PATTERN repeat, watch for them at tops and bottoms

I’ve blogged a bunch about the power of using technical analysis and ratio analysis.  you don’t have to read a 500 page diatribe about the fundamentals (which are important) but you plot A/B and see if it’s going UP or DOWN. UP A is outperforming .. DOWN and A is underperforming. DONE.

so as everyone gets their panties in a knot about the Death Cross (I like to call it the Iron Lotus – actually got a “like” from Blades of Glory on Twitter – how cool is that?), China and the Yuan and a low VIX and let’s see what else … blah f’ing blah.  I go to the chart. What is it telling us?

John Murphy – technician extraordinaire – taught us in the CMT program to look for discretionary and staples to give us clues.  How do you find clues? do the ratio….

Here it is …

XLY / XLP

XLY / XLP

what sticks out to me …? we have the SAME PATTERN at the top … but it also took time to finally crack. to the tune of 2-3 years….

I’ve drawn some simple trend lines to watch and if/when they are taken out on a weekly close below then it’s time to look for Will Ferrell’s head on the ice because the Iron Lotus failed (meaning the sharp skate cut his head off … tragic)  Take a look at the “get out” portion of the trend line from 2007 time frame.  We can see it got tested and then it broke … time to get defensive.  Believe that’s a good playbook for now …until tested and broken the band “should” play on ….

here’s the $NYA overlaid .. note the distribution that occurred at the 2007 top.

XLY / XLP ratio and $NYA

XLY / XLP ratio and $NYA

here’s the XLY/XLP ratio w/ the $NYA/XLP overlaid on top of it … why is it important?  Well, as you can see, much like the last post: https://bartscharts.com/2015/08/08/bill-and-teds-excellent-adventure-meets-the-matrix-in-two-charts/ we can see that the ratio of the NYA/staples is plumbing all time lows … this is not a very good picture.

so, if the rotation really occurs out of the discretionary’s, believe this ratio will break support and start downhill fast.

so, now we have some trend lines to watch for weakness.

it’s all one big jigsaw puzzle.

Main20150813085159

rock on, ok?

B

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