Monday, February 3, 2014

Real Dow Jones Industrial Average Elliott Wave Count

Upon opening up a newspaper, or logging on to Yahoo Finance, one will find a quote for the Major Indexes  (Dow Jones Industrial Average, S&P 500, and Nasdaq). However, what most people do not understand is that these measures are not true measures of stock prices. They are nominal values only, which means they are not adjusted for inflation, or, put another way, they are not adjusted for FED currency debasement. The most honest measure of stock prices out there, is the Dow Jones Industrial Average priced in Gold. Gold's history as money goes back thousands of years, and it's not going away any time soon. Indeed, the United States was using Gold as its official money for quite a long time before the Federal Reserve system was established. Had society continued to value stocks and other assets in terms of Gold, we would be seeing a very different picture in the newspaper today. Instead, because of the massive credit inflation scheme of the past 100 years, and especially since Nixon completed severed the U.S. Dollar's link to Gold in 1971, and more recenlty since 2000, when the true bull market in valuations ended, people collectively have been valuing assets in terms of inflated Dollars, distorting the true valuation of companies' balance sheets, and thus their stock prices. What would the stock market look like today if we had stayed on honest money? Please see below a chart of the Dow Jones Industrial Average priced in ounces of Gold, with Elliott Wave labeling:

Should this Elliott Wave count be correct, the next leg of the bear market in real terms is upon us. The "Bull Market" from 2002-2007, was actually just a bear market rally, and hardly a bounce in the real valuation of stock prices, and quantitative evidence supports the notion that 2009 marked the first leg down of the Grand Supercycle Bear Market that began in 2000. As such, the real value of stock prices, illustrated here by the Dow priced in ounces of gold, has had the largest rally since the high in 1999. This suggests a bottom of significance was made in 2009. However, it was not THE major bottom, but rather just a intermediate term low, separating the first leg of the bear market from the second. Historically, secular bear market bottoms have occurred with the Dow/Gold ratio between 1:1 and 2:1. Because this bear market is of Grand Supercycle degree, I would expect the first Supercycle low to occur with a Dow/Gold ratio below 1:1. This means, at the ultimate secular bear market bottom sometime this decade, an ounce of Gold should be worth more than the Dow Jones Industrial Average.

Quarterly RSI 5 respecting downtrend line

         This chart speaks for itself: