today, the ratio went and smacked right into an hourly pattern SELL (yellow highlight) and a 15 minute butterfly sell (light blue) …
when the ratio goes DOWN the market goes UP. pattern hit perfectly and the rally ensued …
now, it’s time to WATCH the next day or weeks action to see if this pattern fails and the sell off continues OR the ratio continues down causing sustained rally. I don’t recommend being LONG any indices right now as we are in a TIME and PRICE window that might prove significant.
note, on the monthly, looks like we will start the month closed below the key trend line from 2007. and he market accelerated upward.
that being said, we are approaching the “target zone” for a lot of math and I also want to call your attention to the monthly RSI and the support zone that its approaching …
I went back and checked .. the last two times it touched this low of a level in the past 15 years was 05/2018 which was part of a -40% ish correction and 07/2007 and we knew what happened during that time frame.
as you can see, the ratio hit this level, held and the market sold off for a couple days. the market strength the past week has been impressive and, with that, the ratio “failed” at the level indicated and, as you can see, we have a pretty big candle that is closing at the low, for now, so it sure looks like the pattern failed.
that being said, I’m not overtly bullish here, right now. note the key, dashed black line, trend line is approaching and then below that we have 3 ratio’s, an AB=CD (dashed black line) and the all important measured move from the 2003-2007 time frame. MAJOR SUPPORT for the ratio … also, of note, is the 14 period RSI is approaching a key support level …
could the market continue higher from here – of course – but there are some other sell patterns present on other indices so I’m just going to be flat/neutral here.
one last, note the TIME of the corrections .. on this leg up from 2007 the corrections (blue rectangle w/ ‘time’ written on top) has been nearly perfect and, if that is the case, then this current leg down, from a timing perspective isn’t ready, yet.
could we be at the start of a parabolic move higher? let’s wait and see what the “MAJOR support” level does before we get too far ahead of ourselves.
we have a very KEY level of support on the XLP/NYSE Index ratio.
as you can see below … we have the measured move (dashed red line) equal to the largest correction in the ratio since the low in 2007 and w/ that the lowest level on the RSI in 12+ years. note, a bullish divergence does not appear to be needed for the ratio to find support …sometimes there was some bullish divergence and other times it just hit the support level and reverse higher. I do think it’s necessary to to take this into account.
then, we have a significant amount of math coming into this level w/ the .786 retracement from the last swing low hit last week.
lastly, we have key trend line support a little lower … this is a “good” trend line because you can see that it was respected as resistance when we copy/pasted the lower trend line onto the higher prices to create the blue trend channel … bottom line is to expect support in the ratio.
so now to the IF and THEN statement of using PATTERNS.
IF the ratio does find support THEN the equity market should correspondingly correct/move lower. ELSE, a blow thru to the downside of the ratio will make the market continue higher and, perhaps, w/ force.
we will be in that key decision making process – next week.
the second chart is just showing the NYSE Index overlaid on top of the ratio .. as you can see when the ratio finds support, the market corrects – every time.