Monday, January 28, 2013

Part II - Connecting the Dots - 1/28/2013

The long and short of things: Historic trends, tarnished silver and perished Apple's are no match for the euro & equities - so far. 
  • Although risk appetites in the equity markets continued to run open in full-bore last week, the breathtaking - albeit on-script, action in Apple exemplifies how swift the markets can recapture profits. We appreciate the historic unwind in Apple as placed in a broader equity market context. With hindsight 20/20 - we continue to feel the cyclical bull market in equities is "packing its bags". As most analysts and investors in Apple can recently testify, the pants come down quick when you're caught looking up at the sky. By the time they're at your feet, the mystique is broken - as well as your investment model. 
  • As expected, silver made the turn down last week. The silver:gold ratio's performance spread to the SPX also started to come in. Should silver once again fail - we would expect it to be of the cascading variety. Downstream, this could put the SPX in jeopardy of outperforming the silver:gold ratio (as measured from the start of the secular bear market in 2000); which in the past (2000 & 2007) has indicated the start of another cyclical leg lower in the equity markets.
  • The historic trend continues in the diminished correlation window between the euro and the US dollar. As in nature, we feel that the more pressure and time that builds in this atypical dynamic - the more explosive the recoil back to normal correlation will be.
  • The Australian dollar further extended away from long-term resistance - with net speculative long positions once again increasing over the previous week. The last instance the Australian dollar broke through long-term resistance was in September 2010. This breakout was accompanied with a broad rally in risk appetites across most asset classes - with the caveat, it was accomplished with significantly less speculative interest and momentum.
  • The Shanghai composite index began to stall last week - with the Australian dollar and the CRB index. We expect all three to trend in unison over the long-term. The CRB comparative was rescaled to fit the QE3 highs in September.