Tuesday, July 31, 2012

GDX/NDX Analog Update

As the behavioral bid frothens risk appetites before key announcements by the Fed and the ECB this week, a resurrected comparative may be indicating the precious metals market is about to unravel once again. 
For a quick explanation of the rationale behind this comparison see (Here)

Thursday, July 19, 2012

the Game


"Some of us will do our jobs well and some will not, but we will be judged by only one thing - the result." - Vince Lombardi 

Although I take great pride in developing my comparative work, it likely is misunderstood by many in how I apply it, benefit from it - and walk between different models. Like most things in life, it is the process that defines the form. Too abstract - and you loose perspective. Too much detail - and you loose emotion. 

For lack of a better analogy, I work with analogs much like a football coach pages through his playbook on the sidelines. I typically have a half dozen or more models at hand to guide me through each week. When an audible is recognized in a pattern, I simply reevaluate a new offense to meet the shifting defense - and vice versa.

The art, besides developing the analogs themselves - is knowing when to give your positions latitude and when to go into a more defensive stance. Like football, the playbook is crucial; however, there's more to winning the game than just reading the defense. Weather, athleticism and pragmatism in adversity - are essentials in finding yourself on the right side of the market and the game. 
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With that said, there are a few analogs that I have been following and utilizing for several months that appear to be pointing towards an imminent pivot down in the equity and likely commodity markets next week. And while this flies in the face of recent strength, sentiment and short-sale data points, the allignment of the respective patterns lends more credibility towards the prospects of a pivot. 

In late February I published a note that essentially warned of a second wave of the credit crisis was possibly taking shape along very similar lines as the initial wave that started in 2007. The primary difference being the time frame for the second wave was transpiring over a much longer time period. 
"Whether the time differential is the efforts of our monetary handlers perceived and new found dexterity in dealing with the tentacles of a global credit crunch the second time around, or just the consequence of a slowing financial contagion/universe - will be up to the academics and historians in the years to come. But I can attest to the similarities in sentiment, the charts and the degree of hubris now being dispensed from both traders, the financial media and central bankers themselves - in curtailing the effects of the crisis. " The Terrarium
This was one of the charts that expressed that comparative in February as the market was breaking out to new highs.
We now find ourselves on the backside of the coordinate central bank rally that manifested out of the lows last fall and perhaps at the apex of a relief rally from early June. Both the proportions of the price structure, as well as the momentum signatures in the respective metrics - are quite congruent in comparison to the 2007 model. 

Continued strength next week up to the previous highs would certainly weaken and possibly nullify the pattern. Interestingly, although not surprising considering the self-similarity of their form, there is a daily fractal of the current tape from the June 4th lows that has worked loosely within the August 2007 retracement rally. I have been following and updating that pattern in the Finding Bernanke series; however, recently it has started breaking pattern in both structure and momentum.  
The next analog that has been quite useful in the past several months (see Here) in appraising risk appetites towards equities is the Aussie/SPX model. For an explanation of the rationale behind this comparison, see Here. To make a long story short, the Aussie (FXA) hit the pattern's upside target today - as defined by the SPX model. This was essentially to break the pivot high from April 27th. 

What I find interesting, is although the Aussie has rallied over 8% in less than two months, gold and silver have declined roughly 2.5% and 4.5%, respectfully.  Considering these markets typically trade in concert with one another -  that is a significant divergence. Should the Aussie follow the SPX model down the rabbit hole, I would expect the precious metals sector - currently resting on precarious support, to suffer substantial losses. I would expect silver could realistically find ~$18/oz - almost overnight. 

However, I temper the innuendo of the negative divergence back to the last time the Aussie outperformed gold and silver in such dramatic fashion. It was July and August of 2010 - right before QE2. 

It's a dangerous game reading these tea leaves - as always - Stay Frosty

Tuesday, July 17, 2012

Prospecting

With consideration of another round of quantitative easing front and center on many traders minds, could the gold miners be a leading indicator for the equity markets?
 The SPX and its respective RSI have been shifted on the chart below to fit the pattern of the miners. 
With the Chairman's testimony now in the rear view mirror and with very little substance shed towards the prospects of additional QE, perhaps the miners are telling you the path of least resistance going forward into the next Fed checkpoint - is lower. 


Food for thought. 

Monday, July 16, 2012

Humphrey Hawkins



As we stroll into a Tuesday session with the Chairman - an analog I have been following from those halcyon days of the summer of 2007. 

Although the respective momentum metrics have us beyond said date on the overlay, I would be fooling myself if I wasn't considering the structural and motivational similarities to the large advance made on September 18th 2007 - when the Chairman surprised the market and lowered the fed funds rate by 50 basis points. 

In either case - I am looking for the SPX advance to continue. 

  • The 2007 Analog Series


Groundhogs in July


Here is a quick follow-up to last weeks note on Spain's IBEX market. 
"I will be keeping a close eye on the IBEX's RSI this week to see if it once again bounces from the midpoint of the metric or breaks convincingly below, as the SPX did in January of 2009 - ushering in the final leg of the bear market." 
Considering where the IBEX is currently trading on this Monday morning (~6550), after the ECB shifted its stance on Spanish debt - it looks like the IBEX will eventually work its way over the ledge lows from early June.  

While the SPX will likely outperform as it did in the first half of the year, the fact that the IBEX saw its shadow this week, will only provide another headwind for risk appetites in the equity markets going forward. With that said, I believe the recovery rally in the SPX that started in June - still has room to run higher. 
Chart through Friday 13th close
More to come in this line of thinking. 

Monday, July 9, 2012

Nikkei/SLV Analog Update

Here is an update of the 1991 Nikkei fractal overlaid with silver - originally introduced in the Trilogy and update Here



Sunday, July 8, 2012

Running of the Bulls



At the end of May as Spain's IBEX was cascading below their 2009 lows - to 9 year lows, I contrasted the index to the SPX in March of 2009. 

Sure enough, the fractal comparison proved to be a major pivot low, with the IBEX rallying some 20% in the span of one month. 

What I find interesting today, is the explosive nature of the rally as expressed by its RSI readings that have bounced higher from the midpoint (~50) of the metrics range. This development is very similar to the SPX rally off of the March 2009 lows, where the market exploded in fits and starts above its RSI's midpoint - but continued to gain traction in the face of a traumatized and skeptical market community.
 I will be keeping a close eye on the IBEX's RSI this week to see if it once again bounces from the midpoint of the metric or breaks convincingly below, as the SPX did in January of 2009 - ushering in the final leg of the bear market. 
One analog that is pointing to further gains for the SPX and perhaps the IBEX as well is the 2007 (Finding Bernanke - II) comparison. Considering the current tape just recently expressed a positive momentum (TRIX) cross last week from a strongly negative position, the SPX may continue to follow the analog higher. 
Coincidentally, it was exactly one year ago today that I published a bearish perspective on Spain titled,  Running Of The Bulls. Perhaps this time - with a bit less irony. 

As always - Stay Frosty
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Tuesday, July 3, 2012

Finding Bernanke - Update

Here is an update of the 2007 SPX analog presented last week in Finding Bernanke - II. I compressed the current tape slightly to fit the stochastic model of the 2007 analog. 

Gorgeous

Here is an intraday update of the retracement analog from last week.