my last two posts concerning the NYSE Index and the relative strength of the index (ratio analysis) are here:
just providing an update as it looks like the NYSE Index is about to start a ‘corrective’ leg down … then, ultimately, I will be looking for the BUY PATTERN lower (will try to update if/when it comes) and then an attack on the long term target that I keep showing …
below is the XLP / NYA (relative strength using ratio analysis) – note it is going UP which means staples (on a relative basis) are out performing the overall market = risk off mindset. so stay cautious until we finish this fifth wave up …
05/19/2019 as you can see below, the buy zone was defeated by just a bit but, ultimately, it proved to be good support and the ratio is going UP which shows a risk off mindset w/ regards to the institutions. keep an eye on this ratio as it’s very important and can give us a heads up w/ regard to the overall health of the market.
I put the MONTHLY chart in there to show the much bigger pattern that completed at the lows.
02/28/2019 update: well, the target area shown in the original post was shown and held, somewhat. as the bouncing around started to happen from January 22, 2019 till Feb 21, 2019 it certainly created a nice triangle from the classic EWT. a-b-c-d-e and a resumption of the downtrend. We have rallied a little bit after the breakdown from the triangle (they usually occur in 4th waves – a guideline NOT a rule) so we have either finished or have one more sequence lower to finish – what I believe to be a zig-zag like correction.
if this analysis is correct, then we will bottom NOW or a little lower and the ratio will start to rise.
what does that mean? it USUALLY means stocks will start to sell off.
we are at a key/crucial juncture ..charts below
to show you the ‘power’ of this ratio, I’ve updated a 4 hour intraday chart of the xlp/nazzie ratio (candles) and the nazzie INVERTED (blue line) to show the synchronicity and how well they shake and jive together. note: every inflection point is timed almost exactly. THAT IS WHY THIS RATIO IS SO KEY and HELPS WITH RISK CONTROL
if you have been following me for a while you will know that I really trust PATTERNS and also ratio’s w/ the patterns.
in this case, we have a near PERFECT BUY pattern on our XLP/NASDAQ ratio. Which means, the Staples (a source of risk off for the institutions) ‘should’ start outperforming the NASDAQ from a relative strength basis which ‘should’ cause the NASDAQ to sell off .. IF and ONLY IF the PATTERN works. As you can see below, we have two levels to watch (the one we are at right now) and then one a little bit lower …
my guess (as I NEVER know which pattern will or won’t work) is that the next sell off will occur ‘here’ or the other target a little lower. if we blow thru them w/ power and they fail then it might be game on again .. but let’s not get too hopeful yet. let’s see what our patterns do on the ratio first …
12/16/2018 – as shown before, the ratio of XLP (Staples) / NASDAQ and the PATTERN that completed gave us fair warning of this correction we find ourselves in .. is it the beginning of the ‘next’ bear market. I have no idea. Is it just the ‘buy the dip’ – I have no idea. I guess if you have 50 years you don’t care but if you have 2 weeks you might. It’s all relative folks but we do want to find what the best entry/exit points are as we look to manage risk. that’s all I’m trying to do …
the big institutions have a risk on or a risk off mindset. we hear it all the time. ratio’s allow you to try and get a best guess of where they are … in this case the STAPLES / NASDAQ has helped – a ton.
so, where are we now?
KEY: note the blue arrows. those are the extreme moves up in ‘risk off’ for the institution and then, as shown, the ratio stalls and then the band plays on … believe it or not, we haven’t reached that extreme yet so I simply expect the correction to continue until the ‘target zone 1’ is reached. If your a bull then this seems a logical place to stick your toe int he water else watch and wait for a MONTHLY SIGNAL REVERSAL CANDLE. Else, we could go all the way up to Target Zone 2.
11/20/2018 – so, this ratio is running the show right now. if you read the below NONE of this should be a surprise as the PATTERNS worked and the XLP/QQQ buy pattern has taken off, causing a risk off mindset and the NAZZIE to get blasted. That being said, all is not lost. While I do think we have some more carnage to come, ultimately the ratio is going to smack right into a very strong trend line and the technical analysis concept of POLARITY should cause support or THE bottom for a GREAT BUY. The chart below should give you and idea of why the area labeled ‘resistance’ should offer strong support for the institutions and offer a great BUY of the Q’s and technology.
let me know if you have any questions.
note the ratio .. we have a pretty nice bullish engulfing pattern on the ratio which is precursor to potentially further weakness. If looking to BUY the Q’s would definitely wait for a nice sell pattern or overhead resistance to be hit before stepping in …certainly appears to have some room to run.
here’s the QQQ on a daily time frame w/ the target zone denoted. sure looks like another wave of selling should be starting to complete a 5 waves sequence. Is that A or 1 … if A, then a rally should occur followed by more selling and then a BUY. If 1 then we have, potentially, a lot more downside to come.
I do not know or care which it is ….1 or A. Just looking for a pattern.
Also, doing a monthly log below to look for key trend line support or breaks.
In July, we noticed this pattern completing. Yes, we went 3 points thru but the RATIO held and popped big time today. Watch the median line shown below on the XLP/QQQ and see if price goes thru the line then the sell off could continue.
so, the NASDAQ looks unstoppable … we have sell patterns on the DOW, the S&P, the NYSE Index but the NASDAQ is moving into new territory and it sure looks like finishing/close to finishing a 5 wave sequence. So, why not do the XLP / NASDAQ? Honestly, I don’t know why I haven’t done this one before. I’ve always looked at the NYSE Index or the S&P versus the XLP. One would think that the high flyer would show tendencies to pivot UP or DOWN based on risk on/off mindset by the institutions, right?
so, here’s the XLP / NASDAQ and it paints a nice picture.
note the AB=Cd pattern that is completing and showing a bullish hammer as of this past Friday’s close.
RSI – been pegged at the lowest levels since 2000 and has finally showed some bullish divergence.
we are BELOW the .786 retracement BUT we are not at new all time lows (vice the NASDAQ that is all all time highs)
there is another level for targets lower (.886 retracement and 1.618 extension) if this level gives away …
XLP/NASDA w/ the NASDAQ overlaid and INVERTED
NOTE – EVERY major pivot higher/lower has been at a pivot of this ratio .
Folks … don’t get complacent as there is a very large probability that the next move – across the board – is down.
11/04/2018 – back on June 09, 2018 we saw this – almost – perfect pattern hit support. it’s the ratio of XLP / S&P 500 – we use ratio analysis to look for ‘risk on’ or ‘risk off’ mindset from the big dudes. in times of ‘risk on’ the ratio will go down as the big dudes / dudettes are not in defensive names (like staples) and when the ‘risk off’ mindset is present then the ratio will go up. i.e. the XLP is ‘outperforming’ from a relative strength perspective. the ratio completed a harmonic BUY pattern back in June and it took another 4 months before the market topped. one could conceivably say the rotation occurred in the summer. I’m posting the updated chart below … try and follow the bouncing ball of CONFIRMING indicators that the ratio was bottoming ….
where are we now? as you can see on the daily below we were DEFINITELY being warned w/ another near perfect BUY pattern on the ratio 10/04/2018. it exploded higher … I see a little more consolidation/ corrective form in the ratio an then another move higher to complete an inner 5 wave sequence. that’s when the ‘real’ pattern emerges. I DO NOT KNOW, yet, if this is an Elliott A-B-C corrective move (bullish for stocks) or a 1,2,3,4,5 wave sequence that foreshadows the ratio going higher (bearish for stocks) … were just going to have to chill and wait to see what unfolds.
here’s the ratio ‘dates’ on top of the S&P 500 cash. again, somewhat in no mans land as we wait for the next BUY or SELL pattern to emerge. But, in the end, believe the ratio gave us ample time to position our portfolios accordingly – either the bear or bull you are. I’m neither … just a pattern recognition dude using some crayons to draw cool pictures and patterns.
there is a different look/feel to the XLP / SPX versus the XLP / NYA. If you look at the chart below, you’ll see we did a pretty tight consolidation from 2011-2016 in the XLP / SPX. It’s a ‘perfect’ sell pattern at “C” that complete and then the ratio fell out of the sky.
i’m curious at the lack of follow thru w/ regards to the S&P 500 (not making new highs like Russell, NASDAQ, etc) so I decided to take a look at this ratio instead of NYSE as the denominator.
as you can see we have some key observations:
take the time to study ‘past’ retracements as ‘sometimes’ the same ratio/vibration (remember that’s all it is – vibration) is present. In this case we have the .707 retracement level present at the high and now here at the lows
Square Root of 2= 1.4142
1/1.4142 = .707
the harmonic 1.27 is present in that 1.27*AB = CD
square root = 1.27
note the blue measured move arrow from the XLP inception in 1998 is present in this correction
the MONTHLY RSI is at the lowest level since the inception of the XLP and this ratio of XLP/SPX
THE TIME OF THE CORRECTIVE MOVES OF THE RATIO ARE EQUAL
what am i trying to get at? nothing more than I’m very cautious of any further up move in the markets (for now) .. .historically, when the XLP starts to perform it signals a ‘risk off mindset’ of the big institutions and volatility starts to rise …
while I DO NOT think the bull market is over by any stretch, I do think that another move lower is in tune (note the music reference :)) w/ the form, balance and proportion we are used to seeing from a corrective nature.
11/10/2018 – overall, our key 75-76 level was hit and has caused the sell off. take a look at the charts below …
some critical developments:
the XLE/NYSE Index ratio has hit a perfect BUY PATTERN so expecting the energy complex to bounce/hold/consolidate as this level holds. IF IT FAILS then the sell off will be pretty immense. So watch t his level.
on the Crude, anytime you have a .382 and .618 (.382+.618 = 1) present that should act as important S or R. In this case SUPPORT. we have some polarity present also so ‘expect’ a bounce in Crude … will update accordingly.
also, note the correlation between crude and HYG. (High Yield Bond ETF) … perhaps the carnage in Crude will stop at support levels indicated which ‘should’ keep HYG at bay (if the correlation is still holding) but if Crude busts thru then that support cliff for HYG should give away and then it will get very interesting
also, put the oldie but goodie of the HIGH on crude on my birthday and the subsequent low to show some geometry at work and the fact that long term charts can certainly help .. .a famous quote “there is nothing new under the sun.”
06/03/2018 – sorry that i didn’t send out the charts below via my blog .. honestly, I think I just forgot and then went on some travel …big thing here is we hit an important high a week or so ago based on TIME so this could be a very important top in crude.
honestly not sure if we have completed a 4 ( if YES we have BIG MOVE COMING lower) or an end to a bullish bounce and we are correcting to buy ..
either way, this should do it for crude for a while at least. will be watching and, again, apologize for not blogging earlier.
as an FYI, the charts are real time they were just sent out via email …
I like Ratio Analysis … I also like to work w/ the patterns on these charts.
If you have been reading my blog for a while, you know that I ‘try’ (the operative word) to not read, watch or listen to any ‘other’ financial news commentary. Yes, there are people that I follow and am very interested in what they see/say (most are the same as me) but I can tell you that NONE of the people I follow or read are fundamental analysts. Not that they don’t do good work (they do) I’m just not smart enough to understand the information they put out. For me – it’s much easier to use crayons, some geometry and PRICE and TIME and PATTERNS to try to manage risk. The ‘why’ and the ‘blah blah’, again to me, is just noise.
so ratio analysis:
X/Y – if the chart goes up then X is stronger.
X/Y – if the chart goes down then Y is stronger.
X = XLK (technology = risk on) the Y = XLP (staples = risk off)
XLK/XLP – going up w/ strength. the big guys (institutions) aren’t showing a ‘risk off’ mindset. the XLK/XLP ratio move up is the LARGEST SINCE THE LOW OF 2002.
So, for me, while we might shuck and jive and perry left, perry right until we have a monthly bearish signal reversal candle I can’t join the camp of the sky is falling and all that jazz.