Heavy Metals Sending A Warning To Economy, Markets
Via Dana Lyons’ Tumblr,
ZeroHedge.com
05/20/2016
The prices of industrial metals have dropped to a near-record low level relative to precious metals, a trend that has had larger negative consequences in the past.
It seems that one of the fads among market technicians recently is the utilization of “ratio’ charts. That is, the comparison of one one asset’s performance relative to another. But while these ratios can make for interesting conversation, their practical value is more questionable.
For one, it can be difficult, or impossible, to accurately construct and execute a real-world strategy based on them. Secondly, while the ratio line may have the appearance of a discernible pattern, it may still lack any instructive value if there is no reasonable relationship between the two assets being compared. For example, it may be that the ratio of soybean meal to Netflix stock has the appearance of a bottoming pattern. However, does that provide any thematic instruction at all? And what’s to say that the ratio of 2 completely unrelated assets isn’t totally random – and subject to change course on a dime and without notice?
That said, we do not think that the use of ratios is devoid of value totally. In fact, we have found a lot of value in selective ratios, as long as the assets bear at least some remote relation to each other. Plus, the cool thing is that technical analysis can at times be successfully employed on ratios, typically in the form of support, resistance and trendlines.
The Rest…HERE
