) prints a negative divergence (a lower high) while the ratio prints a new high. All of these things have now again come to fruition.
Coincidence? Judge for yourself looking at the chart above.
What is clear is that the ratio broke its trend line in December for the first time since 2009. The 2 previous breaks marked the end of bull markets and brought about sizable bear markets. But note also that these bear markets experienced sizable bear market rallies first and I’ll use a chart of the Industrials ($XLI) here to illustrate the point:
The good news is that the 13 week cycle appears to have entered an up phase. And it did so before materially breaking the previous low. The bad news is that 9-12 month cycle indicators are showing no signs of strength early in this up phase. Here’s what it means, and a suggested trade.
It sends the same message as the CPI ratio chart: The war is already lost, no matter how desperate central banks are in attempting to re-inflate asset prices. The larger message I take away from this: Market strength is an opportunity to sell, especially considering that this rally remains untested, technically uncorrected and dovish central banks have now been fully priced in. But hey, perhaps it’s different this time. It has to be, otherwise the CPI ratio chart suggests new lows are coming.
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