Tuesday, June 26, 2012

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.