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Thursday, May 19, 2011

Is the Gold/Copper Ratio Predicting A Drop In the S&P?

People are always talking about the silver/gold ratio—but the copper/gold ratio seems to be much more predictive of market trends.

My friend Michael Hampton has this very interesting chart—check it out.

The top chart is a ratio of copper-to-gold prices. The bottom chart is of the S&P index. If you notice the timeline, you’ll see the chart covers the last three years.

The red circle 1 is when the copper/gold ratio turned down—followed shortly by a turn down in the S&P index which [sarcasm alert] we all have such fond memories of. The subsequent green circle in the ratio—the bottom of the ratio—came shortly before the uptick in the S&P from its bottom of 666.37.

Similarly, red circle 2—the downturn in the copper/gold ratio—signaled the top of the market in the S&P. However, the subsequent green circle anticipated the bottom of the S&P by about six weeks.

Now, at red circle 3, there is a clear break down in the ratio.

Does this signal a break down in the S&P? (read more)