Gee, Think.

I’ve been reading more of John Murphy’s “Intermarket Analysis” book
lately. He has a couple chapters that discuss various business cycle
theorys and what they mean for the financial markets. As I understand
it, the idealized behavior is this:
1. Bond prices rise
2. Stock prices rise
3. Commodity prices rise
4. Bond prices fall
5. Stock prices fall
6. Commodity prices fall
Steps 1, 2, and 3 are part of an economic expansion. Steps 4, 5, and 6
are part of an economic contraction. The expansion is positive growth
and the contraction is negative growth. The time between steps 3 and 4
is when the economic growth actually turns negative, but it is decling
from the middle of step two to the midlle of step 5.
So, having read this theory on the business cycle and it’s relation to
financial markets, I’m going to try and plot our position in the steps.
Everyone who’s paying attention to the stock markets can see that we’ve
just experienced a major downturn. We also know that commodity prices
were soaring during this downturn. The commodities were corrected as
well if I remember correctly but I think they are still heading up.
This last week was a great week for the Dow, Naz, and S&P, but are
stocks done falling?
I think bond prices have been falling because yields have been
increasing. I think this means we are somewhere around step 4, which
would nake this an early recession. If that’s true we should see stocks
and bonds continue to fall over the next months. Commodities should
join the fall eventually as well.

This morning I took a couple minutes to try and supplement my Qs analysis. I pulled up the 60 day chart of the Dow 30 and the Gold / Silver indices. I’ve learned through John Murphy’s “Intermarket Analysis” that the common trend is to see Gold (as well as silver and other commodities) rising as stocks are falling. Now maybe I didn’t quite have something right, but I could swear that this morning around 6:15 am I was looking at uptrends in both charts! How could the gold / silver index be rising as stocks are rising? Perhaps this is foreshadowing a future fall in stock prices. Maybe this has something to do with the strength of the dollar. Right now I’m not sure, but am confused.

I did a quick fibonacci tracing of the gold silver index and I think its currently bouncing between two fibonacci levels, and is either basing before heading up or forming a double or triple top before heading down more sharply. I saw the index moving between these levels through its action over the last several days.

Man I really need a bigger view of the picture, and a bit more analysis expertise because I’d like to be able to say that I think its moving one direction or the other!