Sunday, February 3, 2013

Connecting the Dots - 02/03/2013

The long and short of things: The US dollar remains caged with the SPX at L/T resistance. 
  • The euro continued its unbridled ascent, closing the month of January up ~ 0.50% and making the six month advance its longest since May of 2003. Although still extreme, the diminished inverse correlation between the euro and the US dollar began to revert last week. Since the euro peaked in July 2008, these diminished correlation windows have typically marketed exhaustion for the currency. We continue to view the US dollar index as primarily "caged" by the euro - as evident in the atypical correlation and positive divergences of momentum and relative strength. The US dollar secular low comparative was marginally refit to match the analog's pattern. 
  • Silver and the silver:gold ratio bounced last week. The silver:gold ratio's performance spread to the SPX also extended marginally. We continue to maintain a bearish perspective towards silver and the precious metals and feel another large leg lower is imminent. Should silver once again fail - we would expect it to be of the cascading variety below the lows of last year. 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 silver/Nikkei comparative was refit to accommodate last week's retracement bounce. 
  • The SPX is once again confronted with the overhead resistance of the long-term meridian. Since it broke through with Lehman Brothers in September 2008, the meridian has capped every subsequent advance. Despite the calls by many for a new secular bull market, we find no indications that it will be different this time around. 
  • The Australian dollar further extended away from long-term resistance with net speculative long positions decreasing over the previous week - but remaining historically high. We continue to focus on the Aussie, considering its strong correlation to the SPX as well as the precious metals market. 
  • The Shanghai composite index - as well as the CRB had a very strong week. Considering our outlook on the US dollar, we continue to maintain that the CRB will once again roll-over and break the lows from 2012.