Is the Dow Forked? (Updated Gold-Eagle Version)
Gary Tanashian
When doing technical analysis, I take into consideration event-driven data points as they usually include extreme emotion, which puts a figurative exclamation point on the chart reference. Continuing our recent theme of "big picture" monthly charts, we see the Dow from event #1 (crash of '87) to #2 (major bull market top) through #3 (cyclical bear market bottom) and on to the current and ongoing inflation rally. This is a somewhat pathetic picture of the mighty Dow clinging to life (with "life" defined as the ability/willingness of the bond market, global carry trades, foreign creditors and various automated black boxes to keep the liquidity coming). Those bears who have not yet been blown up may see a chart like this and take heart.

Then there is the S&P 500. Nope, nothing wrong here although the SPX is approaching major resistance from the 2000 top. It is worth noting that the healthier looking SPX (from a risk/reward standpoint) is more broadly representative of the US economy than the narrow Dow 30.

So what conclusions are to be drawn from the above? None really. This is just another view of a market that demands successful investors and traders be tuned to all time frames and possibilities. My view remains that the markets remain in high risk territory. A look at the weekly VIX chart supports the idea that stocks are running on borrowed (pun intended) time and that risk vs. reward is way out of whack. VIX has snuck out of the falling wedge and thus far held support.

Of course, the majority of the financial services apparatus led by the Wall Street fife and drum corps, will keep marching bullishly forward until one day the picture changes and the herd is forced to do what it always does; sell low.

Added on 11/27 per the request of I.M. Vronsky at Gold-Eagle; here we see the Dow (weekly view) curling away from that lower tine of the fork. Note that the VIX got nice and unruly today as well.

Lest anyone think any of the above matters for anything more than a good play in the casino, we again present the Dow-Gold ratio (I never tire of this one) to put the real big picture into perspective.

Thanks IMV for prompting me to take this analysis a bit further!


Gary Tanashian

www.biiwii.com
gary@biiwii.com

27 November 2006

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