Welcome to EV's point and figures. This blog is dedicated to the use of point and figure charts in technical analysis.

Although P&F first appeared in charts in the 1930's, it is an often overlooked techique for analysing stocks and charts. A poor relation compared to line and bar charts and their range of momentum indicators. Yet few charts provide a clearer picture of the daily battle between bulls and bears for market control.

Like most methods, it should not be used in isolation. It should form part of an analysts 'tool box' and be used with other techniques to help form an overall view.

The charts that appear on this blog and any accompanying comments are purely for information purposes only - my own personal take on where the prices may be heading. They do not constitute investment advice.

Wednesday, September 28, 2011

Dow/Gold relationship

We often read about how the Dow peaked in 'nominal terms' back in 1999 and how since then in 'real terms' (if priced in gold for example), it has been a lost decade for the Dow. I guess its a valid point to a degree but one must not lose sight of the fact that we can 'price relative' anything we want to.

Anyway, post the recent decline in gold, this relationship appears to have put in a bottom, even if it proves to be temporary.

On this 10x3 P&F it can be seen that the ratio found some resistance at the 640 level (0r 6.4 based on the candle chart) - on no less than four occasions, but that has now been taken out, giving two targets to the upside of 780 and 750 (note the current 200 day mva on the candle chart is 7.9 (or 790 in the context of this P&F). So if this target is to be met, we can assume that one of the following will happen:

- The Dow will rise and gold will fall/stay unchanged

- Both will rise but the Dow will rise faster than gold

- Both will fall but the Dow will fall less than gold

Take your pick!

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