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| Crude oil daily chart |
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| Crude Oil monthly chart |
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| S&P500/Crude oil ratio chart |
Here I have 3 important charts in crude oil analysis. The first two are obvious ones I have been talking about for months, time stamped both on stock-twits and this blog in the recap section I was doing a few months back. The monthly uptrend, the high odds of breaking $100 rather than $85 because of the uptrend, the bullish consolidation, the accumulation, the inflation (that supposedly doesn't exist), and the reluctance to stay below $90 for any period of time or give any sell signals below $90. But the ratio chart is one I haven't really talked about much because I like just focusing on the price action for the most part unless I am holding/managing pair trades which goes into greater detail and don't post much about that. Look at how closely the S&P tracked to crude oil up until summer of last year. The S&P started majorly outperforming and crude started a multi-month bullish consolidation. The current space between the two is a $40 move in crude. Those two arrows show the last time (while correlated) the S&P outperformed crude. Crude had a very strong rally and caught up to the S&P though the slack was not near as wide and the significance of this move was not near as huge as it is now. The actual ratio which I have zoomed in for you has turned up for the first time since Nov 2011. So what is different about it this time? Well I think I just went over that in the crude monthly/daily chart and the out performance between the S&P and crude. The ratio turned up just means that crude is going to outperform S&P to the upside, the faster the ratio is rising the more crude is outperforming the S&P. They both can rise (and probably will as long as the long & short term correlations stay relatively high & above 0) but crude will be rising faster so long as that ratio is turned up. This has been months in the coming so now we just need to come back, test the breakout point and continue higher then watch the top callers all the way up to $140 and maybe higher.
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S&P500/30 year bonds ratio chart
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| 30 year bonds/Japanese Yen ratio chart |
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| 10 year note daily chart |
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| Gold daily chart |
The two charts above are ratio charts both showing bonds weak compared to two assets that have strong correlations whether positive or negative. Those two being yen and S&P. First off to start with pure price action the daily chart on the left is looking extremely weak with a sell signal (sloppy but still sell signal) playing out right now. Look at that RSI at the bottom, so weak. Not oversold, weak. Oversold is how pros take retail money away from them. So, based on the price action it looks to be rolling over. Looking at the S&P/30yr ratio chart, that is a solid pair trade there. There is a very strong short term positive correlation but with the long term negative it should subside and the S&P should continue to outperform bonds/bonds under perform stocks. Whether that means bonds fall or stocks rise or both, its a strong trade so far and continuation looks really good. The 30yr/yen ratio chart is showing that our United States bonds are under performing Japanese currency that is purposely being devalued. You can see looking at the blue line the yen is trying to attempt to put in some kind of head and shoulders bottom but it just feels like a retail trap before it heads lower. That being said, it bonds keep under performing and that ratio heads lower this means the bonds would have to tank to keep that ratio going. With the positive correlations both long term and short term that scenario doesn't sound too outrageous.
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| Gold/Japanese Yen ratio chart AKA gold in yen terms |
This is going to be a simple but rather interesting look at gold. I remember on stock twits I was looking through the futures stream while gold & yen were both tanking and I remember seeing people tweeting things like "Good one Gartman hows that gold in yen terms trade working out for ya?" and "I wonder how much money Gartman is loosing on his gold in yen terms trade". I remember thinking to myself, "wow these people really have no idea how a pair trade works do they?" If Gartman was equal weighted in gold and yen or bought XAU/JPY he would be no worse off than he was in June of 2011. Gold in yen terms is still at the long term support that gold in dollar terms broke in April that everyone freaked out out. So it looks to me like Gartman made the right move, especially if it ends up holding he is going to be laughing all the way to the bank while retail traders still think he lost a ton of money on gold. This is why you need to do your research on something before you just make stupid statements against someones position. For example, going off topic, Bill Ackman and his herbalife position. Everyone thinks he is sitting on a loss right now when I highly doubt that he is. He is probably sitting well in the money with the correct trade management with options and scaling and having a cost basis up in the $50s. He was building his position while the stock was range bound from $54-$45 and I doubt he was waiting for the bottom of the range to build his position like most want to believe. Anyway, back to gold in yen terms. If gold even holds this $1200 level and doesnt move at all and yen keeps heading lower (as discussed previously in bond discussion) Gartman (and other investors/japanese investors) is making money. When people start making money in a trade again they will put on more of it, which would mean increasing exposure to both long gold and short yen. This would push gold up, yen down, bonds down, S&P up, and crude up. If you want to trade with the institutions, you first have to know how they trade. Funny how the markets are all intertwined isnt it?
