Thursday, February 21, 2013

think this market can't go higher?

we all know that the fed activity has obfuscated the real machinations of the market. but it is easy to lift the veil of confusion by looking at the dow/gold ratio. here's the picture:
dow/gold ratio since 2009
economists refer to dow/gold ratio charts when they want to subtract inflation from their charts over long periods of time. the principle here is that gold is a stable store of value and by putting the price of gold in the denominator i am valuing the dow in terms of gold. so currently one can buy a dow future for about 8.7 troy ounces of gold. 

if you are still waiting for the market to double-dip the 666 level of march 2009 then please resume breathing - it already occurred. when the s&p downgraded the us debt in august of 2011 the dow/gold made the second dip. the reason why the media didn't report this was that it was obscurred by the activity of the fomc injecting liquidity into the market.

historically, values of dow/gold below 10 represent lower, recessionary readings and we are just breaking into a new range above 8.2 the next resistance is 9 and if that breaks then 10 comes into the picture, which represents the upper bound of the recession, with the teens representing early good-times.

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