Saturday, August 22, 2009

Ratio charts

One thing I like to do occasionally is to price things in $USD or $GOLD. It gives you a different perspective - sometimes one that is clearer because it dampens the effects of the dollar's fluctuations. Or something. Anyway, it's a valid tool in TA.

This chart of $SPX shows a significant resistance zone is fast approaching.



Same story for IYR. But look at the far left of the chart -- notice how it coiled underneath the line for a few weeks then gapped above. Shortly thereafter it put in its lifetime top.



Of course, the catch with ratio charts is that there are multiple ways to move the trend because there are two variables at play. So you technically you can't bank on the real price of $SPX dropping if it turns away from the resistance zone on this chart -- a strengthening $USD and a flat $SPX would produce the same result.

Cheers.

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