Long Term Scale

By: Erik Swarts | Tue, Jun 14, 2011
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As I mentioned in my previous notes, I interpret the markets through a variety of sliding scales within my research. I thought I might construct a bit of the broader scale to color some of my longer term rationale - which continues to be constructively bullish. I have always appreciated the elegance of charts because for me they contextualize market conditions better than conventional description.

Perhaps it's just my impatience.

I do believe the more than decade long commodity bull market is drawing to a close. While although that is historically brief compared to the previous three (averaged approximately 17 years in duration), when market conditions that have supported the cycle abate - its number is up. The following two charts make that argument rather strongly.

The CRB index is exhibiting very similar price structure to the end of the last commodity cycle as described in the historic commodity chart from Hackett Financial Advisors. In fact, this cycle has yielded the steepest and quickest rise in commodity prices in the past 200 years. It is loosely the same argument I described against silver (Y2K=QE2).

As in 1983 we appear to be putting in the right shoulder of the head and shoulder top for the CRB index. The Hackett chart has a different weighting than the more energy-centric CRB index. Interestingly, this dynamic is congruent to technical conditions in 1983.


Reuters/Jefferies CRB Monthly Index
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The dollar continues to follow the early 1980's bottom. The market will eventually break loose of the inverse correlation that has existed between the SPX and dollar since 2003.

It has in the not too distant past - it will again overlap in trend.


Silver vs US Dollar Chart
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As we approach the end of QE2 and embark on a transition (granted likely glacial) to what should become a less accommodative monetary policy - I reference my The Congruent Market Theory.


The Congruent Market Theory
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Considering that in the past decade we have experienced our fair share of the boom and bust cycle, I like to look at a market that was not disproportionately weighted to those two sectors (technology & financials). The Russell gives you that view because of its micro-weighted slices across the broad economy. While although there were serious retracements in the past, the long term secular bull market is still alive. That is plainly represented in the long-term chart by higher highs and higher lows. You will find the same price structure looking at the MSCI Word Index.

I tend to stay away from the semantic debate over secular and cyclical markets, because in most instances they have allowed traders and investors dogmatic cover that typically wasn't warranted to the same degree they expected.


Russell 2000 Monthly
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These charts represent components within my longer term analysis. The next series will be constructed using the more agnostic view of the short to intermediate-term.


Disclaimer: (Positions in TNA & UUP)



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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