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Ratios Revisited - Are You Listening?

Opening Whisper

Last week we looked at a few ratios that sometimes lead the markets higher and which might give us an indication that we are going to breakout to the upside. This week two of those ratios began to move and moved quickly.

1 Year - Russell 2000 / S&P 500 Relative Strength

The Russell 2000 / S&P 500 ratio has popped off of its 200 DMA but is still below the downtrend line. The MACD has apparently turned. With some more upside next week we may use this ratio as an input to influence a Buy signal. The $RUT lagged slightly behind the $NDX this week giving us some pause as to why the Russell was not fully on-board with this week's rally. We would like to see some more confirmation next week from the RUT before pulling the trigger.

Next we have our Semiconductor Holders / S&P 500 ratio which looked like it was falling off of the edge of the world last week. This week, we have seen a significant advance in this ratio.

1 Year - Semiconductor HLDRS / S&P 500 Relative Strength

Now if we had not been trend followers, we might have bought the market last week based on the dramatic sell-off in the above ratio. Sometimes bounces in this ratio are a little early, but perhaps this week was an exception. We have still not broken the uptrend lines in the MACD and down-trend line. A break above these lines on both would signal a buy.

And again this week, we will look at Financials Select Sector SPDRS (sym: XLF) relative strength ratio. The dramatic spike in this chart has ended in a small reversal this week. The stochastic of the ratio has now reached overbought and looks to pull back. However, overbought indications on this ratio do not necessarily correlate well with market sell-downs. This may be more about reduced financial sector profit expectations. How will this impact the overall market?

1 Yr Financial Sector Relative Strength

ML Listening Focus:

This week we re-visit the OEX chart from last week (below). Did we get the bounce that starts the year-end rally? Well, it is certainly looking like the $OEX is getting back in favor with the big cap buyers who must be receiving input consistent with our weekly model chart.

The S&P 100 (OEX) has been lagging the rest of the market indices including the broader S&P 500. For the expected year-end rally to materialize with any substance, we need the participation of the OEX.

This chart seems to be giving us the green light on the big caps. The only question now is how far will it take us? We don't care. Once the trend is established, the market will go where it wants and as far as overbought before it changes momentum.

6 Month Weekly - OEX

The large caps (sym: $OEX) are still in negative territory on the year but are trying desperately to get back to a profit. Has corporate profit acceleration begun to wane? Profit growth may still be good, but the RATE of growth may be in question going into 2006.

Has the market discounted all talk of future profits because it is on a quest for the Santa Claus rally?

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The NDX gained 4.55% this week in a rally which has taken it right back to the August 1 high of 1628. There will likely NOT be heavy resistance at this point, particularly if the SPX is rallying simultaneously. The NDX may have freedom to move up until SPX encounters some resistance at about 1240.


1 Year - NDX ZigZag Trend Compliance Chart 5%

The ZigZag chart of the NDX above has done ANOTHER u-turn and crushed our Sell signal of October 28. The MACD and stochastic gave us a fake-out last week and then this week pulled a short-covering rally out of the hat that may have let the Bull out of the gate for the rest of the year.

Our Trading System - What The Numbers Are Telling Us

(Comments on our Trading System are restricted to paid subscribers)

Gold Bugs Want to Know - What About Gold? - The dollar rallied and Newmont Mining moved lower by 3.5%. From a strictly technical analysis point of view, it appears that NEM must pull back some more and form a base before it can make another leg up. However, those of you who know the miners have seen them turn around quickly.

Below we have used our weekly model chart to analyze NEM. The MACD's and StochRSI look like they could have 4-6 more weeks before the downward momentum subsides and the MACD histograms are ready to turn up. But this is only based on recent cyclic trends. We would like to see the stochastic get below the oversold 20 level before the next rally leg. However, even though I don't like predicting and certainly make no claims about the effectiveness of Elliott Waves, the current weekly pattern seems to be in a 1-2-3-4 and is nearly ready for a 5 th wave up. If we sink below the 40.24 end point of wave 1, then the 4 wave count is toast and the 5 wave theory blows up.

1Year Daily - Newmont Mining / US Dollar Index Ratio

The Markets Are Whispering - Are You Listening?

ML Trader Results

Our Market Listener Trader YTD return in the hypothetical account is approximately + 23 % as of November 4. { The 6 mo. Return= 9.0%, 12 mo.= 39.2% }

Listen To What He Says

NASB 1 Chronicles 16:8-11 "Oh give thanks to the LORD, call upon His name; Make known His deeds among the peoples. Sing to Him, sing praises to Him; Speak of all His wonders. Glory in His holy name; Let the heart of those who seek the LORD be glad. Seek the LORD and His strength; Seek His face continually."

I am working on the art of listening and hope that you are also.

Best Profits,

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