Wednesday, October 30, 2013

A Few Questions

A friend asked if I had retired the old but faithful Nikkei comparative (see Here) that helped guide the way lower in silver over the past few years. Although I've leaned on a few other examples and inter-market relationships to depict an upside pivot was likely at hand - I still find merit in contrasting Nikkei's historic breakdown and subsequent bounce.

Considering it's been a while - here's an update. 
I was also asked by another gentleman what my opinion was on coffee these days. 

Down over 30% over the past year, it has only been outdone on the dark-side by corn. Despite the glut of supply and forecasts of another bumper crop next year, pulling up a long-term chart puts some context with how oversold the commodity is today. 

For those looking for a kick of caffein and another heaping spoonful of risk - the upside pivot in silver this summer may be foreshadowing a turn for coffee as well. 

Monday, October 28, 2013

A Few Thoughts on Silver & Gold

While silver typically inhabits a less than subtle disposition, the sly fox discretely broke above weekly resistance last week - opening the door to the next stairway above.  


Click to enlarge all images
Sizing up the gold miners, they continue to follow the serpentine path of our historic 2011 BKX comparative. Should they remain in these footprints, another brief retracement decline lies directly ahead. 
That being said, as much as we can proactively manage our respective postures in the market, we try and work from the top down and through a wide angle lens. As participants with time-frames greater than the nightly news cycle, the most important thing at the end of the day is that the asset class appears to be constructively shifting gears uphill. 

As noted and described by us throughout the year, the sector - both from a relative performance perspective and from a structural point of view, has traded with great similarities to the former cycle's value trap du jour - initially presented in the banks in 2009 and then again in their subsequent retest in 2011. The twist from a comparative perspective, however, is that the extremes in performance of the miners relative to spot prices has occurred during the retest of the 2008 lows, rather than during the crisis itself. This may positively impression how the sector performs over the short-term coming out of this historic extreme, considering the banks one way street higher after the lows in March 2009 were in. 


To give us this perspective going forward, we normalized the most recent pivot by the miners to reflect the relative extreme achieved in the financials in March 2009. 
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*  All stock chart data originally sourced and courtesy of www.stockcharts.com 
*  Subsequent overlays and renderings completed by Market Anthropology

Penny Wise & $ Foolish

As the US dollar index comes into a prospective bounce zone around its 50% retracement level, lest not forget the bigger picture - it still points down. 


Click to enlarge images


Friday, October 25, 2013

Waterfalls of Australia

In our note last week we had cautioned that the Australian dollar was approaching a prospective interim high - when viewed through its 2008/2009 market profile. Over the winter, we had relied on this same historic market environment for comparative reads, while various commodities and their corresponding currencies were working themselves towards what we had expected would be another significant and disorderly unwind. 

Silver, gold, the euro and the Aussie were all viewed as probable barrel candidates for another run over the edge. 
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"As we cautioned on Tuesday, the risk continuum in this environment extends beyond normal distribution; i.e. - those looking at mean reversion strategies, either from an oversold price or sentiment perspective - may find themselves in a barrel cascading over the edge. 
... Although the euro continues to follow the structure and momentum unwind of the Mirrored Pivot comparative (for an explanation, see Here) - the kinetic potential across the hard commodity-scape appears to be of the 2008 variety. In either case, we expect the next phase of the decline to become more disorderly on the downside." The Cascades 3/2/13
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A few months later, three of the four candidates had made their way over the brink and into the plungpool at the bottom of the falls. While the euro did weaken into the spring, its notable resilience was one of the first indications to us that the over two year old meandering and turbulent commodity unwind was likely approaching its delta. 
  • Thoughts on the Aussie today and a few of its intermarket relationships:
Longer-term, an upside bias sits with the bulls. 

Although the divergent momentum structure and timeframe of the two declines have pivoted across similar durations, this years scarped cascade was less than half the size witnessed in 2008. 

Because of this, we also show in the lower right chart the 2008 final wave structure/fractal and retracement bounce fitted to this years shallower move. Both structures pivoted directly at the 50% retracement level.  
- Click to enlarge images -

Worth mentioning was silver's notable and uncorrelated strength it exhibited during the Aussie's retracement decline that began in January 2009. As we alluded to last week, we would expect the precious metals sector in the current market environment to run with the yen for a spell as the equity markets have trended with the Aussie. 
Over the past week the performance of emerging markets relative to the SPX has rolled over. Our expectations are that emerging markets are leading the moves here and should also lead out of another prospective low. 



The "digital signal" between silver and the Aussie was dropped. It appears the Aussie just found silver's old analog highs from late August. 

1:45 EST - Weekly Postscript:

The long and short of things: despite the equity markets progression towards its strongest positive seasonal bias (Nov-Jan), we've highlighted this week a few hurdles the markets need to overcome in the short-term to extend their gains. 

Signs of the Times - points towards a rest and consolidation for the Nasdaq through November.

Hard to Compre-Yen-d - sees turbulence on the horizon in Japan through the yen into November.

Today's note - illustrates a prospective retracement decline for the Australian dollar, which taken in context with a strengthening yen would further add to market pressures as carry trades were quickly unwound. 

Wednesday, October 23, 2013

Hard to Compre-Yen- d

  • On the daily timeframe, the yen has tested support from the October 1st breakout and appears poised to challenge the retracement highs from this past June.
  • Because Japan has taken its time in resolving the rising wedge formation it has been trading in since its breakdown this past May, we pulled back to the weekly series to get an impression of how another set of combustive quantitative cocktails traded through their own fall resolutions. 
  • Taring up EWJ's current momentum profile with the comparative, it would indicate open road on the downside through November. 

Tuesday, October 22, 2013

Trapped


Between the breakdowns in the US dollar and 10 year yields, precious metals have trapped the Johnny-come-lately and dogmatic bears and are surging higher this morning on the backs of their downtrodden miners. 

From our perspective, capitulation in the sector is now in the rear view mirror - as the relative performance between the miners and their underlying spot prices has pivoted sharply higher. 

Onwards and upwards.

Click to enlarge images 

Monday, October 21, 2013

Signs of the Times

With Google breaking through the $1000 barrier this past Friday on a very strong earnings report, the latent expectations and empty promises of the tech bubble of yesteryear is bearing more fruit than just Apples. 

As we have noted, the current cycle is actually tracking the earlier footprints of the previous historic drive rather closely.  
The strong push higher for the tech sector in Q3 dovetails with our comparative Meridian work with the SPX, which would indicate (from a relative performance perspective) that the sector could take a breather coming through Q4. 
Although there are congruences in form and momentum between the two cycles, the most significant difference with the current market environment is that the Nasdaq has not become such a large performance outlier as it was during the 1990's.  
This time around the block the balloons have been filled more evenly - yet most efficiently captured by another high beta index - the RUT.
Should the RUT continue to outperform and inflate the next asset bubble, we would expect it to be at the expense of the US dollar - which as we have shown trends with large cap outperformance.

This ebullient market profile in which small caps have handily outperformed large cap stocks, had helped us pivot down on the dollar earlier this year and revise our future equity market expectations higher. 
Narrowing the timeframe, but buttressing the idea of consolidation in the Nasdaq through Q4, is our own Apple comparative. Going on more than 10 months, it has helped guide us both on the way down - and on the way up.  
Should the comparative remain prescient with Apple, the stock will look to backtest its most recent stair higher around the timeframe of Apple's next earning announcement later this month. 

Friday, October 18, 2013

Goldman Has it Backwards

As Goldman looks for their next place to short gold ("slam dunk" sell), they may want to consider one of its primary motivators - the US dollar. 

They also might want to consider the possibility that both the fiscal crisis in Washington and the extension of the taper are both disinflationary hurdles, that once resolved should maintain pressure on the dollar and reinforce the bid in the precious metals sector. From our perspective, Goldman's thesis for the trade is backwards.  

Here's an update of our euro/USDX series that continues to show notable similarities to 1994 when the dollar rolled over one last time through the lower register of its long-term range, even while the Fed was moving away from accommodative monetary policies. 

Further reading on the USDX and the euro:

A Comparative Case Study 
Roll-over $ & Make Room for the 

Getting Frisky


"By the way, the point between rationality and what we would call the irrational is a very difficult point to establish. There's no specific line, as you know." – Leo Ornstein

While we tend to agree with the late great composer and pianist, we're reminded on a weekly basis that for the equity markets the distinction between rational and irrational behavior was crossed this past March ~ SPX 1530.  

Carry on, but please consider some contraception.