GOLD, the Mystery Chart
In my previous article, “Gold, Bottom or Bounce”, I displayed a chart that accurately predicted a high probability bottom in Gold on Dec 30 with an uptick confirmation on Dec 31, and that Gold was about to undergo a very substantial rally. However, there were other reasons for displaying that particular chart that will now become apparent when you look at it below. Namely, this ‘mystery chart’, which is the relative strength ratio of Gold divided by the Dow Jones Utility Average, also assists in determining where we approximately are in the business cycle. Yes, I said the “b” word, despite international free trade, the business cycle still exists, only that it now seems to be more synchronized amongst all the industrialized countries. Sometimes I think it only exists because the central banks and investment bankers conspire to make it exist as a way to profit from “their” invisible hand herding the sheep (to slaughter).
The turning points of the Gold/Utilities ratio, often precedes topping action in the US stock market (S&P 500 shown) and bottoming action in Gold and Commodities (CRB ex oil shown). Where traditionally relied upon technical indicators on the absolute price of any of the above named asset classes may have failed, the Gold/Utilities ratio succeeded this time. To all those calling for Gold $1000, better luck next time.
Gold/Dow Utilities Ratio - Weekly
(Click on image to enlarge)
*The arrows on the chart highlight where the Ratio successfully predicted sizeable and tradable moves in the asset classes shown.
*If you remove the yellow 1999.5 and the 2005.5 vertical markers, the spacing between the cycles will actually becomes clearer and seems to be quite symmetrical. The thicker green bars measure 6~7 years, and appears to catch the stronger business cycles. More careful analysis could probably pick up the intermediary cycles.
Congratulations to Craig Di Bias and Rod C. for correctly guessing the underlying symbols in the ratio – they were awarded a respective 6 month and 3 month free subscription to InvestorKey.
Jan 30, 2014
About Peter Vogel: The Writer of this Blog began his investment career in 1981, first as a Floor Trader and then as an Investment Advisor for a major securities firm. During that time he acquired several securities and options licenses and became registered as a Commodity Trading Advisor (CTA). He also co-founded a venture capital organization that helped finance and commercialize a number of new technologies. Since the beginning of his 33+ years of investing, he developed his own style of technical analysis by focusing on ratio analysis and money management techniques, creating methods that often allow him to buy near precise turning points with confidence. His decision to publish this information stems from recognizing the abundance of misinformation and bad analysis that exists and the need to help investors understand how to understand and view the markets and invest properly. Some of his favorite trading mentors are Larry Williams, Martin Pring, Thomas DeMark and William O’Neil.
When it comes to deciding whether or not to use an investment writer’s service, you should understand that their background or so-called “proprietary” gimmickry really does not matter. The evidence in this statement bears itself out by the simple fact that Michelle Williams at the age of 17 won the World Trading Championship in 1997 making a 1000% return, which has not been surpassed since. The only thing that matters is whether their service can help you make money.