Tuesday, May 29, 2012

GDX/NDX Update

Here is an update of the GDX/NDX analog study. It continues to very much be on script. 

A gap above the 50 day SMA is the next reference benchmark to be made. 

For a quick explanation of the rationale behind this comparison see (Here)

Thursday, May 24, 2012

G'Day Risk

Food for thought from a pattern that needed to be refit. 

So goes the Aussie - so goes risk. 

a Parable of Prophets & Profits

A few weeks back I published a note (see Here) that illustrated the banking sector had the window of opportunity - technically speaking, to once again carry the torch and lead the equity markets to the next echelon of this reflationary tale. Unfortunately, on the way towards the window, a whale appeared off the starboard beam and swallowed both the prophet - and profits - of the sector. And while surprising to find Jamie Dimon as Jonah in this tale, the seasonality of trauma in May has become as perennial as the daffodils in my backyard. My immediate reaction, as someone who utilizes analogs for guideposts in the road, was a not so distant memory of the spring of 2010 when Goldman Sachs was embroiled in a rather contentious and optically disfiguring investigation with the SEC. Nine times out of ten, the capital markets - and the court of public opinion, will shoot first and asks questions later, when dealing with the degree of uncertainty introduced by an announcement such as this. To this degree, they are similar in that they are likely one-off events that have more damage towards the reputation of the institution - than the bottom line profitability going forward. 

With that said, and as exhibited in May of 2010, the equity markets likely have more work on the downside - before the ship is righted to sail once more.
For those that have been following my work over the past year, I have been contrasting the break in the silver sector to the Nasdaq top in 2000 (see Here). This long term analog of a broken asset class was extremely accurate over 2011 as momentum exhausted in the precious metals market in large pockets of macro trauma and illiquidity. And although silver has audibled in recent months from the magnitude of decline expressed by the Nasdaq in 2001, the market structure and momentum of the miners today has replicated along very similar lines to the index. 

The following chart was posted on Twitter last Thursday (see Here). 
One week later, the GDX continues to follow the arc of the Nasdaq - circa 2001, and has bounced rather spritely towards the declining 50 day SMA. 
As always - stay frosty

Wednesday, May 9, 2012

It's Clear - Just Upside Down

For the better part of the past year, I have maintained a bearish perspective towards what was once one of the more favorable corners of the market - the precious metals sector; more specifically - silver. This was largely due to a confluence of conditions, namely; 

1. The extreme outperformance of silver versus gold through the first half of 2011,
2. Major pivots in both the U.S. Dollar and the Euro, and 
3. The underperformance of China's equity markets

And while I am still skeptical of silver and gold's prospects as well as our own equity markets over the longer term, their immediate prospects look quiet compelling - should the price and momentum patterns unfurl as I believe they may. 

Essentially, many of the key asset proxies that comprise the risk on/off formula - gold, silver, the silver:gold ratio, the Australian Dollar and the Shanghai Stock Exchange, all present distinctly inverted head and shoulders patterns, as well as secondary momentum signatures, that indicate to me - a violent reversal is approaching in the coming sessions.

Leading the way, the Shanghai Stock Exchange has already completed the right shoulder of its inverted head and shoulders pattern. Not surprisingly, the silver:gold ratio has trended very closely over the past several years with China's appetite for risk. I believe the silver:gold ratio, after completing its contractual agreement with structure - will continue to follow the SSEC, which should put a tailwind behind both the equity and precious metals markets going forward. 
All of the assets mentioned above have momentum profiles very similar to the inverted head and shoulders chart of the SPX from last year. I believe we will see a similar reflex trajectory develop as we spring out of the bear trap that is the right shoulder of the respective patterns. Shanghai has already made the turn, the remaining assets should follow in the coming days.  
Considering where the equity markets and these bellwether assets are currently situated - it may be the first year in three where "Sell in May" is no longer the perennial market maxim.  

As always - stay frosty