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1) Although downtrend line and heavy resistance in the Dow-Gold ratio (monthly chart) are within spitting distance, the relative strength in stocks continues unabated. This tells us not to expect a reversal of recent fortunes overnight. It also tells us that stocks are not likely to roll over and dramatically under-perform gold in the near to intermediate term. 2) The Gold-Oil ratio (monthly) is a different story, where the barbarous relic looks short-term bullish and relatively strong. This trend, if it continues, would help the bottom lines of gold miners, who are as energy dependant as a business can get. 3) The bond herd has received its wakeup call over the last several sessions in the form of the Fed's jawbone. 10 year yields have broken the recent downtrend, but the ratio between long and short rates is critical to asset allocation. The yield spread (daily) sits at resistance while continuing to bullishly diverge. 4) We never tire of presenting this little warning chart; the VIX (weekly). One by one the bears are capitulating as FrankenMarket staggers higher, while at the same time the VIX' status is unchanged; double bottom in '05 and a falling wedge down to support. It pays to remember that this game is about risk vs. reward and not trying to capture the last 5%. Smart money buys major bottoms from scared retail and at tops the opposite happens. Do you think stocks offer a good risk/reward profile now, regardless of whether or not they have higher to go in the near term? Relevant symbols to the above are DIA, GLD, SHY and IEF.

 

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