Beware the Fury of a Patient Position

By: Erik Swarts | Fri, Jun 20, 2014
Print Email
Podium Speaker Silhouette

They say the third time's a charm - and if the narrowed range that has confined silver over the past two years is any indication, those participants patient enough should be rewarded handsomely for their extended stay on the long side of the field. Going into this month, silver was presenting a third iteration of the patterned reversal - with all of the positive momentum trappings that had defined the previous two. Adding fuel to the fire and despite the fact that silver had maintained a bid above last years low, those late to the short-side of the tracks or holding more dogmatic persuasions had built up a dangerously large short position almost 50% above last years record congregation. Meanwhile, the disinflationary macro backdrop that had filled the sails for the shorts over the past three years had shifted 180 degrees and was now blowing firmly out of the south. Preaching from the pulpit we would caution - beware the fury of a patient position.

We would also caution anyone connecting the recent moves in precious metals directly to the latest geopolitical concerns in the Middle East, because the typical performance markers of those special situations are simply not present. Namely, the silver gold ratio has been trending higher - which is more indicative of a reflationary bid than fear. Typically, in a geopolitically driven move, gold will strongly outperform silver as a safe-haven reaction to those concerns. While the recent events have likely helped provide additional catalyst for the sector, silver and gold remain under the influence of a much broader narrative. To a large degree this is the mirror of the cycle, whereas, the killing of Osama Bin Laden in May of 2011 provided the prick that popped an overextended market.

Our market strategy is formed from a more proactive than reactive posture, because we typically take a longer-term view on markets and the spectrum of backdrop conditions they appear in the foreground to. This isn't to say that when conditions and information change we don't adapt - we do, but that we allow a wider berth of perspective when evaluating a position. This is one of the primary differences between how we weigh a market or asset and how a more classical technician reacts to price. The bottom line with respect to silver and the precious metals sector in general, is that conditions have only improved in the space over the past year - while their respective market structures has been trending to resolution. Anyone that has followed the broader narrative behind the sector and not just the daily machinations, namely the macro backdrop in long-term yields and the propellent currency markets upstream - would have come to a similar conclusion that the precious metals sector has remained very attractive.

SILVER Weekly Chart

SILVER Daily Chart
Larger Image

GOLD Daily Chart
Larger Image

GDX Daily Chart
Larger Image

SIL Daily Chart
Larger Image

GOLD vs SILVER Weekly Chart
Larger Image

GLD 2012-2014 and RUSSELL 2002-2004
Larger Image

SILVER 2012-2014 and NASDAQ 2002-2004
Larger Image

GOLD:TNX and GOLD Chart Monthly Data
Larger Image

Gold - Monthly Chart of 10-Year Yields
Larger Image

10 YR Yields comparison of 2013-2014 and 1994-1995
Larger Image

USDX1994 and USDX 2014 (weekly data)
Larger Image

SILVER and USDX weekly chart
Larger Image

YEN 98-05 Daily Chart
Larger Image

YEN 2001-2003 and EURO 2012-2014 - Weekly chart
Larger Image

 


 

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.

Copyright © 2011-2014 Erik Swarts

All Images, XHTML Renderings, and Source Code Copyright © Safehaven.com

SEARCH





TRUE MONEY SUPPLY

Source: The Contrarian Take http://blogs.forbes.com/michaelpollaro/
austrian-money-supply/