This graphic from Chart of the Day illustrates that when the Dow Jones Average is measured in gold, the recent bull market doesn’t look so impressive. The numbers on the side of the chart are the number of ounces of gold it would take to buy the Dow. The Dow closed at 13,215 last night. Gold was at $679 per ounce. 13,215 / 679 = 19.5 ounces to buy the Dow. A lot of the current stock market run up has really just been the dollar falling (inflation).
We’re at the top of the downtrend channel. It may continue up through, but I’m banking on a bounce with the Dow heading lower and gold heading higher.
I personally think too much weight is put on the Dow. It’s only 30 stocks - not very indicative of the market as a whole, and it’s price weighted which bothers me. A company can split it’s stock price at will, so one stock’s share price is not a measure of anything relative to another stock’s share price. Companies that don’t split have a disproportionate effect on the average, and that makes no sense. I do compare the Dow to the Russell 3000 to judge whether large companies or small companies are in favor, but I watch the S&P 500 and the Nasdaq much more closely.
The New York Times has a similar set of graphics comparing the S&P to lots of different measures. They’re saying the same thing. The S&P looks good when measured in Yen, but that’s because the Japanese have been purposely devaluing their currency even faster than the US has.
My positions: 97% cash, but some small positions that will get much bigger if I see some confirmation: short US Dollar, long gold, short QQQQ.
