THE HAnDbook of TECHnICAl AnAlysIsSelect Sector SPDR ratio. We see the 200‐day moving average providing resistance
to the RS line.
Figure 24.15 illustrates the 200‐day moving average providing resistance to
the RS line of the Dow Jones CBN China 600 Index/CRB Index ratio. We also
see the moving average convergence‐divergence (MACD) oscillator working very
effectively in identifying potential reversal in the RS line, via the testing of its
historical overextended upper threshold. It is important to note that we cannot
refer to this overextension as an overbought level since we have no reference to
the actual chart of the Jones CBN China 600 Index and hence no indication as to
whether the index itself is declining or rising.
Figure 24.16 illustrates the use of chart patterns on the RS line of the Gold/
Silver ratio. We observe a clear breakout to the downside from an ascending tri-
angle that occurred slightly before the double moving average crossover, signaling
a significant underperformance in gold with respect to silver. The double moving
average crossover subsequently signaled a change in the direction of the RS line
in October of 2011. We also see the RS line reacting twice at the 61.8 percent Fi-
bonacci level. The RS line is also seen to be contained by an uptrending channel.
Finally, apex reaction analysis forecasted a strong reversal in the RS line at the
time line associated with the apex of the ascending triangle.
Figure 24.17 illustrates the RS line of Apple Inc./Dow Jones Industrials Aver-
age ratio finding support and resistance on the 50‐day moving average.
Figure 24.18 shows an RS line being plotted on a Point‐and‐Figure ratio chart
of Apple Inc. / Google Inc. Notice the RS line finding support at the bullish sup-
port trendlines.
Figure 24.19 illustrates the use of performance charts to indicate the inverse
relationship between the S&P 500 and the 30‐year bond price.
figure 24.14 Double Moving Average Crossover Identifying the RS Line Trend.
Source: StockCharts.com