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).