Friday, September 28, 2012

SPX/FXA Analog Update

Pavlov's QE Dogs

Here is an update of Pavlov's QE dogs. The performance durations are the same - starting from each periods respective summer low. Considering silver typically exhibits the most emotional nuances of risk appetites and aversion, it was chosen to define the period low.

More to come in this line of thinking and why I still believe it will be "different this time" - several months out in QE3. 

Hint: the loyal risk dog "Aussie" - continues to bark extreme caution. 

Monday, September 24, 2012

Flight of the Bumblebee

Arguably the greatest hedge fund manager and market philosopher of the day explains the utility of a comparative/analog market perspective:

"I don't get caught up in the moment. I'm-- I don't-- I think so many people are reactive. I think they see things in a very short-term way. They're right up against it. If it didn't happen in your life before-- then you're not paying attention. You don't think it's possible. But almost all important events never happened in your life before.And-- so I, you know, from my time, you know-- monetary system breakdown, 1971, it never happened before. The oil…didn't happen before. This bank didn't happen before. So I think it's, you know, when I'm looking at it, I think these things sort of keep happening over and over again. And then I have this template. So I and then I have these rules. If this happens, then that's going to happen probably, because it's all happened before." Ray Dalio 9/21/2012

Despite the objectivity we strive towards - we all hold strong biases. With weak hands or religious fervor - it is what makes the market. My biases typically arise from studying current momentum signatures (in the charts) and contrasting them with various congruencies in historical markets and trends. I would like to believe that the process mitigates and filters some of my own biases, but like many determinative reasonings - it still has a layer of subjective recognition that perhaps only our quant cousins can present as true penance towards the game's original sins of cognition. Of course many of us know that even a quants objectivity can still become a hall of mirrors in the right market conditions. Alas, it agains boils down to the age-old philosophical debate of - free will verses determinism, and another poignant example of the astute market philosophies of Oscar Wilde:  
"Life imitates art far more than art imitates life...results not merely from life's imitative instinct, but from the fact that the self-counscous aim of life is to find expression, and that art offers it certain beautiful forms through which it may realize that energy."
I am biased, but I believe Mr. Dalio would agree that the satisfaction he gleans from successfully navigating the complicated macro terrain today is spawned more from an artistic and philosophical construct than from a quantitative framework the markets are perceived to be built and traded on. Of course the paradox is the compatibility of perspectives between both the quantitative and qualitative schools of reason and existing in a market seemingly governed by both free will and determinism.

It is a mystery.   

Wednesday, September 19, 2012

SPX/FXA Analog Update

Although equities and metals have held on to their post QE melt-ups, the Aussie has pivoted lower - proportionally to the model's turn - and has retraced the entire move from last Thursday. Should the analog continue to be prescient, volatility should increase in the back half of the week - before price (and risk appetites) breaks significantly lower through the end of the month.  
As a side note, I believe the pressure differential encountered in the oil market this week is a shot across the bow towards the resource sector. Many times you find this several sessions in advance of a major pivot in a sector that is overcrowded, thus unstable. 

Monday, September 17, 2012

a Lucid Confusion

Perhaps it's the change in seasons - the cool, dry, early autumn air. Then again - maybe it's just thinking about the Chairman, and the echoes and reflexes of a market, whose zeitgeist grows louder and more bewildered with each choreographed intervention. 

Climate change is here, and I once again sense that palpable and lucid - confusion

Granted, the markets were always bi-polar - even before the Fed started fluxing its capacitor and attempting to bend the continuum. Bewildering though - in recent years, as we have travelled between the carrots and the sticks, and the parallel monetary universes of Europe and the US - that the markets have become downright schizophrenic to the long term and material impact of QE on the equity, commodity and currency markets. As traders, many of us try and hold several perspectives in our heads at any one given time. However, the Chairman's influence and practical real-time disruption of market trajectories through the promise, then delivery of QE - has amplified that thought process into an almost dissonant chorus of outcomes and kinetics. 

A lucid confusion, and if you're searching for one barometer, look no further than the chart of gold over the past decade - but that's another story for another time. 

While I am impressed with the Chairman's conviction and fortitude in persisting down a path he clearly defined over a decade ago, I find myself with increased skepticism towards many investors perception of its perennial influence - that closely correlates with my comparative work with trends, analogs and historical market data. What many in the financial punditry will describe as an obvious cause and effect - is more than a little bit nuanced when you step back and gauge the broader environments the Chairman has created monetary policy in.

During the prior salvos of QE in 2008, 2009 and 2010 - the commodity cycle was still cresting, thus, emerging global growth (BRICs) remained elastic; China was growing at a double digit pace - and the US dollar was still searching for a long-term low. 

Today, my work has suggested that the long-term commodity cycle has crested, growth across both the developed and emerging world economies is turning down, China is slowing rapidly - and the US dollar has found a secular low.

I like to remind myself that it's much easier to rekindle economic growth across the globe, when all that is required is a large shovel, boat and a frothy marketplace. Although commodity inflation has provided the US consumer a painful transition in the pocketbook over the past decade, we likely do not fully appreciate how beneficial that same knife has smoothed the impact of our own financial stumbles - in a world more than ever financially dependent upon the health of the majority.
I suggest we now minimize the academic conventions and transmission mechanisms of QE, and the purported impacts of the intervention playbook penned by the Fed over the past decade. Why? Because now that the central banks have once again responded to the drumbeat of their constituencies, the marketplace will now carry out psychological exams in the face of their monetary proctors. The final results, once the initial anxiety and euphoria abate - will likely uphold the long-standing market tradition of breaking conventional wisdom against the grain. 

The commodity markets, that have rallied so fervently this summer in anticipation of another bolus by the Fed, the ECB and the PBOC - will need to overcome the notion of "pushing on a string", that was not nearly as applicable in 2010 - as it is today. It is my belief, based on my comparative work with the US dollar, the Australian dollar and the CRB, that the commodity rally ignited this summer will fail - and fail as prominently as the equity markets faired to the aggressive monetary policy regimes enacted by the Fed at the end of 2007. Back then, market psychology quickly pivoted from - "Don't fight the fed!", to "the Fed is pushing on a string!" - almost overnight. 
As always - Stay Frosty

Thursday, September 13, 2012


Considering the Presidents poll numbers have basically tracked the equity markets, I would guesstimate this week will be the high-water mark for Obama in the polls. Going forward, the election - and the markets, should get much tougher to handicap.   

Wednesday, September 12, 2012

A Few Questions

Can Bernanke turn this frown - upside down?

When our monetary handlers have finally crossed the last t, dotted the final i and shaken the last hand on the massive intervention campaign to save the world - will the markets blink?

When the prospect of financial armageddon has been taken off the table once again - will it be enough to keep the music going?   

When the pixie dust is sprinkled and the cowbell is hung on the wall - where will the markets turn for direction?



Tuesday, September 11, 2012

Pavlov's "Precious" QE Dogs

Pavlov's Dogs
Here is an interesting performance chart of silver's ETF (SLV) over the past 2 months from its July low. It has been overlaid on the comparative period (2 month chart from the summer low) in 2010 before QE2 was formally enacted. 

I will be adding additional charts through the week as to why although they have performed extremely closely across the build in market expectations, their respective outcomes - six months out, will likely be worlds apart. 
Nothing kills the momentum like a premature parabola...

Meridian Market Update

With Bernanke on deck this week, and with the SPX resting so close to what has become a long term resistance threshold, can the market cross the Meridian bridge onto another reflationary road - or will it continue to serve as the upper boundary of the post crash recovery? 

Monday, September 10, 2012

Random Charts of Congruences & Canaries

Food for thought - before I add some prose. The abstract thought being, the US dollar is working its way towards another breakout - QE or not. 

Sunday, September 2, 2012

Sink to New Lows - On Election Day

As the 2011 SPX topping model continues to replicate along very similar lines with the Australian Dollar - the end game breakdown is starting to come into view on charts extrapolated into this fall. 

And although it was fascinating to watch the pattern replicate acutely this spring in May and June, the potential breakdown was always a major target of interest as either a symptom or cause of a major dislocation in the financial markets.   
Should the pattern and correlation of the Aussie to the equity markets and risk appetites continue, the timing and proportional decline into election day on November 6th, could put President Obama on the losing end of what was carried out by voters to his benefit - on November 4th, 2008.     

Conspiracy theorists - eat your hearts out.  

"Wall Street hands the Presidency to Romney!" 

For more information on this fractal comparative that I have been following for several months:

SPX/FXA Analog Update