The stock market is having an up week. Or is it? Normalized for purchasing power, it is flat in the short-term and down sharply in the intermediate term. The Dow-Gold ratio provides a truer indicator of the health of the stock market. And that indicator is flashing red. Take a look.
Long-term Dow-Gold is in a secular bear market
Denominated in gold, the stock market has been in a SUSTAINED bear market since 2000. Surprised? Take a look at the chart below and you will see that the DJIA never rallied meaningfully since the 2001 crash. The ratio has fallen from a high of 43.7 to currently about 8.
So what about this week?
The DJIA popped above 10,800 today. Feels like a rally, right? Wrong. Normalized for purchasing power, the DJIA is at best holding parity. The trend to a Dow-Gold of as low as 1 or 2 remains completely in tact as the Dow-Gold ratio hugs the 50-day moving average as you can see below. If the 50-day MA crosses the 200-day MA, I would reconsider. However until then, this looks like a secular bear market with more downside than upside of owning stocks.
On Monday, 9/27, I would expect a volatile day. Why? Monday is expiration day for options, notably options on precious metals which have moved decisively higher in the last month. Financial institutions that are materially on the short side of the trade will either have to engineer a pullback by Monday close of trading or settle a large tab. Stay tuned.
For an indicator of whether fiat currencies or real assets are winning, I would use silver bullion price as an indicator. It is harder to manipulate because it is an industrial metal and not substantially held in physical form by any central bank. And earlier this week, it just punched through to a 10 year high.
To see a higher number, you have to go all the way to 1980 when the Hunt Brothers attempted to corner the silver market.
At the Epik DevCon last week, I devoted an entire section to Domain Names as Asset Class in my opening presentation. The slides for that talk appear on Slideshow.com. You can view them here.