Commodity Stocks May Be Headed Lower

The chart above shows the $CRX index which represents the commodity stocks such as oil and metal.. The panel underneath it is a ratio chart of the $CRX divided by the $SPX. This ratio chart gives us some insight into the strength of one market vs another and has acted like a leading indicator. In October of 2005 it appeared that the $CRX was weak and selling off, but the ratio line diverged indicating higher prices might follow.. The same thing happened in June of 2005. Now we see the $CRX index testing the highs of the past 3 months but the ratio line is showing bearish divergnce. The stochastics are also in the sell zone and diverging.. This makes me cautious on the commodity stocks and indicates that a downmove is very possible.