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.