Sunday, August 26, 2012

Evidence Mounts

As the market sets sail into what historically has been the most treacherous month of the year (September) - a number of my analog and comparative charts continue to flash warning signals as they extend themselves up to resistance (UST:SPX ratio), into historical extremes (Apple) and into possible momentum downturns (2007/2012 SPX Analog). 
Apple continues to defy gravity with its parabolic run over the past year. If past is prologue, this parabolic performance chase of the largest market-cap company in the world will mark a major equity market top when the tide turns. It is not a question of if - but when - and the pronounced head and shoulders formation on the MSWORLD index is approaching another turn lower this coming fall. 

I have been contrasting aspects of the 2007 daily and hourly tapes over the past several years because of the fractal similarities along various timeframes to the current market. This past spring the market began tracing out a broadening top/megaphone formation that was very similar to the structure of the 2007 market - right before it broke down and established the inverted head and shoulders formation - also a pronounced structure of the 2007 tape. This was initially detailed Here and then subsequently in the following notes, Here and Here.  


The weekly analog has extended itself further then where I had anticipated it would turn. This may be considered well past an audible - however, it did so in a similar fashion this past March as it worked its way to the pivot lower in April.  

Perhaps it is my own bias of perspective, but if it were not for the seasonality, the agreement of various charts - also including the Aussie model that continued to turn down last week  - I would be willing to retire the comparison. 

I am not. 

As always - Stay Frosty

Sunday, August 12, 2012

Denial

I continue to find the very same behavioral biases that provided prescient contrarians the initial clues (chasing the Greenspan Put - i.e. Moral Hazard) to start moving away from one asset class towards another; on the back side of the cycle - with investors that are anything but contrarian and long past prescient. 

In 2000 and 2001, as the pendulum was swinging away from equities towards the safe(r) haven and sturdier shores of the commodity sector, the Fed reached for the monetary fire hose to provide both structural and psychological liquidity to a financial system under duress. And although it initially provided momentary support towards equities and the seeds for the secular bull market in commodities, stocks eventually succumbed to the path of least resistance. It was a bear market and the psychological bid of the Greenspan Put was now immaterial to the larger forces at work.    

Today, we have a very similar dynamic in the now matured commodity sector with the prospect of QE and central bank interventions on the table. Whether emanating from the Fed, the ECB or the PBC - resource investors now work with a dangerous level of moral hazard in the face of reality within their respective investment theses. The general thought has been: more easing - higher commodity prices. And although this causality helped drive the dramatic returns since the fall of 2008, the several dozen easing initiatives by the world's major central banks over the past year have done very little to arrest the decline in the commodity sector that began in May of 2011. 


From - Taking Shelter - April 28th 2011

Although repeatedly looking at the Nasdaq or the NDX (circa 2000-2002) comparative over the past year - the shoe continues to fit in various iterations and along multiple timeframes with the resource and precious metals sector. 
Despite a more dramatic decline in the Nasdaq between 2000 and 2001, I believe we will see a similar pattern unfurl in the CRB as the trend continues along the path of least resistance - and as late and dogmatic investors turn from denial to fear. The immediate set-up for a turn lower is primarily based on the extreme negative relative strength and technical structure of the CRB's low in June and the very strong retracement rally that now appears to be rolling over at the 61.8% fibonacci level from the yearly low. 

As always - Stay Frosty

Sunday, August 5, 2012

the Past Present & Future

Would you buy these stocks?
Here's a peak at the past, present & perhaps future;
 - see Here.



Friday, August 3, 2012

A Bet against the 1%

Anyone who has been following my work over the past three months knows I have been keeping a close eye on the Aussie as it works its way across the SPX topping pattern from last year. It has been a moving target to appraise, but did point out in April where the lows would be made in June and now appears to be pointing to another inflection point here in August. For a quick explanation of the methodology used in this comparison, see Here.  


Using the 2011 SPX model's proportion of a 98.9% retracement of the intraday high would generate an equivalent target in FXA of 105.90. Considering FXA reached an intraday high of 105.73 today, puts us in very close proximity of finding the next pivot - which would be lower. The same could be said of the SPX. 


 Swarts' 1st Law - A fractal in motion will remain in motion.

This set-up presents an excellent opportunity to position yourself on the short side, considering that the respective markets are positioned so close to where the pattern would be considered broken (>100% retracement). 


As always - Stay Frosty - and look sharp, should you decide to bet against the 1%.  

the Summer Games

Ah - the Summer Games 2012: 


Gymnastics
Track & Field
Boxing
Cycling
Central Banking
Sovereign Debting...


From my perch, it appears Spain is approaching what will hopefully be its last pivot lower through the range. This comparative work picks up from where we last left off two weeks ago in Groundhogs in July
No pain - no Spain.