The Trilogy

By: Erik Swarts | Tue, Jun 26, 2012
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Triology

I would like to think that although I may pen a strongly worded perspective, I am still approachable to the flip side of the argument. If you swim in these waters long enough, by necessity of survival you allow a certain vulnerability to misinterpretation of the data and a reconciliation of ones opinion.

It is interesting - although likely more a bark of posture than practice (watch what I do - not what I say), that the majority of market participants are drenched in overconfidence on a daily basis. Even more peculiar is as we grind through these historically challenging and low yielding capital environments, the propensity for arrogance has yet to be quenched with humility.

Certainly easier said than done - both the humility and reflection, and similar to baseball where the Hall of Fame courts - if your lifetime batting average reflects a hit in just one at bat out of three. Alas, confidence - while paramount to success is a double edge sword.

With that said, I have repeatedly reassessed the long-term health (technically speaking) of the precious metals market over the past year, specifically silver - and continue to feel that its best days are behind them. This premise is primarily based on contrasting previous asset bubbles and finding significant overlap in both their price and momentum structures - i.e. the emotional fingerprints left behind in the charts by traders. And while silver crested last spring in a manner similar to the Nasdaq top in 2000 (see Here and Here), the past year has exhibited a decline and loss of momentum much closer to another of the asset bubble trilogies in the past three decades - the performance of the Japanese Nikkei market in the early 1990's. By coincidence - although more likely design, these asset bubbles have overlapped one another and expressed themselves along similar standards of performance, duration and retracement.

Nikkei 1980-1992
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Nasdaq 1990-2002
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Nikkei 1980-1992
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A potentially positive short-term technical development and analog appears to be unfolding - similar to the retracement rally exhibited below in the Nikkei in August of 1991. In essence, a washout momentum low was undercut down to the support zone found in the fall crash of the previous year - but exhibited a positive divergence in its RSI. I find the set-up compelling, considering the proportions and congruency of the analog to silver here. Should the fractal continue - the bounce in SLV should make its way to the 61.8% fibonacci retracement level before failing.

Nikkei 1980-1992
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2012 Silver
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Nikkei 1989-1992
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Silver 2011-2012
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The alternative and quite bearish short term route would be for last weeks lows to be revisited this week and fail. The Nasdaq - circa the fall of 2000 expresses this structure and momentum.

2000 Nasdaq
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Nasdaq 1992-2002
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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/