Posted by barkand on August 10, 2011 under Commodities, Relative strength | 
When the price of silver reached its orgasmic peak at $48.70 at the end of April, it required only31.5 ounces of silver to buy one ounce of gold. Based on current prices, you would now need 45 ounces of silver to pay for an ounce of gold.
The chart below plots the ratio of silver to gold. When the line is rising, it means silver is performing better; a falling line means gold is outperforming silver. Notice how the ratio has politely confined itself within its Bollinger bands since the Financial Crisis of 2008. At various times it has either hugged one of the bands for a period of months or has used the bands as a reversal point. Even the 20-week moving average has functioned well as a support or resistance point. With the 20-week average turning down and the lower band currently falling, we expect the ratio to at least go and kiss the lower band or even slide along it for some time.
Head-and-shoulders fans might even observe that the ratio recently broke a neckline formed by the lows in January and June.
When silver started its run last autumn, the ratio of gold to silver was roughly 62-to-1 and we feel it is possible that we will return to that ratio. It does not mean gold has to increase in value (which it has) or that silver must fall (which it has). It does mean that gold is the better horse to have in this race and a strategy of being long gold and short silver is preferred.
Posted by barkand on August 9, 2011 under Market sentiment |
Finally, some bearishness has hit the options market.
Yesterday, the put-call ratio on equities was 1.08 after going above .90 a couple times at the end of last week. This last happened back in June, and we noted here and here the significance of a number above 1.0.
So now, once again, the market seems primed for a rebound. But in a way we almost prefer to see another day (or two) with a put-call ratio above 1.o as that tends to produce stronger rallies. As it stands now, a 5% rally would take us all the way back to levels not seen since, uh, last Friday.
Posted by barkand on August 5, 2011 under Bollinger bands, Volatility |
The US stock market, and alot of markets, got whacked once again yesterday. The market is down more than 10% now just in the last two weeks and nearly half of the loss occurred yesterday. Because of it, %b fell to minus .27. It is only the 11th time since 1990 there has been a reading below minus .25.
So, first, what is %b?
%b is a derivative of Bollinger bands. It tells us where prices are relative to the lower and upper Bollinger bands. The lower band is set to a value of 0 and the upper band has a value of 1. The 20-day moving average is equal to 0.5. When we have a number of minus .27, or plus .27, it means the price has moved 27% beyond two standard deviations of the recent price range. Something which rarely happens. Interestingly, it never happened even once during the 2008-2009 financial meltown.
But now that it has happened, we are interested to predict what will happen next. We searched back to 1990, more than 20 years of data, and found ten other times when %b went lower than -.25. The accompanying table and chart illustrate what we can expect over the next two months (or 40 trading days).
In only one case did the market continue lower. Two other times, the market was basically flat. And in 7 out of 10 times, the market was notably higher with two month returns ranging from 4.4% to 19.4%.
Likewise, if we look only at the next day’s results we see two losers, two roughly flat days, and six gains of 0.5% or more.
So history is pointing us in the direction of a bounce from here, but it is not a slam dunk. You might notice that the worst results came from the most recent time %b fell below -.25 and the best results occurred 20 years ago.
Posted by barkand on August 3, 2011 under Classic chart patterns, Price trends |
Here’s a quickie:
NASDAQ may finally be shaking free of the downtrend from yesterday’s “high” – if you can call it that. It has been repeatedly tagging that downtrend line on the 5 minute chart. Next minor resistance would be the neckline from the small head-and-shoulders at the bottom.
Posted by barkand on August 2, 2011 under Price trends |
With the U.S. stock market wobbling to its 7th consecutive losing day, we did a quick check of the historical data for similar situations.
We found 26 previous instances since 1-1-2000 (not counting the recent turmoil) where the S&P500 was down at least 5 days in a row and was also below its 50-day moving average. The results are mildly positive, though not by as much as we expected. Looking one week ahead, the numbers do not excite us much. However, one month into the future the results are better. A 2-1 ratio of winning months to losers and an average and median return just short of 3%.
Posted by barkand on August 1, 2011 under Classic chart patterns |
Imperial Sugar(IPSU) has more than doubled since it made lows back in March. So now that prices have flattened out over the last several weeks, we have to wonder: is this a top or merely a base on the way to still higher prices?
In our opinion, IPSU has more to give us. The stock’s 20-day moving average held up well as support last week. That is especially impressive when you consider how poorly global equity markets had performed (thanks, Washington).
Recent trading volume also profiles as something more likely to be seen in a base rather than a top. First, you will notice that volume has dried up as the base developed. And the higher volume tends to come on “up” days. If this was a top, we would expect to see the opposite.
Short and sweet: we expect Imperial Sugar to give us at least one more rally.
