This is the NDX-SPX ratio on a monthly view…what has caught my eye on this chart is the StochRSI (bottom graph) has issued a SELL SIGNAL for January 2010…it has begun descending below 0.8 which is where the early sell signal comes from…can it reverse? Sure, but many times on this indicator, once the signal flashes, it moves quickly toward the oversold zone (below 0.2).
Many hedge funds and mutual funds follow the NDX-SPX ratio..if the ratio is rising, they are bullish, because they believe that TECH leads most bull markets….and they get bearish when the NDX is dropping faster than the SPX.
As I say, the RATIO has flashed an EARLY SELL signal for this month! This needs to be watched closely and all longs should exercise extra caution for awhile.
How accurate is this signal? Well, notice that the StochRSI called the top of the last bull market in October 2007…and it said to sell again in summer of 2008…only two months before AIG and Lehman collapsed. (It also issued an early buy signal in December 2008- and January-2009 that was a bit premature, although on a long term scale such as a monthly view, the StochRSI call turned out to be the correct one and any bulls who held steadfast on the early signal would have made up their losses and had big gains in 2009!)
Great new report on the growing debt bombs around the world from FORBES…incidentally, my home state of Illinois is ranked worse in the nation…even worse than California.
Other interesting points are that Europe and Japan’s potential debt bombs are worse than ours….something I have long insisted with the gold bugs…it’s not to say we won’t all go under eventually, but if you read the comments from many gold bugs, it’s as if the US is all alone in this storm…not so!