Chart Presentation: XOI/SPX

Below we start with a chart from 1990- 91. The chart compares the ratio of the Amex Oil Index (XOI) to the S&P 500 Index (SPX) to the stock price of Wells Fargo (WFC).

The 1990 bear market ran from July into October and was marked by rather intense weakness in the financials offset by ever more intense strength in oil prices. The oil sector peaked on a relative basis towards the end of September and then as energy prices started to decline the financials began to lift.

The chart below shows WFC and Citigroup (then called Citicorp). The quick point is that all financials are not created equally although over time they will tend to trend together. Another way of putting this might be to suggest that fundamentals really do matter as shown by the flat trend for C through 1991 even as WFC pushed steadily higher. Those financials with the greatest exposure to the subprime-related debacle will likely lag the markets for some time.

As for the current situation the XOI/SPX ratio certainly appears to be making a cycle peak although with crude oil prices rising steadily the outcome is anything but certain. We remain ever hopeful, of course.

Below are three charts of the biotech etf (BBH). The top chart shows the time period through 2003, the middle chart through 2005, and the lower chart is from the current time period.

Many sectors within the broad U.S. equity market have been in ‘bear markets’ for two or more years now and from time to time we have shown that the trends for the biotechs are quite similar to some of the Japanese-related themes evident in charts of Mitsubishi UFJ and Matsushita (MC).

In the current decade the biotechs have taken two major upwards runs. The first was in 2003 while the second began in 2005. Our intention today is to point out the tendency- coincident or not- for the biotechs to begin a rising trend around the month of March because… it is March and the biotechs seem to be strengthening.

From March of 2003 into the end of the third quarter the BBH rose by roughly 50% and then from March of 2005 into November the etf rose by close to the same percentage. The tentative push above the 200-day e.m.a. line this week suggests at least the potential for a rising price trend into this year’s final quarter that, if history were to repeat, could see the BBH move towards 250- 255.

Below we show two charts of Anheuser Busch (BUD). The chart below compares BUD to the Nasdaq from December of 1999 through June of 2000 while the chart below compares BUD to the gold etf (GLD) from November of 2007 to the present day.

The point is that in March of 2000 as well as March of 2008 there is an overwhelming cyclical trend that has been ‘sucking’ capital towards it from less robust sectors. BUD’s stock price slumped into the Nasdaq’s peak in 2000 and much the same thing has been happening early this year. If, as, or when the trend actually changes we would expect to see BUD swing back up through its moving average lines.