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Strategies & Market Trends : The Swamp
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From: ItsAllCyclical8/6/2008 11:22:52 PM
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Chart of Gold compared w/HUI/gold ratio long term

Fairly simple.

All previous tops during the 5 years corresponded w/important IT tops in HUI/gold ratio (Green areas). Whether they made a higher high wasn't as important as the expansion of the ratio during gold's rally higher AND an important IT top in both gold and the hui/gold ratio at the same time.

Blue lines are associated w/bottoms in HUI/gold ratio.

In the latest area of green there is no important expansion or top in the HUI/gold ratio. This rally was very unhealthy. Now I know that the longer the commodity rally the more likely that the underlying commodity will gain parity or even lead the stocks. But it's my contention that the HUI/gold ratio may NOT work as well as a bottoming indicator at this pt in the cycle as it has in the past. Instead it may be PREDICTIVE as it was in the early part of the cycle.

Rather than indicating a bottom it may be indicating that gold is about to get slammed big. This makes more sense when one looks at the small caps during the past year, the big caps of late and the odds of deflation hitting. The other possibility is that gold has pretty much bottomed right here. Might have a bit more downside, but that 850 is likely to hold. Again given the underlying stocks I don't buy it.

Draw your own conclusions. Again just one indicator among many.

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