Hello all,
I've told you before about the hedged short position I've had with DIA hedged by long CEF. My thought was that if the market was just going up with the money supply then the price of gold should rise with inflation so that the ratio would not rise while the Dow by itself might make new nominal highs.
I'm icluding the chart here for anyone's comments. I'm probably putting too much into this but here's my thinking:

The horizontal line at around 20.75 represents the spot where the down trend from 2000 would intersect this week. Several points I see here. There is a long downtrend about to intersect with a two year old up trend. There is a two year old ascending triangle. The lows in the RSI are getting higher. The downtrend in the stochastic has been broken while the up trend remains intact.
The only thing I see about this chart that is negative (from what I've learned from stockcharts) is the decreasing volatility and the decreasing money flow (which however is still positive). I've held this position for a long while and it's allowed me to hold a short position on the DIA where I would have been taken out at my stops without the long CEF positon. I'm thinking that a real breakout above 21, with a new high in the RSI would probably indicate that the market is climbing faster than would be accounted for just because of the inflationary money supply. As much as I think it "shouldn't" happen, I've learned from Larry to listen to the market even if I think it's wrong. I'd like your thoughts if you have any interest in this. Of course I'm hoping for a breakdown instead but the market's not taking my emails so I doubt they'll do what I want just because I want it.
h

Howard,

For some reason you can't post a chart from Stock Charts anymore. That's why I hven't done it in a really long time.

Larry

Howard,

Try to post the link to the graph you want us to see. If that doesn't work, tell us the parameters to plug in if we have to do it manually.

Thanks,
Steve

You know for the first two days it worked fine. I'd check the message and the graph would show up. Maybe it was cached on my system.
Anyway here's a link. This week didn't change much.
http://tinyurl.com/9wpqm
It's it's not active, cut and paste.
thanks,
h

Howard,

If the bottom line is that you want to be long gold and short stocks, as Smokey Robinson might say, I second that emotion.

Larry

Larry,
We're all thinking the same thing. But you taught me to look at it from the other guy's side of the trade. When I look at the chart from the bullish side I see some bullish signs and wonder if the ratio breaks out above 21 would that confirm the bullish argument.
I don't see how the market can sustain these prices much less go higher, but you taught me it doesn't matter what I can imagine. I need to listen to the market. So my question is: if the ratio breaks out, is the market telling me it sees real value in stocks and not just asset inflation and is that a sign that we should respect the bull more than we do now.
h

Howard,

It wouldn’t tell me that. But if that’s what it tells you then you need to go with it. All it would tell me is that the Dow went up in relation to the Central Fund of Canada. I do look at the Dow in relation to gold, but for a very different reason. I want to know if stocks are expensive or cheap in relation to gold. I think they’re expensive.

But your final point is well taken. We should respect the market. It’s just that we have different ways of doing that.

Larry

In fact, Howard, all you would have to do is subsitute CEF with $GOLD and you'll get a different looking picture. If you want to compare the Dow with gold, it seems like you would use the actual metal. It's been flat since 2003 when the stock market began its rally.

Larry

Larry,
I just sat here and said, "DUH!". Why didn't I think to look at the $indu:$gold?
Now that I did I see that this week actually sent a negative PSAR signal and like you said, esentially flat.
Thanks for the input,
h