Just listened to a great interview on the Market Huddle podcast feat. Michael A. Gayed from the Lead / Lag report. Great interview!
So one of his leading indicators discussed was the LBS/GLD ratio and it actually correlates quite well. Although it predicted the 2018 Christmas crash much more distinctly (with a slight trend break down to the trend line false positive in early 2018), but with each major trend breakdown or breakout it 100% confirmed SPY continuation. As for the most recent indication for the March crash, there was a quick gap down in LBS/GLD ratio during the consolidation triangle (indicated exhaustion), even though it didn't formally break until a 10% drop in the SPY.
Scary thing is what's happening now. Bounce to near recent highs, then either a breakout or consolidation into a cup and handle. That likely means we're going to correct again down for some consolidation (as a 3 touch breakout in this formation is typically a little too aggressive). Target is in the 13's, which would put the SPY somewhere between the stratosphere and moon.
@barry-goodknight, Wow, a tip, thank you! I greatly appreciate it. It seems when LB/GLD gaps, the market follows. I'm 100% going heavy the next time it happens.
Electrified
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I don't think Lumber:Gold ratio is a usable indicator. See my post.
sparrow_hawk_737
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It is pretty bad when considering other signals are far better at signalling risk-on/off (market breadth indicators, VIX futures curve shape, etc.).
TMoneyBidness
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@sparrow_hawk_737, If you listen to the Market Huddle, it makes sense. It provides a pretty decent signal plus confluence. I like it, personally.
sparrow_hawk_737
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@TMoneyBidness, I've known Michael Gayed's Lumer/Gold paper since it was written. The problem is the indicator is very slow (on the order of months). I have personally traded leveraged ETFs for the past decade after retiring and cannot rely on such slow indicators, hence why I use VIX futures curve and a combination of market breadth indicators (McClellan Oscillator, Advance/Decline line, BPNYA, etc.) that give real-time signals of risk-on/risk-off. Using gold/lumber would NOT have helped you during the February 2020 sell-off, whereas as a simple understanding of VIX futures backwardation would have gotten you out on February 21st 2020.
TMoneyBidness
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@sparrow_hawk_737, Amazing. Thank you for that insight. I'm just about to launch my upgraded trading rig- I'd love to chat with you about your approach and modelling that. I considering myself pretty decent at TA and price action, so maybe I can deep dive into some charts for you to make it worth your time? Anyway, keep it up and I'm really happy you get to focus full-time on trading (or, as much time as you want to put in! That's the dream!)