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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: nspolar who wrote (9725)	7/23/2008 3:19:02 PM
From: Terry Whitman	Read Replies (1) \| Respond to of 33421

I know that gold and oil correlate pretty well over the long term. Most commodities probably do likewise. In fact, I have spent considerable time determining how to profit from the periods where gold and oil become temporarily disconnected. The best method I could come up with is to track the ratio of derivative stock or ETFs, and compare it against a LT (1-2 yr) moving average with a +/- 1.5 standard deviation envelope. It seems the ratio always returns to the LT average, so one can profit from this disconnect by pairing a long and short position when you exceed the envelope. Back tests have shown that this works very well with gold v. oil stocks/funds. The major problem to overcome is psychological. The ratios can stay disconnected for many months- and it would no doubt try your patience and fortitude to hold fast until the ratio returns to the avg. Discipline is the key. Determining the timing is actually the easy part..