Years ago we developed a metric that indicates when investors are collectively “offsides” on a specific sector bet, either too bullish or too bearish, based on historic daily investor asset flows into and out of US stock market sector-related ETFs (exchange traded funds).
Chart 2 of our April 23rd blog posting, entitled Anticipating Relative Performance via Asset Flows, showed that our Rydex Utilities Ratio (one of our metrics) was edging into historic over-invested extremes which had historically coincided with or led the beginning of new trends of both outright sector weakness and relative sector underperformance.
This historic extreme in our ratio was a component in our trend model’s April 26th shift to market perform on Utilities, from outperform on February 25th, which captured 6% of relative sector outperformance in 2 months’ time.
The chart below shows that our Rydex Utilities Ratio has since reversed from late April over-invested extremes and, through the end of last week, is now closing in on opposite under-invested extremes.
Meanwhile, our trend model shifted to underperform in Utilities as of May 7th and thus far has captured 8% of relative sector outperformance in a little less than 3 weeks. At least as far as we’re concerned, understanding and tracking investor positioning is a key factor in market successful sectors bets.
More charts, detail and investment strategy on this topic are available in our latest Sector Watch report (access requires subscription), one of 8 premium research reports that Asbury Research produces for subscribers at various intervals throughout the month.
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