Rip Currents

By: Erik Swarts | Wed, Jul 20, 2011
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The RIP Current
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You may panic.

You could drown.

Or you can ride them out through the breakers.

Appropriate for the season - the rip currents have been everywhere this summer. The only part of the analogy that doesn't fit for me is they typically form after the storm has passed.

Was that it?

If the proxy horseman of Apple is any indication of what's to come in the overall equity markets (i.e what looked like a major distribution was actually just another consolidation) - well then Mr. Soros cash hoard may prove to be a rather atypical contrarian indicator. I suppose if this proves prescient, the recency effect will be seen to not discriminate its prejudice of perspective, even with the macro-guru billionaire crowd - and especially during a precursory round of sovereign debt travails.

Of course as indicated by the ever resourceful hand of sentiment and data mining extraordinaire, Jason Goepfert, the last time in the past 15 years that Apple closed at a 52 week high on earnings was October 23, 2007. Slim pickens with the data set - but that year keeps coming back around in haunting echos...

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What has caused great confusion and debate in the macro community is the perception that the US dollar looks to be basing nicely and poised to run higher - perhaps substantially so. How that dynamic and kinetic relationship will fit into the equity and commodity markets will be a key component in getting the second half right.

Looking at a few dollar correlation charts from the data sculptor, David Stendahl, you may just find some clues.

US Dollar vs S&P 500

US Dollar vs Gold

One possible scenario based on these correlation charts is the dollar's inverse relationship to the equity markets will weaken - allowing the dollar to rise in concert with the market. The inverse would likely manifest in the precious metals markets with a strengthening degree of influence by the US currency.

This has long been my standing opinion in my notes - the question was how turbulent the equity markets would be affected by this changing dynamic.



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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