Ratio
Introduction to Relative Strength or Ratio 1-1This is part one of a series on relative strength ratios.
Part One:
Relative Strength Ratio (RS) analysis is used to compare one markets performance with that of another. The RS line provides a direct comparison of strength or weakness relative to the another. RS analysis is particularly useful for active institutional managers who are judged relative to a benchmark as opposed to individual investors who are constrained by producing an absolute return. But understanding ratios opens a world of spread or pairs trading and provides valuable insight into the market environment. To be clear, the relative strength ratio has nothing to do with Welles Wilders Relative Strength Index (RSI). RSI is a momentum oscillator designed to evaluate a single security as opposed to a ratio comparing one security to another.
Using ratio analysis, bonds can be compared to equities, commodities to bonds, domestic equities to global equities, gold to copper, country to country, currency to currency, industry sector to industry sector, specific companies or sectors to broader indices, country to country and even individual equities. Choices of pairs are extensive. Importantly, once charted, the RS line can be analyzed as any other security. Support and resistance, channels, and momentum indicators can all be applied to the RS line. With literally thousands of securities to be compared the limits of RS analysis is only limited by the imagination of the analyst. The analyst does need to be careful. There needs to be a clear and intuitive economic linkage between the two securities before setting up ratio charts. There can also be issues when two securities, despite having a clear linkage, have a dynamic third variable such as currency translation or large differences in duration such as the LQD/HYG example that we will cover in future parts.
Relative Strength is calculated by dividing one security's price by a second security's price (the "base" security). The result of this division is the ratio, or relationship, between the two securities. When the RS line is rising, the numerator (top) security is outperforming the denominator (bottom) security. When the numerator security is falling, the numerator is underperforming the denominator security. If the RS is moving laterally, there is no performance advantage to either the numerator or denominator.
When looking at spreads I mostly prefer to use the ratio rather than the net price difference between two markets. Using ratios allows the analyst to make comparisons between markets priced in different units. For instance, Oil and Gold or cotton and the CRB. One exception to this would be when directly comparing one ratio to another ratio. In this case both ratios need to be normalized to a common starting value (I use 100) to adjust for large differences in numerators that could skew the RS line higher or lower relative to the RS line.
I find ratios most useful over longer time perspectives for business and economic insight. However, many traders/investors use them in shorter time perspectives as they create spread trades or aggressively switch between sectors. When I was actively trading bond/note futures I used extremes and technical analysis of the RS line on the hourly chart to help manage my curve trades.
In this series we will explore the construction of relative strength ratios, their best use, and make technical evaluations of several ratios and what that analysis implies.
And finally, many of the topics and techniques discussed in this post are part of the CMT Associations Chartered Market Technician’s curriculum.
Good Trading:
Stewart Taylor, CMT
Chartered Market Technician
Taylor Financial Communications
Shared content and posted charts are intended to be used for informational and educational purposes only. The CMT Association does not offer, and this information shall not be understood or construed as, financial advice or investment recommendations. The information provided is not a substitute for advice from an investment professional. The CMT Association does not accept liability for any financial loss or damage our audience may incur.
GOLDSILVER RATIO, Moving In Downtrend-Channel, More To Come! Hello, Traders Investors And Community, welcome to this analysis about the gold-silver ratio, its current price-action, and what we can expect the next time. In my observation, I found some significantly sings in the chart which will affect the ratio fundamentally farther the next days and weeks. The goldsilver ratio is an important ratio to track the number of silver ounces compared to one ounce gold, therefore, it is providing important information about the value between silver and gold. I made already the analysis of gold and silver, if you didn't saw these already I recommend to you that you go to my account and have looked to have a full-depth-overview of the analysis in the gold-silver ratio and its interrelation to gold and silver.
When looking at my chart you can see that the ratio is trading in a huge and fundamental downtrend-channel which you see marked in blue. We already touched the channel lower and upper boundary several times to form the overall downtrend-related channel. At the moment the ratio fell down from an important support-point at the 109 level, you can see this big red candle to the downside with high volatility it is suggesting that the ratio is turning to the downside here and that we will continue in the downtrend-channel until important support has reached.
The next time we can expect a bounce back to the 109 support/resistance level where the likelihood increases that the downtrend continues when the huge heavy bearish-confluence-cluster zone you can see in my chart is confirmed. We have several resistances there which building the logical resistance-level, first it is the 50-EMA which you see marked in blue, second, it is the 109 support/resistance level and third, it is the upper boundary of the falling downtrend-channel, therefore, I don't expect a breakout of the channel here so far and the rise to the downside will continue.
In this situation it has to keep in mind that the worth fullness of silver compared to gold rises, this is insightful because at the moment we see more volatility to the upside and sharp rises in silver than in gold, it also means that the value of silver can increase higher and gold gets cheaper compared to silver which is an indication for the bullishness I mentioned already in the silver-analysis. Investors and traders can take advantage of it when the ratio drops more to buy silver instead of gold or to exchange the gold for silver for a later exchange back when the ratio increases again. This should be a good opportunity to make a profit out of the situation with gold and silver.
Alright, this should give you a good overview, thanks to everybody for watching, support for more market insight, and all the best!
The ambition to transform opportunity into gold remains the most significant tool for a trader.
In this manner: FAREWELL
Information provided is only educational and should not be used to take action in the markets.
Platinum is ready for a pushWhile long term us yields have been rising heavily, we saw harsh drops on the precious metals including OANDA:XAUUSD , OANDA:XAGUSD and $OANDA:XPTUSD. Platinum has started show reversal movements. The price formed a double bottom and breaking the middle point. RSI also shows the bullish divergence.
Additionally, the ratio between platinum and gold also formed a double bottom, and it breaks through the down trend as well. This is a good sign for all the precious metals. If we look at the previous ratio, platinum is ultra cheap compared to gold. If we are entering the super cyle era for precious metals, platinum is going to be the star of the show.
Disclaimer – WhaleGambit. Please be reminded – you alone are responsible for your trading – both gains and losses. There is a very high degree of risk involved in trading. The technical analysis , like all indicators, strategies, columns, articles and other features accessible on/though this site is for informational purposes only and should not be construed as investment advice by you. Your use of the technical analysis , as would also your use of all mentioned indicators, strategies, columns, articles and all other features, is entirely at your own risk and it is your sole responsibility to evaluate the accuracy, completeness and usefulness (including suitability) of the information. You should assess the risk of any trade with your financial adviser and make your own independent decision(s) regarding any tradable products which may be the subject matter of the technical analysis or any of the said indicators, strategies, columns, articles and all other features.
PUT CALL BUY SIGNAL is been given The chart posted is the 5 ,10 and 20 day p/c model The green flag is up this should lead to the final rally of 2023 to peak on or about sept 10 th target is 4666 ideal but from 4631 to 4731 will be there I will exit ALL LONGS THIS IS THE LAST WAVE UP . I then see the break down which should be rather steep and prolonged in a very deep recession as the deflationary cycle is and will be clear based on my work in money velocity . The consumer will be contracting and spending habits will drop very fast due to the paying back of student debt and housing deflation in the rent markets .
🟩 Smaller stocks are showing valueThe small caps are getting to levels when they show value based on earning yields nad based on relative strenghts.
These are the levels we saw before when the Russell 1000 started outperform the Russell 2000. Hence this is showing a potential broadening of the rally and give confidence to traders to not stick to the Mega Caps (FAANGS).
Rather, this is showing traders, that as long as stocks setup, you can stay synced with the theme.
TVC:RUT and TVC:RUI
I now have a PUT/CALL SELLThe chart posted is that of the p/c model last week I said I had a BUY signal and to which I was given so much grief from traders It was spot on and all alt targets met and the 17 day shift from 2018 called for the peak on or about july 17 .I now have moved to a net short looking for a very sharp drop or worst into aug 25th I am net long march and feb in the money puts in QQQ and SMH . best of trades WAVETIMER
Historical ratio between Gold and SilverThe historical ratio between gold and silver , also known as the Au/Ag ratio, expresses how many ounces of silver are required to purchase one ounce of gold. This ratio is watched by investors and analysts as an indicator of the mutual value of these two precious metals.
The historical ratio of gold to silver has moved in different ranges over time. Historically, the ratio has ranged from 15:1 (15 ounces of silver to one ounce of gold) to 100:1 (100 ounces of silver to one ounce of gold).
The price of gold and silver varies and can change depending on various factors such as demand, supply, economic conditions and geopolitical events. These factors can also influence mining companies' decisions about which metal to mine and invest in.
Factors affecting the ratio:
1. Gold is more precious than silver. The total amount of gold mined is much less than the amount of silver mined. This causes gold to be in supply and more rare, leading to a higher price.
2. Gold mining and processing is more difficult and expensive compared to silver. Mining requires special technologies and equipment, which increases the cost of obtaining it.
3. Gold is seen as a traditional reserve of value and protection against inflation. It has a long history as a store of value. Silver is also considered a valuable metal, but its value is more influenced by industrial use.
It is important to remember that when deciding whether to invest in gold or silver, you should not only have favorable price ratios, but also other factors such as your investment objectives, risk profile, price status of both metals and current market conditions.
100:50:100 RatioHere at the top, the pattern broadens to R3 (100%)...starting a 100:50:100 (R3:Pivot:S3) algorithm ratio pattern. When the price pulls back from the disjointed window channel, it should bull to a higher R3 because of the ratio signals with the horizontal events. If the price confirms on S3, be long term bullish!
Copper :Short Term DOWN/MID TERM LONGMID TERM LONG
The price of copper has made some headway after falling to its lowest level since November 2020 on 15 July 2022. The metal started 2023 at $3.84 and has risen 6.7% to trade at around $4.10 as of the time of writing on 14 April, although base metal prices have retreated significantly since the record highs seen in March last year.
Metals markets remain highly volatile in the face of macroeconomic pressures. The price of copper came under particular pressure last year due to fears of a global recession, weaker demand from Chinese manufacturing giants and China’s zero-Covid policy, a higher US dollar, and a mass sell-off on the London Metal Exchange (LME).
Over the closing months of 2022, however, the metal began to recover as investors once again flocked to cyclical metals in response to a lower USD and rising prospects for a reopening in China.
Copper retreats from record highs
The price trend of copper was choppy at the start of the year, as pandemic-related lockdowns across several regions in China raised concerns about a slowdown in economic growth just as industrial production had ramped up following the Lunar New Year holiday.
Manufacturing plants in Changchun suspended operations and construction work was halted in Shanghai, reducing consumption in the world’s largest copper market.
At the end of February, traders weighed the impact of the Russia-Ukraine conflict on commodities and stockpiled industrial metals. On rising demand and tightening supply, prices for copper – as well as aluminium, tin and zinc – reached record highs in March.
The COMEX copper price chart shows that the metal climbed by 130% from the March 2020 low at the start of Covid-19 lockdowns to trade up to HKEX:5 a pound in early March 2022.
In addition to the recovery in demand after the pandemic, there are several long-term demand trends that have been supportive to copper.
The transition to clean energy requires larger quantities of copper, which is used for wiring in electric vehicles (EVs) and solar panels. Higher crude oil and gas prices are raising operational costs for copper producers, but also accelerating the energy transition and in turn increasing copper demand.
The pandemic also saw a boom in demand for manufactured goods, including electronics and household appliances, as consumers turned to home entertainment and home improvement during lockdowns.
What’s more, while demand has climbed, output from copper mines has not kept pace, tightening the supply balance.
Aggressive interest rate rises by central banks, including the US Federal Reserve (Fed), to tackle 40-year-high inflation have increased concerns among traders that the global economy could be facing a hard landing.
At its 31 January – 1 February policy meeting, the Fed opted to moderate the pace of rate hikes, lifting its benchmark overnight interest rate by a quarter of a percentage point to the 4.50%-4.75% range.
Goldman Sachs and Bank of America recently said they expect the US Federal Reserve to raise interest rates three more times this year, lifting their estimates after data pointed to persistent inflation and a resilient labor market.
"In light of the stronger growth and firmer inflation news, we are adding a 25bp (basis points) rate hike in June to our Fed forecast, for a peak funds rate of 5.25%-5.5%," Goldman Sachs economists led by Jan Hatzius said in a note dated Thursday.
The Caixin Manufacturing Purchasing Managers’ Index (PMI) for China edged up to to 49.2 in January 2023 from a three-month low of 49.0 in December, coming in below market forecasts of 49.5. However, the reading marked the sixth straight month of declining factory activity, amid sluggish operations after an abrupt shift in COVID policy.
Output fell the least in 5 months while a fall in new orders eased. Buying levels dropped at the slowest pace in 3 months; while foreign demand remained weak, falling for the sixth month.
“The pandemic continued to take a toll on the economy in January,” said Dr Wang Zhe, an economist at Caixin Insight Group. “Supply and demand weakened, overseas demand was sluggish, employment declined, and logistics hadn’t fully recovered, while the quantity of purchases shrank, inventories dropped, and manufacturers faced growing pressure on profitability. But optimism in the sector continued to improve as businesses expected a post-Covid economic recovery.”
Zhe added:
"Since Covid controls were optimized at the end of 2022, China has seen a surge in Covid infections. According to the Chinese Center for Disease Control and Prevention, the numbers of fever clinic visits nationwide and people hospitalized with Covid peaked in late December and early January, respectively, and have declined since then."
"After being hit by the latest wave of Covid infections, the primary focus of economic work should be on accelerating economic recovery and promoting normalized production and social orders. Improving expectations, restoring confidence, increasing income, expanding consumption, and stimulating domestic demand will be among the priorities. There is still uncertainty in how the pandemic will develop, so full preparation should be made to deal with the next wave of the virus. China will still need to effectively coordinate pandemic containment with economic and social development."
In the most recent Caixin China General Manufacturing PMI press release, the report highlighted the impact of Covid restrictions on the manufacturing sector, stressing that market optimism was at it highest in close to two years:
"The return to more normal business operations, and hopes that the economy and new business will rebound, helped to lift business confidence at the start of the year. Notably, the degree of optimism was the highest recorded since April 2021."
In the latest copper news, LME on-warrant copper stocks have fallen the most since 8 December, according to data from the exchange cited by ING Group's Warren Patterson and Ewa Manthey. On-warrant stockpiles fell by 7.5% to 51,800 tonnes, with declines coming from warehouses in Germany and the Netherlands.
First Quantum will suspend copper ore processing at its Panama mine on 23 February, according to a report from Reuters, due to limited storage capacity at the site. The Maritime Authority of Panama banned loading copper at Cobre Panama’s port over a certification issue in December last year. The mine accounts for 1.5% of global copper production.
Investors are continuing to monitor the extent of improved Chinese purchasing after the country’s economic reopening, as new home sales grew for a third straight week in 16 major cities. Industrial demand is also expected to pick up as the government is set to announce further stimulus measures at its National People’s Congress in March. On the supply side, a series of production and export disruptions by major producers in South and Central America compounded concerns about low inventories in the US and Europe, adding to worries that copper markets could be heading into a severe deficit.
The metal was trading at around $4.15 per pound as of 21 February 2023, down from its record high of $4.27 on 26 January and tracking the increase in other base metals amid persistent supply concerns and strong demand expectations. It is also worth noting the market remains well above the March 2020 low of $2.17.
The copper price history shows the market has been trending higher since 2018, turning around an extended decline that started in 2010.
What is the long-term copper outlook? Do analysts expect prices to rise or fall? We look at some of the latest copper price forecasts and analysis below.
Copper price forecast: Should you buy, hold or sell?
On 21 February 2022, analysis of copper on the Comex exchange in the US by brokerage Zaner was hesitant to show a bullish forecast for the short-term price trend of copper:
“Despite a risk off vibe in financial and many physical commodities markets this morning, the copper market has extended last week's sharp recovery move and nearly tested the February high. While the COT report has been suspended due to hacking, the last spec positioning report showed a relatively low net long with the market currently sitting $0.05 below the level where that positioning was last measured. Apparently, the copper trade is unconcerned about the buildup of Chinese domestic physical supply and has also seen signs that China continues to utilize scrap copper to produce cathode rods. In fact, Bloomberg overnight indicated that domestic copper stocks inside China added 4500 metric tons over the weekend. However, the current copper trade is willing to discount the 2023 trend of higher Shanghai copper stocks and even higher regional copper inventories in China."
"Initially March copper has found resistance at $4.20, but the market from last week's lows has gained $0.22 and has managed those gains in the face of distinct supply building inside China. If it were not for the risk off sentiment and looming rate hike threats from the US, we would be more upbeat toward near-term copper price action. Nonetheless, the strength of the market looks to lift prices above $4.20 and consolidate with resistance seen at $4.30."
Capital.com analyst Piero Cingari highlighted the metal’s price dependence on the situation in China in his copper price outlook for 2023:
“Copper’s chances of hitting the $4.00 zone and shattering it increase the sooner China announces an economic openness. $4.62 might be an intriguing bullish target for the first half of 2023, as it would represent a 78.6% retracement of the range of 2022.
“If the scenario doesn’t play out as expected and copper retraces to the downside, the $3.50–$3.58 support area, if reached, may likely reinstate bull buying action on dips. Copper traded at these levels when Chinese authorities first announced efforts to ease Covid restrictions in November."
“A fall to $3.50 or below would signal a complete reversal of Chinese authorities’ attempts to unlock the economy and a broader dollar surge on the basis of fresh hawkish fears from the Fed, and thus a retest of such levels seems to have fewer probabilities at this time.”
In a comment to Mining.com, independent consultant Robin Bhar said: “There’s high-level data showing that things are beginning to stir in China, but when it comes to infrastructure and construction, it will take a bit more time. There’s good dip buying around to support the underside. People are taking the opportunity to build longs, whether tactically as we go into Q2 or strategically because of the green energy transition.”
Saxo Bank Head of Commodity Strategy Ole Hansen recently told CNBC that industrial metals such as copper, aluminum and lithium would undoubtedly benefit from the “enormous political capital” being invested in achieving the “green transformation.”
“The new geopolitical environment will mean a massive boost for the European defence industry which should see double-digit growth rates close to 20 percent per year over the next economic cycle as the European continent doubles its military spending in percentage of GDP."
Hansen added that the metal's strong start to the year – copper futures have gained close to 10% year-to-date – are due to “technical and speculative traders frontrunning an expected pickup in demand from China in the coming months”.
“Once the initial rally is over, the hard work begins to support those gains, with an underlying rise in physical demand needed to sustain the rally, not least considering the prospect of increased supply in 2023 as several projects go live.
“Overall we see copper settle into a $3.75 to $4.75 range during the coming months before eventually breaking higher to reach a new record sometime during the second half.”
Analysis by Trading Economics also leaned towards the bearish side on the future price, expecting copper to trade at $3.96 a pound by the end of the current quarter and $3.70 in 12 months’ time.
Algorithm-based forecasting site Wallet Investor was more positive regarding the longer-term market outlook, predicting the price could rise over the coming years. The website’s copper price forecast for 2023 estimated that the price could reach $4.162 by the end of the year, while its copper price forecast for 2025 suggested a copper price target of $4.985.
On 14 March 2023, analysts at Fitch Solutions revised up their forecasts, suggesting copper could average HKEX:8 ,800 a tonne in 2023 and HKEX:8 ,000 in 2024.
“Our increased copper assumptions for 2023-2025 reflect our expectation of a tight balance in the market. China’s re-opening will support growing short-term demand as China accounts for 55% of global refined copper consumption. Medium- and long-term demand for copper is supported by the energy transition. Still, mine underperformance in Chile, political protests in Peru and recent issues in the smelting sector may constrain copper supply.” they said.
Analysts at Canada’s TD Securities see the potential for further downside, writing in a copper price analysis: “Timing a market squeeze is an art, particularly amid poor liquidity conditions. Under the crushing weight of a collapse in commodity demand, copper prices have slashed through every support level.”
In its October 2022 commodities forecast, the World Bank expected prices to decline over the next few years, from £8,700 a tonne in 2022 to HKEX:7 ,300 in 2023 and HKEX:7 ,361 in 2024.
Citi previously predicted in its copper price forecast for 2030 that the metal could trade at HKEX:10 ,756 a tonne by the end of the decade, with a bull case of HKEX:14 ,341 and a bear case of HKEX:8 ,963.
When considering any market predictions, it’s important to keep in mind that commodity prices are highly volatile, making it difficult to accurately predict where prices will be at any given time in the future. You should always do your own research.
Remember that past performance is no guarantee of future returns, and never invest any money that you cannot afford to lose.
BTC to Gold ratio is a consistent indicatorI did this chart in November 2021 and expected a black swan event but the market ended doing a slow painful decent in a downward channel . However, the ratio touched support at 9.64 as predicted and I expected the market to flip bullish afterward. But Sam Banksman Fried's shorting the market with FTX customer deposits to save his Ponzi dropped the market below support.
As a rule of thumb in crypto, all inorganic moves revert to their starting point. Such examples are the 2019's XI pump which reverted in a months’ time and the Trump pump which resulted in the covid black swan event.
So the FTX dump and manipulation spectacularly reverted with a Bart up and all bears waiting for 12k were decimated. The Bart up formed a fake out below key level with retest which is a very bullish pattern .
Currently the ratio broke out of its more than a yearlong descending channel with a retest followed by a strong bounce, breaking over the order block and range resistance at 13.87. The retest was confluent with the retest of the fake out below key level doubling the probability of an upward trend.
The descending channel measured move is at 20.53 which confluent with the descending channel midline and triple the 10 to 14 range. All these confluences indicate a high probability target.
I was in the past been able to predict the major bull run of 2020 with the BTC to gold ratio.
and that the 9.6k gap was internally closed by the CME and that price will no longer fall to close the gap.
The 20.53 ratio target will correspond to 51K if gold reaches 2500. The measured move the BTC falling wedge is at 48k which means that gold can reach 2.33k .
BTC to gold ratio is a good indicator because it highlights patterns that are not clear on the normal BTC price chart. Coupled with other analysis the BTC to gold ratio should give high probability predictions.
EURCHF:Fib retracement Trading strategyOANDA:EURCHF
Hi , Trader's ,EURCHF is continue in downtrend
After massive selloff market needs to cool down a bit
Price at major support level , and closing of price near current level , will assure of bear's rejection at support level
Market is oversold in many TF .
38.2% and 50% Fib Retracement target
❤️ Please, support my work with follow ,share and like, thank you! ❤️
IWM rejection at the 18 monthlyAlthough there is support for IWM between 182-1, I think the real target will be the combination of the monthly BB and 100 ma, around 158-156. Structural trendline (purple) looks right and it's no surprise it showed up at the 18ma exactly to regect the advance.
IWM divided by SPY is a bull flag, so I expect IWM to sell off much more than spy once it breaks out - which looks to me like it could happen this month.
Good luck!
SPY divided by AAPL ratio chartAs you can see on this ratio chart, we had a breakout and backtest with weekly bull divergence, which likely means AAPL will gain less value - or lose more value to SPY in the coming weeks. Since I expect the market to fall from this area, I also expect AAPL to outperform to the downside for a while. Earnings could pump it first - and if so, I think AAPL would be an ideal short near 150 if it could get there.
The monthly charts are also showing bull divergence on the RSI. First target would be about 3.40 area resistance.
PUT CALL SIGNALS 20DAY/10DAY Chart posted is that of the 20 day and 10 day put call signal we are reaching a level to be net long PUTS and SHORTING
Narrow Focus Delivers Greater ImpactFamous American Author Alfred Paul Ries once said, “Good things happen when you narrow your focus”. Global macro conditions and monetary environment could make that quote apt for US equity market investing too.
Given the backdrop of price behavior, this case study argues that a spread trade comprising of Long Dow Jones Index and short S&P 500 index provides a potential reward to risk of 1.01.
The charts above clearly point to the strong performance in Dow Jones Industrial Average Index (DJIA Index, a narrow market index comprising of 30 stocks) relative to the broader S&P 500 index (an index of 500 stocks).
SECTOR WEIGHTINGS
Based on sector weights as published by S&P Global on 31/Oct, the table below sets out the comparative analysis of the two indices.
Information Technology - DJIA: 19.5%, SPX: 26.3%, Difference: -6.8%, DJIA Significantly Underweight Information Technology
Health Care - DJIA: 22.2%, SPX: 15.3%, Difference: +6.9%, DJIA Significantly overweight Healthcare
Financials - DJIA: 16.2%, SPX: 11.4%, Difference: +4.8%, DJIA Overweight Financials
Consumer Discretionary - DJIA: 13.3%, SPX: 10.9%, Difference: +2.4%, DJIA Overweight Consumer Discretionary
Industrials - DJIA: 13.9%, SPX: 8.3%, Difference: +5.6%, DJIA Significantly Overweight Industrials
Communication Services - DJIA: 2.9%, SPX: 7.5%, Difference: -4.6%, DJIA Underweight Communication Services
Consumer Staples - DJIA: 7.5%, SPX: 6.9%, Difference: +0.6%, DJIA Overweight Consumer Staples
Energy - DJIA: 3.6%, SPX: 5.4%, Difference: -1.8%, DJIA Underweight Energy
Utilities - DJIA: 0%, SPX: 3%, Difference: -3%, DJIA Underweight Utilities
Real Estate - DJIA: 0%, SPX: 2.6%, Difference: -2.6%, DJIA Underweight Real Estate
Materials - DJIA: 0.9%, SPX: 2.5%, Difference: -1.6%, DJIA Underweight Materials
The DJIA has heavier weightage to Health Care, Financials, Consumer Discretionary, Industrials and Consumer Staples with underweight on Technology, Telecommunications, Utilities and Real Estate sectors.
We live in times of unprecedented pace of monetary conditions tightening with high interest-rate expected right through 2023 until policy pivots creating fears of looming recession and continuing geo-political conflicts.
Against such a backdrop, historically Financials and defensive sectors such as Consumer Staples, Industrials, and Health Care have outperformed rate-sensitive and growth sectors such as Technology, Real Estate and Telecommunications.
TECHNICAL ANALYSIS
The CME Micro E-mini Dow Jones Industrial Average Index futures ( MYMZ2022 ) completed a golden crossover (10d & 200d MA) on 9/Nov. A golden crossover is generally seen as a bullish signal of an uptrend. Furthermore, the MYMZ2022 closed above the R1 for the pivot indicator on 25/Nov. If this level holds, this price point could act as a support level.
RSI for MYMZ2022 exhibits an overbought market condition with RSI at 71.25 as of closing 25/Nov. The stochastic indicator also points to the market having overbought with a reading of 97.74. Notably, the stochastic indicator displayed an intersection on 8/Nov which points to a potential reversal in the uptrend.
Meanwhile, the MESZ2022 is currently trading below the long-term (200-day) moving average and has not had a golden crossover yet. MESZ2022 also failed to breach R1 of the standard pivot twice and closed below it on 25/Nov. The pivot R1 and the long-term moving average both point to strong resistance at this level. RSI was 61.86 as of 25/Nov. The stochastic indicator shows that MESZ2022 is overbought with a reading of 94.16. Notably, the stochastic indicator displayed an intersection with the 3-day SMA signaling a potential reversal in the uptrend.
According to Goldman Sach’s 2023 Equities Outlook, they expect equities to cool off from their current rally in 2023. This is supported by historical performance during similar economic conditions. Moreover, both DJIA and S&P500’s technical signals also point to them being overbought. This could mean a correction is due for both of them. However, the DJI stands on a much stronger footing, technically, as it finds support at the long-term MA that it intersected this month. As such, the Dow is expected to be more resilient than the S&P 500 during the impending correction.
COMMITMENT OF TRADERS’ REPORT
According to CME’s Commitment of Traders (COT) report, S&P 500 traders have established net long positions. Dealers had long OI of 17.4% compared to short OI of 16.1%. Asset Managers and institutional investors had a long OI of 40.3% compared to 22.1% short. By contrast, Dow futures had dealer/intermediary long OI of 35.3% compared to 16.3% short. While institutions were 22.3% long compared to 8.9% short.
Notably, leveraged positions for S&P 500 had 26.6% short OI against 6.5% long while DJI had a roughly balanced 22.3% for long and 21.4% for short.
Charting DJIA/SPX shows that the ratio rallied in October and broke through all the resistances for the pivot indicator. November saw the ratio cool off. Both RSI and Stochastic indicator cooled off during this and currently stands neutral. The stochastic indicator recently displayed a crossover which could indicate a reversal in the downtrend.
If the ascending channel highlighted below maintains, then a DJIA and SPX spread trade would be viable over the next few months. Take profit could be set as R1 and R2 of the pivot indicator. Stop loss could be set at the Pivot point. In the chart these levels have been adjusted by accounting for the 20-day historical volatility.
IF HISTORY IS ANY GUIDE
Analysing the ratio over the long-time frame we can see that the rally over the past month is not unexpected. The DJI/SPX ratio rallied during past instances of Quantitative Tightening as well. For instance, during 2018-19, with tightening monetary conditions, the ratio rallied to 9.363 compared to a low of 8.233 in 2016.
The ratio also spiked after the tightening in 2006-08 from a low of 8.447 to a high of 10.075. Also in 2000-01, from a low of 6.984 to 9.691. Considering that the Fed has hiked rates in an aggressive manner this time around, the rapid rise in this ratio is also not unexpected.
From past data, we can see that the ratio does not peak until the peak of the hiking cycle or a few months after that. From Fed statements we can see that although the pace of hikes is expected to slow, a pivot is not expected anytime soon.
TRADE SET UP
To establish market neutral spread trade at inception, a ratio of 7:6 lots (DJI:SPX) is required with a long position on 7 lots of DJI and a short position on 6 lots of SPX. The ratio of 7:6 ensures that the exposure to DJI and SPX is neutral with equivalent notional on each position.
As such, 7 lots of Micro E-mini Dow Jones Average Futures March Expiry ( MYMH3 ) will be required which have a required margin of $750 each for a total of $5,250. Each contract of MYMH3 provides exposure to $0.5 x Dow Jones Index. Six (6) lots of Micro E-mini S&P 500 Futures March Expiry ( MESH3 ) will be required which have a required margin of $750 each for a total of $6,360. Each contract of MESH3 provides exposure to $5 x S&P 500 Index.
After factoring in margin credits, the anticipated total margin required for this trade is $12,000. The total notional for the trade would $120,000 SPX spread against $119,689 on DJI based on prices as of closing on 25/Nov.
This case study suggests entering the spread trade at the current DJI/SPX ratio of 8.522 with a target ratio of 8.671. This would yield profit of $2,140.
Where the trade is held to second target of 8.806 it would yield a profit of $4,054. In case the trade goes sour and the ratio contracts, we would exit the trade at the level of 8.236 which would result in a loss of $4,026. This leads to a reward to risk ratio of 0.53 for the first target and 1.01 for the second target.
SPREAD TRADE MARGIN
CME offers margin credits for spread trades. Clearing brokers might charge differently from the Exchange imposed margins.
MARKET DATA
CME Real-time Market Data help identify trading set-ups and express market views better. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com
DISCLAIMER
Trade ideas cited above are for illustration only, as an integral part of a case study to demonstrate the fundamental concepts in risk management under the market scenarios being discussed. They shall not be construed as investment recommendations or advice. Nor are they used to promote any specific products, or services.
This material has been published for general education and circulation only. It does not offer or solicit to buy or sell and does not address specific investment or risk management objectives, financial situation, or particular needs of any person.
Advice should be sought from a financial advisor regarding the suitability of any investment or risk management product before investing or adopting any investment or hedging strategies. Past performance is not indicative of the future performance.
All examples used in this workshop are hypothetical and are used for explanation purposes only. Contents in this material is not investment advice and/or may or may not be the results of actual market experience.
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NASDAQ 100 Futures for the week 1/23 to 1/27If the market wants to keep a healthy bullish trend, the excess oversold disruption in box 1 should be reflected with price action in box 2, outside of the yellow box.
And if the level of prior high at 11727 holds as support upon retesting, we can set our target price at 12068.
But if the prior high cannot hold, the market is likely to range. By then, it's safer to wait for the price to break the ranging zone. Otherwise there are too many uncertainties when the market has no specific direction.
**Not Financial Advice**
The information contained in this article is not intended as, and should not be understood as financial advice. You should take independent financial advice from a professional who is aware of the facts and circumstances of your individual situation.
SPX: Butterfly, Bearish An example of Renko and Ratios...is it predictive?
It is also an Ascending Head and Shoulders Pattern forming.
equity to gdp at extremesquarterly momo is bearish in spy, and equity to gdp ratio is at or near a vertex, or local minimum. if you look at the volume based oscillations there is mixed indication. if you anchor vwap at the breakout level jan 2014 you can see were sitting right on the top band exploring the idea of a monthly higher low. if that breaks things like equity/gdp, market cap/gdp, the buffet indicator (aggregate value or price to share to gdp) will need to converge more bearishly on the price. if we confirm weekly trend reversal then ill be much more confident in an spx broader recovery and maybe all time highs, but if we head toward 52 week lows i expect equity over gdp to test 1999 highs, and spy to test corona highs. its not unthinkable that spy is at 500 soon, but its also not impossible that we see 300 first. this shows that valuations are completely detatched from fundamentals, and thats not necessarily bullish or bearish but instead shows why things have been unravelling for a little more than a year. im sure a lot of that is coronavirus, and im sure a lot of it is just prices trending toward equillibrium.
discretionary to staple spendimg has reached a zentithwe are at a point where the use of credit to purchase staples has outpaced the use of cash to purchase other goods. the expense of debt in discretionary goods has reached an inflection point with the expense of transaction in basic supplies. the chart is at a high. the sell signal is in. count on the cost of goods being relatively cheaper, and that being bad for sales. bearish for broader market.
Short-term plan for Nasdaq 100 FuturesPreparing 2 scenarios: one for long and the other for short.
Currently, the market is ranging mainly between 11180 and 10870.
If the price up breaks 11180 , we can expect our TP price to be at 11605.
On the way to our target price, we need to be aware of the level at 11490 and the downtrend line at the larger timescale that the levels could be potential resistances.
If the price down breaks 10870 , we can expect our TP price to be at 10556.
On the way to our target price, we need to be aware of the previous low at 10758 that could be a potential support.
**Not Financial Advice**
The information contained in this article is not intended as, and should not be understood as financial advice. You should take independent financial advice from a professional who is aware of the facts and circumstances of your individual situation.
APPL's TP price for the bears1. Price is trending within the down channel perfectly.
2. Purple color:
The price broke below the horizontal support of the ranging zone (0 to 1).
And using the 1:1 ratio strategy, TP price is expected at the next 100% level (level 2).
3. On the way to level 2, we may want to pay attention to level 1.5, where the level could be a horizontal support.
4. Orange color - another strategy to use in this scenario: Down "N" strategy:
Key move --> rebounce --> (following an N pattern)
After breaking the purple ranging zone 0 to 1 (the rebounce), the market would be highly likely to repeat the key movement (the orange force). Therefore, the bottom of the orange box could also be a strong support.
**Not Financial Advice**
The information contained in this article is not intended as, and should not be understood as financial advice. You should take independent financial advice from a professional who is aware of the facts and circumstances of your individual situation.
NASDAQ 100 Futures for the week 12/27 to 12/30If the price breaks the uptrend channel, the price action will generally follow the downtrend and keep going down.
And let’s use the 1:1 ratio strategy to find more details.
1. The price dropped from 0 to 1 and 2 in a perfect 1:1 ratio.
2. Level 2 could not stop the bears, and the price keeps dropping.
By the strategy's rules, if level 2 cannot hold, the price will be down another 100%, which is from 0 and 2 to 2 and 4.
Since the price never crosses above level 2, the market is still considered weak.
Therefore,
If the price is moving within level 2 and 3 and never breaks the uptrend channel, the market is more likely to do triangle ranging.
If the price drops below level 3, where the price will be below the uptrend channel, it may drop further to level 4 to fulfill a completed 1:1 move.
**Not Financial Advice**
The information contained in this article is not intended as, and should not be understood as financial advice. You should take independent financial advice from a professional who is aware of the facts and circumstances of your individual situation.
