"And now," cried Max, "let the wild rumpus start!" - Where the Wilds
Things Are - Maurice Sendak
For many different reasons, silver has been an important asset to follow and
contrast over the last decade. From appraising inflationary and disinflationary
pressures, to the respective risk appetites of the collective - silver, and
more importantly, silver relative to gold - has been a key asset and relationship
to follow. I went over a number of these and my variant perspective on them
in my last note of 2011 (see Here).
I often use ratio charts because it gives you more information than just price.
And while price alone has paid in spades lately - there's still a great deal
of truthiness in determining the underlying asset's risk profile and
trajectory based on price alone. Ratio charts, when used appropriately - can
add another dimension to the picture.
As apparent in the chart below, silver gave the impression (through price)
last summer of breaking out of the consolidation range that developed after
the May crash. And although things looked promising for the silver bulls for
the balance of the summer, the ratio charts told a different story and foreshadowed
the eventual swoon that followed in September.
Eight months later, the set-up, both viewed through price and the ratio -
looks very much the same.
For a little more perspective, here is the same contrast for 2010, which included
the breathtaking breakout for silver and the ratio that coincided with the
hint and then deployment of QEII.
So goes silver (relative to gold)... so goes the SPX.
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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