Asia, America, and the Price of Gold

I've subtitled this post "The Beginning of the end and the End of the beginning" because it has become apparent that as the the West flounders around not dealing with its financial problems, the likelihood of a collapse grows greater and greater. This doesn't mean that everything will go all to heck, but it does mean that things will be volatile and uncertain for some time to come. One can only hope that people will resort to their ingenuity and unique abilities to contribute meaningfully to society, instead of giving into a poverty mentality, which will surely keep people in a cycle of poverty.

But this is also the end of the beginning of a great shift in wealth - from the west to the east. As painful as it might be, the East has been growing at unprecedented levels. Again, this doesn't mean that the East HAS to keep growing, nor does it mean that the west will not grow. This simply means that keeping a watchful Eye on the east, and specifically the West's involvement in the east will be important moving forward.

Onto other things .... a book I was reading on Technical analysis put forth an interesting theory that I will be testing over the next year: the theory is that Industrial or manufacturing activity can continue to be very strong for a period of time while orders for those goods slow down, resulting in a build-up of inventories. Astute followers of the stocks would take notice, and will either cap the price, or drive the stock's price lower. Therefore, a new high in the Dow Jones Industrial average not confirmed by the Dow Transportation average is suspect, and may indicate that the same slowing of earnings and hence stock prices will show up later on in the Dow Industrials due to a developing economic slowdown. Likewise, a new high on the transportation average not confirmed by the Industrial Average is also suspect, as it may indicate liquidation of inventories. So the divergence between the two indexes is important, because it can give us clues and hints about what is likely to lie ahead.

Right up until July of this year, both the transportation average and the Dow were on track to hit new highs. They confirmed each new high from month to month - but the failure of the Dow to confirm the new all time highs of the Transportation average was a sign of liquidation on the part of the industrials, and thus signaled a trend shift in the markets. In this case, from up to down.

Here are some (probably terrible) graphs to hopefully show what I'm talking about. PS Pay no attention to the "Double top" circles. That was a mental note which I forgot to erase before I uploaded. Hey, this info is free so ...  :0)