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A Closer Look

By: Erik Swarts | Wednesday, January 30, 2013

After describing the ratio comparison this weekend between the precious metals miners and the financials through the credit crisis, I thought I would run a performance study to see how the comparison held up. The study was defined by each of the respective ratio's high in the cycle - with the end point in the financials as March 2009. I fit the current XAU:Gold comparative to the BKX:SPX study, based on the congruency of momentum - as expressed by the RSI & stochastic oscillators, as well as time.

The Value Traps
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The Value Traps
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The Value Traps
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Certainly this is not an apples to apples comparison, but an expression of how a derivative sector capitulates - relative to its eroding and denominating backdrop. To add insult to those fundamental analysts who have been strongly marketing the idea of the miners, based on their valuations relative to gold - the simple truth is the market knows more than you. My best guess - just as the early weakness in the financials in 2007 alluded to the underlying credit crisis that was about to sink the economy and the SPX, the miners are alluding to a deflating tide in the precious metals sector. This of course could impression one to believe that despite the exuberant gains in the equity markets, the perception of breaking through the liquidity trap is still at best an illusion.

 

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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