The DOG Indicator

I'm working on a new indicator.

You see, in our eyes, you can't trust the economic indicators the government puts out: unemployment, CPI, GDP... they're all manipulated, adjusted and revised.

I'd rather deal with real numbers, pure and simple. Things like the price of gold, oil and markets.

You might argue that speculators can come in and skew these prices. And you're right. But these skews are also important. They point to bubbles and oversold situations that can be very profitable.

If you play them right.

The indicator I'm playing around with is a comparison of the Dow to the gold-to-oil ratio. I'm calling it the DOG indicator, since it takes the Dow, oil and gold into account.

Historically, the gold/oil ratio is about 15.6, meaning one ounce of gold can buy 15.6 barrels of oil. From a trading perspective, if the ratio climbs above 21, this means gold is overvalued and oil is undervalued.

The reverse is true if the ratio falls below 12.

Here's the chart from BullionBarron.com, but there are several other places you can find this:

Now here's a chart of the past 40 years for the Dow. (more)