The Market Timers Index is a unique way of looking at what the Bad and Good Market Timers are doing with their money. We want to do the opposite of what the Bad Market Timers are doing and follow the Good Market Timers.
The Bad Market Timers have proven themselves over history to be terrible at market timing. They get very bullish after a market rally, and bearish after a market fall. By the time they catch on to a trend, it's too late, the trend is about to change.
Some examples of Bad Market Timers indicators include: the small speculators in equity index, futures contracts, the flow in and out of Rydex mutual funds, and the equity-only put/call ratio.
The Good Market Timers are the ones we want to follow, we want to bet on a market rally when they are confident of rising prices, and we want to be short when they are expecting a market decline.The Good Market Timers have proven themselves over history to be good at market timing. They get very bearish after a market rally, and bullish after a market fall.
Some examples of Good Market Timers indicators include: the OEX put/call and open interest ratios, commercial hedger positions in the equity index futures, and the current relationship between stocks and bonds.
Our Market Timers Index is presented on a scale of 0% to 100%. If the Index is at 100%, then that means that the Bad Market Timers are overly confident in a market rally and the Good Market Timers are not. And history suggests that when these Bad Market Timers are confident in a market rally and the Good Market Timers are not, we should be very, very worried that the market is about to decline. When the Index is at 0%, then from a contrary perspective we should be concentrating on the long side, expecting the Bad Market Timers to be wrong again and the Good Market Timers right with the market to rally.
The Market Timers Index rarely gets below 30% or above 70%. Usually, the Index stays between 40% and 60%. When it moves outside of those bands, it's time to pay attention!
