Short-term Outlook:  Neutral  From Jan 27, 1090 SPX

Equity Indicators - Updates and Extremes

Rydex Sector Assets

Early each month, we've been looking at the concentration of Rydex mutual fund assets among various sectors.  In January, Precious Metals was still the king of the hill, with more than 20% of all sector assets, and technology had climbed up to second place.

Now that both have fallen (hard), Rydex traders feel it's time for new leadership.  And when they're worried, they tend to escape to the "safer" funds, as we see reflected in the Rydex Beta Chase Index. 

That index has been quite low lately, and we can see why with the sector distribution below.  Health Care and Consumer Products are two of the lowest-beta funds offered.  In other words, they tend to move less than the market, as opposed to something like the Electronics fund which exaggerates the market's moves.

Other than Biotechnology (which has followed through on the typical contrary cycle of these asset flows by rallying from an extremely depressed level) and a lame bump higher in Energy, the other funds have been deflating.

Based on their history, I'm not getting too excited about opportunities in Financials until the sector allocation gets to 1%-2%, and Basic Materials until it drops to 3%-4%.

Federal Reserve Humphrey Hawkins Testimony

I'm jumping the gun here by a couple of weeks, but on February 24th, Fed Chairman Bernanke is expected to give a semi-annual testimony to Congress.  It used to just be called Humphrey Hawkins, now it's the Federal Reserve Board Monetary Policy Report to the Congress (the government never misses an opportunity to make the simple, complex).

But Mr. Bernanke is also giving an important testimony tomorrow, which some are calling the de facto Humphrey Hawkins, either by intention or mistake.  Either way, it could be a market-moving speech due to the possibility some new information related to the Fed's explanation of how it's going to try to withdraw its hand from the cookie jar.

So let's take a look at past February Humphrey Hawkins testimonies and see how the market performed afterward.  We've discussed this before, but it's still pretty remarkable.

The day(s) before the testimonies have been mixed, perfectly in line with random (not shown in the table).  The day(s) after, however, have not been.

This could simply be due to some seasonal quirk and not the fault of the Chairmen's speaking ability, but we've most often seen a meaningful whack following the speeches.  Most often, that weakness has continued into early March, especially over the past nine years.

Technically, this doesn't even come into play until a couple of weeks from now, but I thought it was interesting given the number of references I've read to tomorrow being Humphrey Hawkins day.  By the way, the day after the testimony also happens to be the day of the threatened Iranian "punch."