This indicator is based off of a composite of hedge fund tracking indexes.
It compares this index of hedge fund exposure against returns in the S&P 500 to see how much exposure hedge funds appear to have to the stock market.
When funds are heavily exposed, meaning “loaded up” to stocks, the markets are in danger of consolidating or pulling back, as these funds retrench.
When they are under-exposed, then stocks may see buying pressure come in as funds add exposure.
Think of the funds as a potential big “seller” or “buyer” of stocks.
If their inventory is high and they get a reason to sell, they can create a lot of selling pressure. The contrary is also true: if inventory or exposure is low, they can create a lot of buying pressure.
Questions or suggestions?
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