGAIN

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DecisionPoint.com tracks net cumulative cash flow of Rydex mutual funds as a way of estimating sentiment in various sectors. The theory is that money 'ought' to follow prices, more or less. In the last several months this indicator has been rather helpful in identifying problematic price moves by the appearance of price/cash divergences.

On the above chart of Rydex Precious Metals Fund, I have highlighted the first divergence with red circles. Note how there was virtually no cash flow supporting the advance into the January price top. An indication that the advance would fail. Next the blue circles show a blowoff move in February. Lots of money moved into the fund, but prices failed to respond positively enough. Again, an indication that the advance would fail.

Now we see a precipitous drop in prices, highlighted by the green circles; however, note that a proportionate amount of cash has not yet fled the sector. To me this indicates an unrealistic optimism, and my conclusion is that prices will have to drop farther in order to increase bearish sentiment to appropriate levels.

Chip Anderson
About the author: is the founder and president of StockCharts.com. He founded the company after working as a Windows developer and corporate consultant at Microsoft from 1987 to 1997. Since 1999, Chip has guided the growth and development of StockCharts.com into a trusted financial enterprise and highly-valued resource in the industry. In this blog, Chip shares his tips and tricks on how to maximize the tools and resources available at StockCharts.com, and provides updates about new features or additions to the site. Learn More
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