A Few Thoughts

By: Erik Swarts | Wed, Sep 28, 2011
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A few thoughts as we continue to criss cross the equity market range.

My lofty expectations for a classic capitulation and turn-around Tuesday were passed over for what appears to be six more weeks (days - hours?) of winter, or whenever the European political channels breakdown - and then mysteriously find their respective pigeons deep inside the trenches. A crisis such as this will inevitably climax in a panic. The question is will it open another leg lower - or just a brief exploration beyond the technical range. At this point, I have dropped a touch of the bullish bias I had with regards to the range, because we have yet to experience the psychological closure the market needs to find any lasting traction. It is disconcerting in the sense that there is a tangible deadline set for early November and we have yet to even enter October. Too much time within the range could work in the bear's favor for eventually breaking through it and adding another leg. Color me agnostic in the very short term, but spiritually bullish if and when the euro's grim reaper reappears.

I have little doubt that the EFSF will not be levered up to the degree it has been hinted at, despite the claims of repulsion by Germany's finance minister. As I have stated before, it is just political theater and he needs to act the part, especially considering Merkel's fragile party grip. The fact remains there really is no realistic alternative that will address the severity of the banking issues associated with the sovereign debt overhang.

It is interesting to note that when I consider the respective pieces that need to come together to resolve the crisis and the potential issues that could upset the already weakened apple cart, I am very much against taking on equity exposure here. That is also the case when I apply traditional TA to the charts. However, the main driver for me to lean more bullish against the conventional analytical wisdom is when I compare previous market environments (aspects of late1998 & late 2002) to the one at hand - and knowing how far back the sentiment band has been stretched with considerable capital powder. It is between these poles that I will continue to be opportunistic in the short term and look for opportunities over the long term.

1998 SPX RUT Gold:Silver
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As in 1998, the S&P 500 has led the Russell 2000 out of the retest we had last week. However, it should be noted that the spike in the gold/silver ratio has been flattening out as we move through the back half of the week.

2011 SPX RUT GLD:SLV
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As always, it is a very fluid situation that can change on an hourly basis - so stay frosty.

 


 

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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