Baromarket Pressure

By: Erik Swarts | Tue, Apr 19, 2011
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Follow the money and you can typically arrive at the genesis of your surroundings. Here is another ratio chart that utilizes the S&P 500 Bank Index from Goldman. While I usually watch the BKX or the XLF for baromarket pressure differentials (yes - I did just create that terminology), the GSPBK goes back a bit further and yields greater perspective to the ratio.

As you can see, the banks considerable underperformance over the past year has become a worrisome trend. And while the previous bear markets (1990 & 2002) had similar low pressure zones - they eventually snapped back with great strength to lead the broader market higher.

GSPBK:SPX Ratio

Granted, they eventually rolled over with some similarity to the current ratio's technical predicament - but it was after a much stronger relative performance trend.

This has everything to do with the interest rate environment transition we are approaching.

As described in my previous work on the transition to a market environment with a less accommodative Fed - both the 1994 and 2004 tapes exhibited diminishing leadership from the banks.

The conundrum is that the ratio is running out of downside field position.

Literally.

If we don't start splitting the SPX or reverse splitting the banks, like Citigroup - it could flatline in a few years...

(and yes, I am joking and realize there would be no difference - just the same old ham sandwich)

More to come in this line of thinking.

 


 

Erik Swarts

Author: Erik Swarts

Erik Swarts
Market Anthropology

Although I am an active trader, I have always taken a broad perspective when approaching the markets. I respect the Big Picture and attempt to place each piece of information within its appropriate context and timeframe. I have found that without this approach, there is very little understanding of ones expectations in the market and an endless potential for risk.

I am not a stock picker - but trade the broader market itself in varying timeframes. I want to know which way the prevailing wind is blowing, where the doldrums can be expected and where the shoals will likely rise. I will not claim to know which vessel is the fastest or most comfortable for passage - but I can read the charts and know the risks.

I am not a salesperson for the market and its many wares. I observe it, contextualize its moving parts - both visible and discrete - and interpret.

I practice Market Anthropology - Welcome to my notes.

Erik Swarts is not a registered investment advisor. Under no circumstances should any content be used or interpreted as a recommendation for any investment, trade or approach to the markets. Trading and investing can be hazardous to your wealth. Any investment decisions must in all cases be made by the reader or by his or her registered investment advisor. This is strictly for educational and informational purposes only. All opinions expressed by Mr. Swarts are subject to change without notice, and the reader should always obtain current information and perform their own due diligence before making any investment or trading decision.

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