NFTRH+; A Diamond in the Rough

Let’s start off by noting that many people do not think support, resistance and other common TA reference points are applicable to market ratios like the TSX-V/TSX ratio below. I happen to believe they are relevant, although subject to more noisy inputs than a nominal stock or index.

That said, the TSX-V/TSX ratio is in a Diamond consolidation pattern above support on the daily chart. A Diamond is thought to be a pause, but neither a continuation (in this case, upward) or a reversal pattern. It’s just a consolidation from which the thing is going to break one way or the other. By my eye it’s going to make that break very shortly and then maybe we’ll have a look at the coming near-term macro situation insofar as this ratio is an early indicator on the reflation/inflation trades or failure thereof.

On the weekly view we can see that a breakdown that loses support would really hurt the case for a near-term reflation and commodity rally. However, the ratio can still break upward without being set free into a real bull market. That is stern resistance up above. Not until that is clear should we become carefree commodity bulls. But when the day comes that it has been cleared the indication would be to strap in to good commodity, resources and global speculations that would benefit from US inflation and a weaker US dollar.

As you can see, aside from the Peak Oil hype bubble that drove CRB (orange line) out of whack (CRB is still playing downside catch-up) to the ratio, the two generally travel similar paths. That 2008 distortion may also mean there could be a significant lag between the time the ratio bulls for real and CRB bulls for real.