Some of you may recall an interesting ratio chart that I examine from time to time: this is the cash index divided by the interest rate. Over the course of many years, it has followed a channel pattern with remarkable precision.
SPX/FR Ratio Chart
A few months ago, I was troubled by the fact that this ratio had traveled down to its midline, which strongly suggested support and, therefore, a strong equity market. Well, my fears have been fully realized, as this close-up view illustrates. However, take careful note of where the ratio price is now: right up against an important resistance line, which formerly provided the role of support.
SPX/FR Ratio Chart
Looking at the Fibonacci Retracement levels from this same recent peak-to-trough, you can see how we are approaching a major 38.2% resistance level as well (emphasized here with the darker blue line).
SPX/FR Ratio Chart
And just to drive the point home one similar way, below is as ratio chart of two similar instruments to the pair above: in this instance, it is the Invesco S&P 500® Equal Weight Technology ETF (NYSE:) and the iShares 7-10 Year Treasury Bond ETF (NASDAQ:). We can see a superb channel here also and, surprise, surprise, present price levels are mashed right up against resistance.
RYT/IEF Ratio Chart
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