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

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The following is excerpted from NFTRH96 (August 8, 2010):

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.