The EKG of A Bust

By: Erik Swarts | Thu, Sep 15, 2011
Print Email

Since the violent breakdown in silver in May I have been doing a follow-up note about every two months on the long-term comparative study between the Nasdaq bubble and what I perceive as a burst bubble in silver.

My initial work stemmed from appraising the two seemingly disparate markets through the lens of a relative strength ratio, I deemed - the Relative Exuberance Ratio. Namely, it contrasted the Nasdaq/SPX market in 2000 and the Silver/Gold market up until late April of this year. The findings showed remarkably similar quantitative trends - with silver actually displaying an even more exuberant signal than the Nasdaq displayed in 2000.

NASDAQ versus Silver:Gold

Once the market pivoted, I extended the structural analogy with the Nasdaq on a long-term chart - with a few indicators overlaid to demonstrate the general momentum congruence of both markets.

From my last note in July:

The market pivoted with the analog in July and appears a whisper print away from 40. Should the market continue to follow script - it looks like the top of the range will come in around SLV 42 - after a shallow retracement ~ 40. I do not actively trade off of such a long term analog - perhaps I should be... Semantically Silver

NASDAQ versus SLV

Since my last follow-up I have taken my own advice and incorporated it into my weekly trading framework for silver. To a large degree it gave me confidence when the market falsely broke out in August and I held a trapped short position for several days. We now know that SLV broke back down after briefly flirting in the 42's and with significant bullish fanfare immediately extrapolating above 50.

I remain trading around silver with different strategies - because I firmly believed the next leg is approaching and will likely be filled with as much downside inertia as the break in May. Here is a compressed daily analog of silver to the 2000 Nasdaq market after the breakdown. As you can see from the hashed moving averages and the general performance range (coincidentally - just multiply SLV by 100 to equal the Nasdaq range) - both markets have trended quite similarly.

If this analog continues to replicate the emotions of a busted market in denial, it appears I will have to wait a bit longer for another test of the rebound highs - but not before SLV makes a quick trip down to ~ 36 over the next several sessions.

The EKG of A Bust

 


 

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.

Copyright © 2011-2014 Erik Swarts

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/