Inverse Correlation Of The HUI & S&P500 Indexes
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The Holy Bible states seven years of feast are generally followed by seven years of famine (Genesis 41:54). Applying the gospel to the stock markets, a 7-year cycle is quite apparent…one sees that there is indeed a 7-year boon period (where HUI & S&P500 Indexes are moving in DIRECT correlation with one another; which is followed by 7-years of INVERSE correlation with each other).
This translates to 7-years of boon generally followed by 7-years of bust for stocks. This begs the question: Is there any evidence of this cycle in recent financial history? You be the judge!
A mind galvanizing chart...clearly showing a cycle of 7-years of strict inverse correlation between HUI and S&P500 indexes (1996-2003):
(Source: A 2003 article by Nate_33)
Looking at this chart of the HUI versus the S&P500, one can plainly see that the major trend of the HUI tends to be the inverse of the broad stocks market. The HUI has formed a giant "V", while the S&P500 formed a giant upside down "V". My theory is that although Precious Metals are fundamentally the anti-thesis of the stock market, all types of stocks are driven primarily by liquidity factors; and tend to move together over the short term.
The chart below is mind-boggling:
Associate this chart with another mind-boggling chart…that of the current RECORD NYSE MARGIN DEBT…and all-time record levels:
It forces one to conclude that the (presently) looming Wall Street Stock Crash may well fuel the HUI Index 3-4 times higher than it is today. We’re talking HUI soaring to 900 to 1200 in the next 2-3 years. Moreover, we may count on the US Fed to pump up the money supply in the interim, which will facilitate the parabolic rise of gold and silver stocks.
Record NYSE Margin Debt is the catalyst that drives investors from the S&P500 to the HUI Index
Dow Jones Industrial Average Warning:
Margin Debt Hits Record-High $401 Billion (November 7th, 2013)
Essentially, higher margin debt means the risks to the downside are increasing. While the equities market doesn’t necessarily have to sell off tomorrow, when it does happen, a higher level of borrowing will mean a faster descent.
This record level of margin debt is indeed a warning sign. Because the equities market has been pushed up by this additional flow of funds, any sign that investor sentiment is shifting will lead to a pullback in margin debt, and this leads to selling pressure in the equities market.
If these investors had adequate capital, they wouldn’t be borrowing money to put in the equities market. So when we see data showing a pullback among the investors who are the most leveraged, this will lead to large selling pressure.
But because the equities market is at such high levels with a record margin debt, this combination along with the shift in investor sentiment could lead to a significant and dramatic sell-off.
While timing the market is impossible from simply looking at margin debt, it is an additional warning sign. The record level of margin debt is an indication to me that we are closer to the end of this run in the equities market than the beginning.
A raging bear stock market looms on the horizon Protect your family by not being caught by this ravaging bear. Take shelter in various forms of precious metal investments with a view of preserving your family’s wealth.
Consider also the current state of investor sentiment as reflected in Citigroup’s Panic/Euphoria Model. The indicator is currently reflecting a state of “euphoria,” as defined by Citigroup’s methodology. The indicator correctly predicted the previous pullbacks of February, May-June and August. It must be emphasized that the Panic/Euphoria sentiment indicator cannot pinpoint a market top with any precision. Rather, it should be viewed as a “heads up” indicator to prepare us for a potential market juncture in the near future. (Source: Clif Droke)
Bears Watching…to be sure the pun is apropos!!!
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