Daily Archives: May 12, 2017

A Look at the Silver/Gold Ratio, Inflation/Deflation and the Yield Curve

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An email from a reader (of the eLetter, I think) calling me out on trying to make too many correlations in a dysfunctional market (I think that was his bottom line point, and he’s got a good point) got me thinking about the Silver/Gold ratio and some pretty interesting post-2011 dysfunction (so it seems) in the markets.

Markets that made sense in certain ways prior to 2011 no longer make sense in the same ways. For instance, the S&P 500 used to be correlated to the Silver/Gold ratio, which itself was positively correlated to inflation and/or inflationary economic growth. Gold also liked for silver to be leading it, not the other way around.

silver/gold ratio

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Possible Triangle Forming

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I posted the premarket video that I do every morning for Daily Video Service subscribers at theartofchart.net, on my twitter before the open this morning, and if you’d like to see that the link is here. The futures covered were (in sequence) ES, NQ, TF, DX, CL, NG, GC, ZB, HG, KC, SB, CC & ZW, The forex pairs covered were EURUSD, GBPUSD, USDJPY, AUDUSD, NZDUSD and USDCAD. Particularly pleased with my NG, CC and EURUSD calls today. We’re looking for a major low on CC here and were very encouraged by a very bearish recent article on Cocoa in Barrons, though they are obviously best as a better contrary indicator if the instrument makes the front cover, and their best area of inverse expertise historically is precious metals. Hopefully Gartman will start shorting CC hard to fix the low.

The ideal setup for bulls here would be a retest of yesterday’s lows to make the second low of a double bottom on ES and TF that would then look for a retest of the ATH on both. We haven’t seen that yet and there may be a triangle forming here that will make that a slow process if seen at all. Another option is that the right shoulder is forming on an H&S, in which case SPX will likely kick around the rest of the day and maybe Monday too before breaking down. On this kind of setup the break down, as and when it comes, likely comes with a hard break down through gap support in a breakaway gap that doesn’t fill. SPX 60min chart: (more…)

China Bounce or Catastrophic Drop Coming?

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Further to my post of May 7, the following Daily comparison and ratio charts of China’s Shanghai Index (SSEC) and Australia’s Composite Index (AORD) show that SSEC now sits at long-term major support (in both instances), once again, and is vulnerable to further weakness in comparison with AORD.

We’ll see if the Shanghai Index can muster a bounce here and gain any kind of sustainable strength and momentum to support an eventual breakout to higher prices in the Australian Index, or whether a plunge here produces a follow-on drop in AORD.

Failure at current levels could produce a catastrophic and swift drop for China down to the lows produced in 2014. (more…)