Extremes and manias

Take two assets and their relative prices: what happens when the entire investment community loves an asset and at the same time hates the other? You get extreme relative valuations.
These extremes are very difficult to be traded because in the short term they can get more extreme but in the long term they usually revert to a mean value.

Example number 1: SP500 ETF vs Gold Miners ETF
Today you need 11.3 GDX to get 1 SPY, two years ago you needed just 2 GDX to get one SPY. 

Restless buying of US blue chips and liquidation of gold miners is driving the SPY/GDX spread to the sky. The spread chart is indeed going parabolic.... Things can get even worse but in the long term when a group of stocks is so cheap compared to the rest usually a mean reversion take place.


Example number 2: SP500 ETF vs Russian stocks ETF
Today you need 10.5 RSX to get 1 SPY, three years ago you needed just 3 RSX to get one SPY. 

Restless buying of US blue chips and liquidation of Russian stocks is driving the SPY/RSX spread to the sky. The spread chart is indeed going parabolic.... Things can get even worse but in the long term when a country is so cheap compared to another usually a mean reversion take place. Today nobody wants to invest in Russia and everybody wants to hold US blue chips....in a couple of years maybe we will see the opposite mania...who knows. 

These spread are very volatile and very risky, stay away from them, they are just for the braves.
I am posting these charts only for my own reference (I want to take a look back at them in few months from now), it is not an investment advice, seriously normal investors should really stay away from this kind of spreads.
Have a great week-end!
  

Danger Zone

Credit not buying the stock market exuberance:


Investors "all in"....

If  most market participants are already "all in" betting on continuation of the rally into year's end, who is going to buy to sustain these lofty prices?
Volume is already contracting:


You can call this a danger zone....