Secular Tides

By: Erik Swarts | Wed, Oct 24, 2012
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Below are two identical charts contrasting the US dollar index and the large cap/small cap ratio as expressed by the SPX:RUT. For purposes of expression, the first chart has been stripped of the actual monthly data - leaving behind each respective 50 month SMAs.

You will notice that over the past two decades both series have trended together, with typically a lag between what I refer to as the primary and secondary tide. In essence, just as an oceans tidal effects are delayed by the inlets of a bay, the pressure differentials in correlations between markets - express a lag as well. The primary tide was determined by the first long-term moving average to pivot from trend.

SPX:RUT Ratio / US Dollar
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SPX:RUT Ratio / US Dollar
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It is my suspicion that over the next several months, the effects of a stronger dollar - in the face of historic interventions by our monetary handlers, will once again initially have a disruptive influence on the broader markets; with higher beta stocks - such as the Russell 2000, leading the broader market lower.

This market perspective dovetails cleanly into my note from last week (see Here), describing the conforming pattern of the long-term moving average of the silver:gold ratio - that is now resting on its 20 year trend-line.

Silver:Gold Ratio
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As always - 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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austrian-money-supply/