Friday, June 29, 2012

It was a G'Day

Here is an update of the Aussie/SPX analog from last month (see Here). 
It was indeed a good day for risk. Should the pattern complete, it appears to have considerable follow through into the beginning of July. 

Finding Bernanke - Part II

Here is an update of the megaphone/inverted head and shoulders note from a few weeks back (see, Here). Considering it was during that summer that Bernanke first embarked upon the monetary regime, outlined in his 2002 speech on deflation - it fits quite neatly with the European drama now unfolding. 

Should the script continue - new highs are in sight for the SPX over the coming weeks.

Finding Bernanke

As our European counterparts whistle past the graveyard and perhaps find some monetary religion - i.e. the 2002 Bernanke scrolls, the GDX completed a rather large retracement move down to its 61.8% fib. Interestingly enough, the SPX completed a very similar move in the fourth quarter of last year.

From the perspective of the gold bulls - it is a welcomed audible from the NDX analog I have been following over the past month.

Wednesday, June 27, 2012

Nikkei/SLV Analog Update

Although every analog has incongruent structures  - we may soon find another downside proportion of the 91' Nikkei fractal - featured in the Trilogy.  

Tuesday, June 26, 2012

SPX/FXA & GDX/NDX Analog Updates

Building on the short-term bullish developments in the precious metals complex - the following two updated analogs point both to higher highs in the coming days. 

the Trilogy

I would like to think that although I may pen a strongly worded perspective, I am still approachable to the flip side of the argument. If you swim in these waters long enough, by necessity of survival you allow a certain vulnerability to misinterpretation of the data and a reconciliation of ones opinion. 

It is interesting - although likely more a bark of posture than practice (watch what I do - not what I say), that the majority of market participants are drenched in overconfidence on a daily basis. Even more peculiar is as we grind through these historically challenging and low yielding capital environments, the propensity for arrogance has yet to be quenched with humility.  

Certainly easier said than done - both the humility and reflection, and similar to baseball where the Hall of Fame courts - if your lifetime batting average reflects a hit in just one at bat out of three. Alas, confidence - while paramount to success is a double edge sword.  

With that said, I have repeatedly reassessed the long-term health (technically speaking) of the precious metals market over the past year, specifically silver - and continue to feel that its best days are behind them. This premise is primarily based on contrasting previous asset bubbles and finding significant overlap in both their price and momentum structures - i.e. the emotional fingerprints left behind in the charts by traders. And while silver crested last spring in a manner similar to the Nasdaq top in 2000 (see Here and Here), the past year has exhibited a decline and loss of momentum much closer to another of the asset bubble trilogies in the past three decades - the performance of the Japanese Nikkei market in the early 1990's. By coincidence - although more likely design, these asset bubbles have overlapped one another and expressed themselves along similar standards of performance, duration and retracement. 
A potentially positive short-term technical development and analog appears to be unfolding - similar to the retracement rally exhibited below in the Nikkei in August of 1991. In essence, a washout momentum low was undercut down to the support zone found in the fall crash of the previous year - but exhibited a positive divergence in its RSI. I find the set-up compelling, considering the proportions and congruency of the analog to silver here. Should the fractal continue - the bounce in SLV should make its way to the 61.8% fibonacci retracement level before failing. 
The alternative and quite bearish short term route would be for last weeks lows to be revisited this week and fail. The Nasdaq - circa the fall of 2000 expresses this structure and momentum. 

Friday, June 22, 2012

SPX/FXA Analog Update

Similar to adapting the current tape to market cycle work or Elliot Wave Theory, fitting analogs - especially longer timeframe analogs - is a moving target. Here is a somewhat more compressed overlay of the SPX analog to the Australian Dollar. Interestingly, this is how I originally fit them in late May (see Here). 

From this perspective, yesterday's powerful sell-off will prove to be the last bear trap before the real blowoff commences. 

Food for thought. 

Wednesday, June 20, 2012

Down Under

Managing ones expectations in this market is something we all struggle with after being exposed to the juggernauts of the new millennium's monetary masters. 

To QE or not QE - remains the standing question.

And although on the surface it may seem like a binary proposition, the backdrop of diminishing inflation expectations, declining yields and slouching commodity prices from all-time highs, presents traders and investors with a wide variety of interpretations and outcomes - both in the short and longer duration timeframes. Add it up, and it very much presents an environment that bleeds asymmetries - both in expectations, risk and returns. 

As I have presented in previous notes, while the effects on asset prices have mimicked to an extent both the deflationary and inflationary asset spirals of the 1930's and 1970's - the closest parallel to a troughing interest rate environment, coupled with a cresting and declining commodity cycle is likely found in the 1940's - post WWII. 
Of course it would be wise to heed that the blueprints of history, very much like the strict interpretation of analogs - will often mislead those looking for a perfected parallel. I, for one, am susceptible at times for not seeing the forest for the trees. The impacts of globalization alone, post the Nixon Shock - sticks out most notably when contrasting economic environments today to the past. We are all bound more than ever through capital commitments - for better or for worst

With that said, and continuing down a path that weaves both the equity, commodity and interest rate cycles together - I continue to be more than fascinated by the complex topping pattern first observed last year in the SPX, and now being replicated on a much larger scale in the Australian Dollar. 

Like silver, the Australian Dollar is more broadly connected to the risk throttle of the financial system, then its limited market profile suggests. Take one look at a correlation chart of the Aussie to the SPX over the past several years and you will see the fruits of one of the more important carry trades painting the edges of risk on and risk off today. Further compelling its significance to the kinetics of asset conductivity, is the fact that the Aussie is one of the more developed commodity currencies traded. The boom in commodities, specifically, iron ore, coal, copper and gold, have provided powerful propellants for this carry trade over the past decade.  Unfortunately, from this perspective - it looks to be in the throes of burning itself out. 

Over the past few months I have been following the 2011 SPX analog as the Aussie has been working through the complicated, yet now discernible pattern. One could speculate that the SPX completed a momentum top last spring, while the Aussie has been working through the same process - just along a much broader timeframe. Although fundamentals certainly can explain the story in an abstract of historical perspective - I continue to find the presence of fractal geometry, in both the short to intermediate time frames, expressing risk and momentum profiles - quite vividly and with more accuracy than the fundamentalists have you believe. But again, and as Mandelbrot repeatedly found out, the fundamental story just goes down easier to John Q. Public - than a snapshot of the DNA of the cosmos.  
After completing and being rejected by the inverse head and shoulders formation in February, the Aussie is now working its way higher, very much like the SPX last June in a countertrend retracement rally. 
Should the analog continue to prove prescient - the countertrend rally should fail in the short term, with the Aussie extending in a cascading fashion to new lows. 
And although I remain pragmatic to the prospect of a rejuvenation in the precious metals complex - based on more interventions by the central banks - the GDX/NDX analog that I have been following over the past several weeks - as well as the Aussie, continues to point to the notion that gold, silver and the miners best days - may very well be behind them.
As always - Stay Frosty

Tuesday, June 19, 2012

SPX/FXA Analog Update

A market that trades based on fundamentals is a nice theory...

Monday, June 18, 2012

SPX/FXA Analog Update

While I still remain skeptical of the SPX and the Aussie - it is very hard to deny the broad brush price pattern to the analog. 

Although the Aussie and the SPX are extremely overbought on the hourly charts, as the analog suggests - it can continue well beyond expectations. 

Wednesday, June 13, 2012

SPX/FXA Analog Update

Perhaps I am splitting hairs with the last two sessions in the Aussie - but something doesn't quite square with the recent strength. 

If I have learned anything over the past few years in using fractals as a resource in appraising a market or stock, it is to sweat the small stuff - as it is typically the first indication of a potential audible from the analogs trajectory. Many times there is a polarity or mirror that can establish at a respective pivot. As I was going through my notes from early spring this afternoon I found one example of this expression. It was from a chart comparing the 2007 broadening top to the current market (see Here). 

We have intersected the trajectory - but through a mirrored path. 

Food for thought.   

Monday, June 11, 2012

SPX/FXA Analog Update

Although the retracement move lower from last Friday was shallower than the analog suggested, momentum has been expressed along very similar lines. It appears it is pivoting lower once again - very much on script. 

Thursday, June 7, 2012

SPX/FXA Analog Update

The Aussie achieved parity with the USD this morning then swiftly reversed. Tonight through Asia the reversal continues.

Should the pattern continue to replicate - a strong move higher begins next week. 

So goes the Aussie - so goes a key component in the markets risk profile. 

GDX/NDX Analog Update

The pullback arrived on schedule and should find support around the 50 day SMA.

Wednesday, June 6, 2012

SPX/FXA Analog Update

The Aussie rekindled the carry trade last night and the equity markets exploded as expected. Here is an update with today's action. Acute replication - both in price and momentum. 

GDX/NDX Analog Update

Overextended - look for a healthy pullback.  

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

Tuesday, June 5, 2012

SPX/FXA Analog Update

Although considerable headline risks remain with the ECB announcement tomorrow morning - Australia's large GDP beat tonight has the Aussie targeting parity for this move. 
* Due to an erroneous bar on FXA's daily chart - I utilized the actual Aussie on the daily. 

Saturday, June 2, 2012

GDX/NDX Analog Update

Here is an update of the GDX/NDX analog study, initially introduced a few weeks back.  

We now have a close above the 50 day SMA and an initial target that proportionally aligns with the NDX, circa 2001.

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

SPX/FXA Analog Update

Here is a quick update of the SPX/FXA analog study. If the analog continues to follow script - the markets should find an appetite for risk early next week. 
For more information on this structural and momentum analog, see Here