Palladium/Gold Ratio on Verge of a Warning

You have your Elliott Wave twittlers and regular TA pattern gazers out there falling all over themselves to tell us whether the top-test in the stock market will be bullish or bearish. They and their nominal charts are guiding bullish and bearish depending on the views they are transfixed with.

But that is where TA is… not a black art, that sounds too complimentary; that is where TA is a hoax. Some guy reading lines, squiggles and nominal data points as he gleans deep meaning from his chart. He gets lucky sometimes and he err, revises sometimes. We all do; we TA dorks.

I implore less experienced readers not to let them/us bedazzle you with nominal charts, unless you are day trading and the TA in question is watching every squiggle. TA does help there, and it does help on longer time frames too. But it also falls on its face enough to be invalidated as a stand-alone investment strategy.

So when managing the markets I like to add in macro fundamental factors like the Gold/Silver ratio we checked out this morning. Along similar lines, let’s see what a cyclical metal is doing vs. a counter-cyclical one, the Palladium/Gold Ratio (PGR). The caveat is that I do not follow Palladium’s supply/demand funda so there is always the chance of something distorting this particular indicator (which is why we use… Beuller? Anyone? Yes, as many valid indicators as we can find to build out probabilities).

Daily PGR is in a distasteful pattern (ha ha ha… ) and is approaching what looks like a key level at .73. The stuff in the lower chart panels is all negative.

pall/gold ratio

Weekly PGR illustrates why the ratio would be important. Again, backing out supply/demand funda considerations, if the daily chart above fails and guides the weekly lower the chop & grind could eventually trigger the moving averages to another cyclical ‘sell’ signal.

Want to see another picture? In checks monthly PGR along with nominal Palladium and the S&P 500 on this chart from NFTRH‘s Market Internals segment. Both nominal Palladium and PGR are diverging the SPX, which definitely goes hand in hand with PGR’s cyclical signaling and is pretty well correlated with nominal Palladium as well.

pall/gold ratio

So, bulls can use their nominal charts all they want, but another beneath the surface indicator is flashing a warning. I don’t make them say what they say. I just read them.

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