The reason we use ratio charts is two fold. One is the obvious which is to measure relative performance. The second is less obvious. When we use gold as the denominator (XXX:$GOLD), we are measuring performance not in dollars but in ounces of gold. The reason to do this is to take the FED and money printing out of the picture. If we assume gold is a form of money that cannot be printed and preserves its purchasing power, then the ratio charts give us a picture of the thing we measure in real terms (not just nominal dollar terms).

So while SPX is 80% up since March 09 bottom in nominal dollar terms, in real terms (translate as purchasing power terms), it is just re-testing the same level, and that shows how bad the economy really is.

Now as for these charts, the H&S patterns in copper and oil are predicting much lower commodity prices, and if Dr. Copper is a leading indicator of the economy, then god help us.

The DOW and SPX are just re-testing their major support (actually a little undercutting them) which corresponds to March 09 lows. If they bounce from here, (and technically they should since this is major support), SPX and DOW should go up, or gold should really come down (which does not look very likely).

Then after that, they could either go back to re-test the broken support of a couple of weeks ago (and if gold keeps going up, that would probably mean new highs for SPX and DOW - the inflationary scenario), or they would come down and break this support (which is most probably the deflationary scenario).

In any case, the ratio charts, like everything else are extremely oversold and should put in at least a short term bounce.

The safe approach here for investing (since we are not sure of which scenario) is 1/3 gold, 1/3 cash and 1/3 play money.

Good luck everyone.

P.s. incidentally, if you measure real estate in nominal terms, we are in the 1999-2002 price range. But if you measure it in real terms- in ounces of gold, not only we have gone below 1990 and 1980 lows, but we are equivalent of home prices of the 1930's (at least on a per sqft pricing), and that argues that real estate may not be such a bad investment - specially if you can get a fixed long term mortgage to purchase it.

Much of what you see has to do with the math. If there is steady increase (day after day), then the 2X goes up at an accelerating rate. If there is a steady decrease, then the 2X drop rate decelerates.

If there are a lot of fluctuations, then the decay rate is more pronounced.

This table shows a steady increase/decrease of 10% per day and 20% for the 2X. If you study the math, it becomes obvious.