Sir John Templeton used to say that the four most dangerous words in investing are: “It’s Different This Time.”
Investors may want to keep a close eye on the SMH:S&P 500 ratio to see if the results will be different this time. This chart looks at the ratio between the two over the past 5 years, which traded sideways for nearly two years (2014-2016) before breaking out at (1). When the ratio broke out in 2016, the S&P 500 soon experienced a strong rally.
Turning to the current conditions, the ratio has traded sideways again for nearly the past two years as it tests the top of the range at (2).
Stock bulls would love to see a breakout at (2). But they'd receive negative news if the ratio peaks again at the top of this range.
If the ratio succeeds in breaking above the top of the range/resistance, will the results be different this time?
What that ratio does from now till year-end should send an important signal to the broad markets.