“Over the past three years,” he says, “the price of oil and the index have had an average ratio of 0.21. Currently, it’s 0.26. That may not seem like a big difference, but today’s ratio represents a three-year high and is a 3.13 standard deviation event.”
“This means the divergence between oil and oil stocks is in ‘extreme territory’ and, under normal assumptions, there is a 99% probability that the gap will close.”
“Either the price of oil should come down or oil stocks go up, or a combination of both.”
“Gold and gold stocks are also experiencing extraordinary circumstances,” Mr. Holmes goes on.
Gold stocks spent most of the last three years outpacing bullion... a trend that’s reversed big-time in recent months.
“The price of bullion and the NYSE Arca Gold Miners Index (GDM) have had a three-year average ratio of 0.94,” Frank explains. “Similar to oil and oil stocks, the ratio is now 1.28, a 3.06 standard deviation event.”
Or in layman’s terms, a buying opportunity...