Retail Investors Shun Financial Services Sector

The retail investors that use the Rydex family of funds to time the market and ride high beta sectors are shunning the financial sector and instead continuing to push money into the energy services sector.

In February I pointed out the mad dash into the hot energy services sector and suggested that we were close to an exhaustion point. By various measures, either the XLE or OIH sector ETFs or other sector indexes, energy services started to run into trouble in mid February and has since been in a congestion.

But to be my own harshest critic, the call didn’t work out as I expected. While the bullish rally that had sped oil and energy services stocks so easily higher did run into sand, the charts show higher highs and higher lows. So we are still in an uptrend. Just a more plodding one.

Both the retail investor excitement about the energy sector and their reluctance to touch the financial sector are understandable. But the relative amount of skepticism that we are seeing targeted towards the financial sector is exaggerated.

This is clear when you consider that it is being given no consideration for having rallied from the March 2009 lows. That is to say, the current level of assets in the Rydex Financial Services Sector Mutual Fund is about as low as we’ve seen it during the bear market of 2008:

Furthermore, a recent note by Jason Goepfert of SentimenTrader.com suggests that this strange relationship between the Rydex financial and energy sector funds is about to change if it follows previous historical patterns.

According to Jason, the relative difference between the two funds is now at a historic high. When it has been at similar lofty levels, we’ve seen reversion to the mean with the financial services sector outperforming the energy services sector going forward.

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2 Responses to Retail Investors Shun Financial Services Sector

  1. Stan says:

    Financial services… I would caution about relative strength bottom picking. Weak stocks / groups tend to stay weak for a good reason. Likely better to wait until that trend changes. As is well known the trend is your friend. I’d be inclined not to bottom pick, even if it is relative strength based.

  2. TheCashMan says:

    I think it will be best to go to cash on Monday. Remember, first time ever Fed press conference will be on Weds. For 45 minutes, reporters will be peppering Bernanke with questions and comments. Who knows what questions they might ask and some of these reporters will not be the kindest of participants. You can expect this event to be that unknown variable in the equation. I watched in May 2006 right after Bernanke spoke the markets went into correction. Treat Weds with a great deal of care. I would avoid trading or trade small positions until after Weds or after next week.

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