Friday, November 30, 2012

Good Night November

- and sleep tight silver. 
Looks like it could be a long December, as always - Stay Frosty

Thursday, November 29, 2012

Blow-off

Just call it a hunch...


A Pattern Potpourri


If the futures maintain their bid this morning, it looks like the NDX has thrown caution to the wind and will make a stab at the 50% retracement level from the November 16th intraday low. 
The Australian dollar has turned down after last nights capex report. The chart below has been updated from yesterdays close of the note from last week (see Here) on the Aussie.  
Silver turned down sharply yesterday - although recovering spritely with the risk tide that came back into the markets. The following charts were updated from last weeks note (see Here) on silver.  
Considering the futures this morning, it looks like the dollar (UUP) will make a run at the comparatives equivalent (61.8%) retracement low ~ 21.88. 

Wednesday, November 28, 2012

The Ying & Yang

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“Everything should be made as simple as possible, but not simpler.”Albert Einstein
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The long and short of things is despite pockets of weakness, the US dollar index continues to trade in price and momentum patterns that strongly suggest strength. The chart below resonates on a few different planes, considering my work with the Australian dollar this year that showed segments of the currency markets were trending very similar to the US equity market top in July of last year. Should the USDX continue to trend higher, it will likely be at the expense of the precious metals market and the downstream benefactor of the Australian dollar. 
The dollar also continues to follow the pattern of its last secular low in the mid 1990's. Based on the above 2011 SPX comparative, it appears to be taking the median path higher. 


Sunday, November 25, 2012

Have No Fear

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“If you are out to describe the truth, leave elegance to the tailor.”Albert Einstein
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As an independent trader, I begin each week by closely monitoring the underlying fundamentals of both the financial markets and the global economy. Where my research typically diverges from convention is when I then take that same top-down approach and apply a synthesis of pattern recognitions to isolate and scale historically similar price and momentum environments. Not surprisingly, although the catalysts and motivators between comparisons are more than likely dissimilar, the market reactions to various hopes and fears is quite repetitive. It is this self similarity and scale invariance of traders emotions that is presented within the charts, that can become a powerful intuitive edge to work and contrast from. It is by no means a certainty of future market expectations, but as I have presented over the past two years - a compelling analytical perspective to incorporate. 
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With that said, and in light of the SPX/NDX's acute prescience over the past month, I added greater contrast with respect to the indexes performance, as well as a comparative between volatility - as measured by the VIX for the 2007 SPX and the VXN for today's NDX. 

As presented below in a daily series, both indexes have performed very closely over the given time-frames. However, the current market has expressed considerably less concern/fear when viewed through the VIX/VXN - than compared to the initial correction in November 2007. Although the VIX/VXN can be a more nuanced instrument(s) for comparison than price and momentum, considering the backdrops of the Fiscal Cliff, the ongoing issues in Europe and the slowdown in China - it is surprising how low the VXN, and tangentially the current VIX - is today. 

In light of the ongoing issues the market has absorbed to-date, one could make the argument that courtesy of the perceived safety nets extended by our monetary handlers both here and abroad - participants have become far too complacent and desensitized to risks - as obvious as they may be. 
But have no fear, should the equity markets once again loose their footings, it is my suspicion that the negative divergence in price and complacency will likely resolve itself both swiftly and violently. For this reason, as well as my comparative work with the US dollar index and the Aussie - I am cautious going into this week after the market hit my initial target of 2640 on Friday.  

As always - Stay Frosty

Friday, November 23, 2012

NDX 2640

In a post-holiday shortened session, the NDX reached my initial target of 2640. I had described this run on Twitter as the prospective "easy money" of the pattern; whereas, either a negative mirror or complete divergence could arise subsequent to the target. It is my belief, based on my accompanying comparative work and the rapid shift in complacency - that risk swings to the downside next week. 
The US dollar index continues to work within the pattern's proportional envelopes - both of price and momentum. Should the pattern continue to be prescient, the swift move lower today will be recaptured early next week. 



Wednesday, November 21, 2012

Denial

"The steady rise in ETF holdings is encouraging as it relates to the long-term silver outlook. Despite significant gyrations in prices, holdings haven't fluctuated nearly as much, suggesting that investors that buy these products are holding the metal for the long term and with conviction." - Silver ETF Holdings Reach Record - IndexUniverse November 20, 2012
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The passage above, as well as the accompanying chart below - illustrates the underlying risks of what has been a slow bleed lower in the precious metals complex. In essence, dogma has been maintained while prices have trended lower. Conventional contrarian perspective will tell you this typically does not end favorably for investors - regardless of size and sophistication.
This is also why I have utilized the 1991 Nikkei comparative (most recently - Here) this year to illustrate the respective waves of denial throughout the year.  
Should the comparative continue to be prescient, silver's most recent rally will fail ~ the 61.8 retracement level. This level could also be used as an overall proxy for risk appetites in the currency and equity markets. 

Tuesday, November 20, 2012

Pole Reversal

As a respected analyst from the sell-side arrives at the same conclusion we have long benefited from understanding - the downstream benefactors of a deflating commodity super-cycle appear increasingly vulnerable. Namely, as the US dollar index extends itself from our proposed secular low, on the literal inverse side of the world and market - the commodity currency of the Australian dollar continues to trace out the edges of a prospective secular top.

Below is a weekly comparative of the US dollar's secular top between 2000 and 2003 - compared to the Aussie since late 2010. 
So goes the Aussie and the US dollar - so goes gold. 

NDX Intraday Update

Here are two different intraday updates of the 2007 SPX comparative. The first maintains the time-scale of the previous series.
The second chart has been compressed to match the underlying momentum series after this afternoons retracement. This comparative indicates that the Friday gap may be closed tomorrow before the rally continues.
In either case - I expect the NDX to hit the initial target of ~2640 in the short-term. 

Monday, November 19, 2012

NDX Update

As expected, the equity markets carried the baton from the Friday reversal through the close - once again picking up the comparative after completing the latest mirror.
My best guesstimate after today is equity strength will continue in the short-term into the 1st retracement (38.2) zone ~ 2640. From there the rally will either; 
(a) continue without divergence up to ~2700,
(b) mirror with a retracement back to where we closed today, or  
(c) fail
* A mirror is described as following in-step the inverse of the comparative's price and momentum profile.

Saturday, November 17, 2012

The Long & Short of It...

As the pundits lob causations with all the conveniences of political theater (see Here), the US dollar index continues to follow the long-term arc of its last secular low - regardless of both quantitative and political influence. 
And while the implications of a strengthening dollar should not be underestimated, investors have had the opportunity to take advantage of another secular shift - that being large cap stocks outperforming higher beta indices - such as the Russell 2000. 
Above chart from October 24th - "Secular Tides" 

One of the least volatile and most profitable pairs trades since the US dollar index bottomed (see Here) in May of 2011 - has been long the S&P 500 / short the Russell 2000. This "secondary tide" was first mentioned back in January of this year (see Here). 
For those investors with timeframes a bit longer than the average news cycle, this secular thesis appears to have plenty of road left to run. 

With that said, investors looking for a more ideal entry - may want to let the equity markets retrace (see Here) some of their most recent losses. 

As always - Stay Frosty

Friday, November 16, 2012

Bear Market Rally

Call me old fashion, but it has been a while since a prospective low and reversal was put in on a Friday. However, the comparative looks compelling and until proven otherwise - will be viewed through the prism as a prospective ~10% bear market rally.

Thursday, November 15, 2012

The Gundlach Reversion/Hedge


Earlier this year, Jeffrey Gundlach presented a number of interesting contrarian pairs trades at the Ira Sohn conference. Six months out, they have done extremely well. Basically, they were mean reversion ideas on historic extremes. Short Apple - long natural gas. Long Spain - short the S&P. After this week, the short Apple / long natural gas wager (actually introduced at the end of April) is up almost 100%. The long Spain / short the S&P is up ~ 17%. Below is the latter Gundlach trade featuring Spain and the S&P.
With that said, those looking for a little protection in dipping their toes on the long side of US equities here, may want to consider hedging themselves initially with a short position in Spain. Why?
As I have pointed out over the past two years, silver has led turns lower in the euro and Spain. However, over the past week the gold miners have collapsed rather precipitously - in a manner similar to their leading moves of Spain's equity market and the euro this year. 
Should the US equity markets continue to slide - or worst; the US dollar is likely to strengthen quite considerably. In this event, I would expect Spain and Europe to lead once again on the downside. Below is a modified version of the Gundlach trade - which I suspect reverts, that substitutes the NDX for the SPX. Interestingly, it crosses flourishes of both pairs trades. 
You can find me on Twitter @MktAnthropology

Wednesday, November 14, 2012

Risk/Reward

As expected, weakness has continued in the equity markets this week. However, based on the NDX/SPX topping comparative that I have been highlighting over the past few weeks, the downside exhaustion-proportional equivalent of the pattern is ~2525. Considering that the NDX finished today at 2531.87, the risk/rewards for continuing to press shorts here is weak. Based on this comparative, risk will shift to the upside in equities through the balance of November into December. 

I would estimate that the downside risks for the NDX could extend in the short-term to the zone of the June 5th/6th gap. 
*This note and chart was edited at 4:30 EST to include todays close for the NDX. 

Monday, November 12, 2012

Saturday, November 10, 2012

Packed - or Departed?

As momentum, a shifting currency tide and now even sentiment - continues to work against the grain of a slouching equity market structure, many market participants are now just beginning to question if the bull's ship has finally sailed. In a week full of emotion and frustration extending from the presidential, congressional and senatorial elections, there is a surplus of pundit causations to fit every wiggle with each tail. And although some of these may have logical underpinnings, like good propaganda - a seed of truth and convenient correlation is stretched far beyond legitimacy. 

Perhaps I overestimate the great distiller of outcomes that is the financial markets, but have found little merit in pinning the perceived surprise of short term market gyrations to an event as protracted as the US presidential elections. Alas, it is my belief - based on my own cycle and comparative work - that the weakness in equities this past week was the byproduct of ongoing asset kinetics set in motion long ago. 

Below are several charts I have been following from comparative market environments that continues to point towards market weakness - both in equities and commodities - and a resurrected US currency that I fear has yet to be factored into the collective market consciousness. 
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The Nasdaq/S&P 500 comparative continues to closely follow the arc of the 2007 S&P 500 top - with this cycles Petrochina (last Here) being played out by the now exhausted parabolic mega-cap of Apple. Should the analogy to the previous two peaks on the SPX continue, the bull's ship at best is packed, and at worst - departed. 
Continuing to follow the arc of the last secular low - regardless of influence by our quantitative commanders - the US dollar index recaptured 81 this week. It is my belief that the dollar will continue to strengthen over the coming weeks.  
Considering that the precious metals market and the euro are the inverse recipients of US dollar strength; silver and European bourses, such as Spain - continue to follow the arc of the 1991 Nikkei comparative, initially presented this past June in the Trilogy.  
As mentioned frequently, the reliable asset relationship of silver leading moves in Europe continued last week. 
Both the S&P 500 and its banking sector continue to be strongly repelled from a rare coincident rejection of their respective long-term meridians. 
As always - Stay Frosty