Looking at the last 10 years of Gold/TBonds (US Gov't 20 Year Bonds), you can see it has had quite a dramatic trend from very low at 0.44 to almost a quadruple of that at 1.66 in the span of 6 years. From the peak at 1.66 the ratio has fallen back down to 0.90 here at the end of 14 quarters. The first 7 quarters the ratio spent touching 1.30 and then the ratio has been falling for the past 7 quarters. The way to look at any trend is to examine the length of time it has been in a trend relative to the amount of time it spent consolidating prior to the trend. Often enough, this simple methodology I have found from hand-charting for more than 20 years is extremely useful.
Here's the basic rules to the methodology: 1. Let a trend occur. 2. Wait for a consolidation. 3. Count the # of time units that touch the most frequent price of the consolidation. 4. Once completely detached from the consolidation (an entire range above it) then count an equal amount of time in the next leg of the trend as the consolidation.
You can see I have labeled this chart accordingly and you can also see the methodology has done a decent job of locating the end of the move. It isn't perfect, but it isn't too bad.
You can also see that the current downtrend is running out of time and look for any pockets of strength to indicate a low-risk turn in this ratio back to the upside.
Tim 4:09PM Monday, January 12, 2015
Comments
timwest
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You might have noticed a higher consolidation that allowed for another quarterly advance - so here it is:
IvanLabrie
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Excellent insights, as usual Tim. Time at mode is a wonderful resource.