Friday, October 21, 2011

Double Dip - Over and Done

The much anticipated double-dip is over and done. You say you didn't hear the market crashing back down to 666!!? Well, it did but it was disguised by monetary policy. If you price the market in terms of a currency that is impervious to central bank interventions then you will see this. The currency I'm talking about is gold of course. The way to see this is to plot the ratio of the dow divided by the price of gold. Here's the plot I'm keeping watch on:
Dow/Gold Ratio
In the above PairRatio study I plot the dow futures (/YM) divided by gold futures (/GC) Note: In order to get the plot of the ratio it is necessary to enter the difference between the two futures so I've hidden the main-chart plot and just show the PairRatio study. I've drawn in the level of the infamous Mar 6, 2009 low of the ratio and as you can see the market dipped that level in August during the S&P downgrade fiasco. However, just today the market has recovered above the 09 low-level which is what has instigated me to declare the dip as over and done.

The channel is a linear regression channel that I drew from Sep 30 back to the 5.7 low and then extended to the right. The market has been respecting this channel remarkably well, wouldn't you say?

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