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Ratio
Analysis
 One
of my favorite types of analysis is ratio analysis, because it tends to
reveal when the historical numerical ratio between correlated
markets/sectors is at extreme points, and thus, ripe for reversal.
I like to buy gold stocks when the gold/XAU ratio is above 5.00 and sell
when the ratio dips
below 3.75. We are a long way from an entry point now.
Notice that an SPX/BKX ratio below 12.5 is at an all time low.
The previous time that the ratio reached an all time low was in 1997
before the
Asian currency crisis and again in 1998 before the LTCM fiasco.
The 30 Yr Bond/BKX ratio appears to be telling us that the banking
sector is
making a long term top, while interest rates are making a long term low.
The gold/dollar ratio is telling that the dollar may be close to a
bottom,
while gold may be close to a top -- all related to higher interest
rates.
Notice that despite near record high oil prices, the gold/oil ratio is
not even close
to its 2001 bottom, which means oil can outperform gold in the near term
For the past ten years, major bottoms in the Dow have occurred
when the Dow/Oil Ratio dips below 200.
The SPX/XLE ratio is telling us that the oil sector is near a short-term
top.
The QQQ/QQV ratio is telling us that the QQQ is near a top.
The SPX/VIX ratio is telling us that the SPX is near a top.
The OEX/VXO ratio is telling that the OEX is near a top.
The NDX/VXN ratio is telling that the NDX is near a top.
Summary
The
ratio analysis is telling us that more than likely we ought to expect
for the intermediate term: higher oil prices, higher interest rates,
lower equity prices and a secular top in the financial sector. In the
short-term, we ought to expect a higher dollar and lower gold prices.
Ike
Iossif
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