The chart below is monthly line chart that shows areas to buy and sell PM stocks. As you can see by looking to the far right hand side of the chart, that we are very close to getting a buy signal. A monthly close above 5.25 will generate the buy signal. We have already traded above the 5.25 area this month, to 5.44, which was above the buy line, so anyway you cut it this ratio chart is screaming the bottom is here or very close. The purple vertical line represents the beginning of our bull market that started toward the end of 2000. Since the start of our current bull market we have only had 3 buy signals with this last one being the 4th.
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I reversed the ratio on the next chart and added the HUI to the bottom to show where the buy signals came in, red vertical lines. I also added a 119 week time cycle as it seems to coincide with important bottoms. What is most interesting is where the HUI is sitting right now and how oversold the ratio is. Usually the ratio bottom comes in after a good solid correction and everyone is in a pessimistic state. This time we have barley corrected off of the all time highs but the ratio charts is signaling a whole lot of pessimism in the market. If the recent highs we put in were for real then the ratio chart would be at the top of the range not the bottom of the range. This tells me we have a very large move ahead of us to get to the over bought level and where the HUI will be when we get to the top of the ratio chart will be much higher than where we are presently.
All the best…Rambus
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