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Saturday, December 12, 2009

THE "BIG MONEY" IS ALWAYS MADE HERE


The past 12 months of trading in crude oil is why we urge all readers to become connoisseurs of extremes...

Back in December 2008, we noticed a little-known indicator had turned bullish on crude oil. This indicator is the "gold/oil ratio."

Gold and oil are both widely traded commodities... and they respond similarly to inflationary pressures and investor sentiment. But occasionally, gold and crude get extremely out of whack. These extremes present trading opportunities. We highlighted such an "extreme" opportunity last Christmas, when oil became incredibly cheap relative to gold.

Right after, crude staged a huge rally from $38 per barrel to $73. Then, in late June, we noticed the crude rally had returned the gold/oil ratio to a normal level. We even said "the easy, early money" had been made in oil.

Today's chart shows this prediction was right on. Since reaching the mid-$70 area in June, crude has drifted sideways. It staged a small breakout in October, only to fall back down toward $70. It's a perfect example of how you make the easiest, biggest money at the extremes. From there, it's a hard dollar, baby.

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