a Confession

By: Erik Swarts | Fri, Mar 16, 2012
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a Confession

Consider me still an atheist here. A chosen sinner - so to speak. Bereft of faith and comfort in the equity markets almost endless and droning bid. Four, five, six, seven - perhaps even eight sessions of strength later, confirms that it's the cadence of the market's sermon, that frictions against my own understanding of the universe's balance. The closer we get to the heavens, the more I can see their scaffolding. Absence of faith - this is not normal, healthy or sustainable. Taken in context - the charts back up this theory. With that said, ignorance is bliss - and a sincere kudos for those that went along for the last part of the ride.

From the perspective of an outlier within the range - this past week is in rare company. Below is a Bollinger series of charts of a wide variety of markets and asset classes that all display extended moves outside of the bands. While it is not uncommon to find one market or asset outside from time to time - it is quite unusual to see them all register at once. While I imagined a blowoff top in early December - this has become a move only the true believers could embrace. Again, I envy their faith - if only from a distance.

XLF

VIX

TNX

SPX

TLT

NDX

TRAN

Interestingly, the only major index that has not exhibited a move beyond the Bollinger bands is the Russell 2000. And although Goldman just gave the green light for scooping up small caps at these heights (based on their relative underperformance), my research points to perhaps an oversight in that thesis. Namely, the secular pivot that appears to be taking place in the relative outperformance of large caps versus small caps. For the last six or seven years we have heard from many an analyst of this almost mystical dynamic that never quite materialized.

"We recommend - high quality large cap dividend stocks..."

As it did last time, it appears to be taking place alongside a pivot in the dollar.

RUT

SPX:RUT U.S. Dollar

Incorporating my work on silver and gold over the past few weeks, I do believe its message to the bulls has fallen on deaf ears. That message being - volatility in the precious metals and commodity markets, typically presages volatility in the equity markets. And just as silver provided a false breakout to traders a few weeks back (culminating in a move outside of the Bollinger band) - the equity indexes appear to be completing the same pattern.

SLV

Silver Silver:Gold Ratio

XLF XLF:SPY Ratio

As always - stay frosty - but with a warm heart.

 


 

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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austrian-money-supply/