Monday, May 09, 2005 9:22:27 PM
John Murphy’s Ratio Chart Quiz
I’ll post the dissection on my Trade Journal as soon as I’m out of this appointment. But before it gets too late for you guys on the other coast, here’s something that I’d like to share with my fellow chartists.
This was the chart John Murphy used today in making his case for Healthcare sector.
This is the excerpt from his explanation.
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Chart 3 (the chart as shown) puts that upturn into better perspective and helps us to draw some conclusions about the defensive qualities of healthcare. The weekly bars show the bull market in the S&P that started in October 2002. The green line is the relative strength ratio of the Healthcare SPDR (XLV) divided by the S&P. Notice their inverse correlation. The upturn in the S&P in the first quarter of 2003 started a two-year period of underperformance by healthcare. That's perfectly consistent with the tendency for defensive groups to underperform when the market is rising. A rising market favors offensive stock groups (like technology) and ignores defensive groups (like healthcare). To the bottom right of Chart 3, however, the ratio has broken its two-year down trendline. That tells us two things. The market has turned defensive. And healthcare stocks are back in favor. Let's go back even further in time.
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These are 3 of the charts that I’ve created for your reference. Can anyone see what’s wrong with using John Murphy’s ratio?
I’ll post the dissection on my Trade Journal as soon as I’m out of this appointment. But before it gets too late for you guys on the other coast, here’s something that I’d like to share with my fellow chartists.
This was the chart John Murphy used today in making his case for Healthcare sector.
This is the excerpt from his explanation.
==========================
Chart 3 (the chart as shown) puts that upturn into better perspective and helps us to draw some conclusions about the defensive qualities of healthcare. The weekly bars show the bull market in the S&P that started in October 2002. The green line is the relative strength ratio of the Healthcare SPDR (XLV) divided by the S&P. Notice their inverse correlation. The upturn in the S&P in the first quarter of 2003 started a two-year period of underperformance by healthcare. That's perfectly consistent with the tendency for defensive groups to underperform when the market is rising. A rising market favors offensive stock groups (like technology) and ignores defensive groups (like healthcare). To the bottom right of Chart 3, however, the ratio has broken its two-year down trendline. That tells us two things. The market has turned defensive. And healthcare stocks are back in favor. Let's go back even further in time.
===============================
These are 3 of the charts that I’ve created for your reference. Can anyone see what’s wrong with using John Murphy’s ratio?
David
#board-3693
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