Using Ratio Charts to Gain an Edge

Today’s guest blogger comes from Gary of, a site that provides top notch analysis and commentary on stocks, currencies, commodities and bonds. I'm a frequent reader of the blog and HIGHLY encourage you to check out Gary's site for more analysis.


Long time readers of the blog know that I rely on ratio charts to the max. In fact, I find these ratios between different markets to be absolutely vital to being on the right side of the trade where macro themes are concerned. A recent example is the Dow/Gold ratio, which allowed me to navigate the oncoming - and entirely predictable - rally in stocks (both in nominal terms and in 'real' terms as measured in gold) that began in the fear filled days of March. Our April Letter from the main website, Reset/Recalibrate explained the process by which market sentiment needed to be reset. Here is the monthly ratio chart that was used in the letter:

Of interest now is the Gold/Oil Ratio, which appears to be in the bottoming process amid bullish divergence by RSI & MACD. This is an absolutely vital ratio to gold stock traders as oil is a major cost input to mining operations and with the likelihood of the ratio bottoming, gold miners' bottom lines stand to benefit as their product (gold) begins to outperform one of their major cost drivers (oil). Here is a current daily chart showing the status of the ratio. Gold, while having been pummeled in oil terms recently (along with nearly everything else), may well turn up from here in terms of crude:

I also routinely use the Gold/Silver Ratio to gauge general market confidence or lack thereof, along with more traditional sentiment indicators like the VIX and Put/Call Ratios. Other ratios which have appeared on the blog have included the S&P500/Nikkei Ratio, NDX/Dow and even SOX/NDX. All provide hints as to sentiment and/or macro-fundamentals and hence future market direction.

To summarize, you can trade any market but it is very important to be aware of the major trends and turning points between different markets and assets classes so that you may be aware of whether or not you are on the right side of the trade in the bigger picture. As traders and investors, we need every edge we can get.


Read more TA & Commentary by Gary at

9 thoughts on “Using Ratio Charts to Gain an Edge

  1. I like to learn anything related to the stock market. One question....What is Fair Value, and how is it used... Thanks...Mark

  2. Ed, do you use stops?
    I would think if I had bought and the price was higher than my entry I would just place a stop at or just below my entry, at least you will conserve your capital. You can always re-enter if it turns in your favour again.

  3. I almost forgot.....on 7/2 we got a daily green triangle,and on 7/3 we got a weekly green triangle.....this could be the start of a major trend up on DUG.

  4. In light of Don's comment on a potential top in might want to consider the DUG as a long.....look at a recent post I made on Wednesday of this week.Today's ATR for DUG is 1.54 and rising.....momentum is can use 1.54 as a stop-loss if the trade goes against you.

  5. It's great to see some members participating in this blog.....thx Don and Genie.....I was beginning to think that everyone expected Adam Hewison to do all the heavy lifting.There are some good minds at work on this blog,and there's no reason to believe that any other blog at there is any sharper at forecasting market moves than we are.I may disagree at times with other member's views on the market,but one thing for sure,when I'm wrong it's really helpful to have the other guy's correct view and to quickly change my train of thought,and move in the direction that works.Afterall, we are all here to make some money right?

    Spot gold is likely to respect support at $850. Upward breakout from the bullish falling wedge pattern would test resistance at $950 — and possibly $1000. In the longer term, breakout below $850 would signal a primary down-trend but, considering the weakness of the dollar and the strength of oil, this remains unlikely.

    The euro successfully tested primary support at $1.53, but the pattern remains bearish unless there is a breakout above $1.5850. A rally that fails to reach the resistance level would strengthen the bear signal. In the longer term, failure of support at $1.53 would test the rising trendline at $1.43, while breakout above $1.60 would offer a target of $1.67. Further consolidation between $1.60 and $1.53, however, remains the most likely option.

    The [R3] or the most extreme high trading range is 1.5692.
    The [R2] or the extreme high trading range is 1.5639.
    The [R1] or the high trading range is 1.5572.
    The [P] or pivot point is 1.5519.
    The [S1] or the low trading range is 1.5452.
    The [S2] or the extreme low trading range is 1.5399.
    The [S3] or the most extreme low trading range is 1.5332.

  7. I'm truly sorry to hear that ED.I'm a trader like yourself, so I know how it feels. This a tough market,we had a nice run-up and then it corrected,but the otherwise anticipated pullback is much sharper than longs would have liked.If all you have lost is profit, protect your trading capital at all costs this is bear territory now and nobody knows when it will end......consider staying in cash for regards.

  8. Four months of hard won gains...GONE!
    MarketClub was working nicely for me the last four months...I was truly impressed with overall portfolio gains of 15% in four months (that would equate to about 45% annual).

    Last two days, all those gains are gone and market club didn't help me out there. I'm thinking about putting my money in a high-yield savings account....heck at least I'll have 4% annual gains or so.

  9. Wow!! What a nice and detailed market analysis. My guess is that female trader did this analysis. This is why I think and many other traders , think that the Female traders are better traders than Male traders. I'm in a process of making free members site where we can get the correlation between the Female trader and Male traders. I think it would be interesting to see the difference between the traders.
    Coming soon.
    Thank you for a great post.

Comments are closed.