Dow, Dow-Gold Ratio & 'Junk' to 'Investment Grade' Debt Ratios

Dow Big Picture Status

Dialing out to the monthly view shows all appears to be well with the Dow. America’s most watched index held an important support level after faking a breakdown at the end of Q2. Also of note is that the Dow remains above our long-watched EMA 20, which supported the entire cyclical bull market (2003-2007).

On the bear side, there is the possible formation of an H&S top not unlike the one that confirmed into Armageddon ’08. Risk remains high for both bulls and bears until the Dow either declines below support and the downward sloping neck line or breaks to new highs for the recovery. In short, the Dow – along with many other markets – is not yet showing its hand. The scale in my biased view, tilts toward bearish however.

Dow-Gold Ratio

The DGR did however, show its hand when the upward recovery AKA bear flag AKA post-crash rebound known here as Hope ’09 failed and broke down out of the channel.  As with many other markets, the Dow is currently rising in relation to gold to test the breakdown. If DGR breaks up into the channel and breaks the resistive moving average, NFTRH will be forced to reconsider its stance. As yet however, no resolution and the current stance remains favored.

Junk Debt to ‘Investment Grade’ Debt Ratios

As frustrating as the market’s would-be topping process has been of late, bears will take negative divergence where they can find it. While nominal HYG (highly speculative junk debt) is at new highs, its ratio to the relative quality of investment grade corporate bonds (LQD) is flashing a non-confirmation as this is a sign of smarter (less dumb?) money slinking toward the sidelines of the speculation trade.

This ratio is a leading indicator and its lower low and status below resistance is considered a bearish divergence to the higher low and proximity above support of nominal HYG. In other words, the dumbest speculators appear to be taking HYG higher.

The above are a few of the important indicators included in this week's NFTRH.  We also took an extensive look at the gold stock sector, with a historical view of what does and does not constitute good buying opportunities in the sector.  Updated status, and implications of the gold-silver ratio and gold's consolidation vs. the euro and several other currencies was reviewed as well as the current state of the US dollar and long term treasury bonds, both important determinants of the probabilities for near term events with regard to the deflation/inflation debate.

Consider giving the newsletter a try on a monthly or annual basis.   I do not predict coming events, but tend to see the necessary signs well enough ahead of time to remain on the right side of the markets, which is our primary job as lowly market participants.