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Comments »“Now, wait just a minute, my bearish friends! We’re for keeping America great! This market has plenty of mustard seeds! Look at all of those inverted hammers being printed on the charts today. I have to run along now. George Will is hosting a cocktail party on Martha’s Vineyard, and I only have a few more days of summer until I can no longer wear this seersucker. BUY BUY BUY! Goldilocks is back!”
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I know that gold is all the rage these days, but as we well know by now the bullion has been dramatically outperforming the gold miners. That said, the silver miners are starting to perk up here. Now, I know that they love to tease us with false breakouts and breakdowns alike. However, when I see best in class (JakeGint agrees with me) miner SLW leading to the upside after holding a backtest of all its moving averages, it does force me to monitor the group for a sustained move higher.
Also note that unlike gold bullion, the miners have not been part of a “fear trade” per se. I suspect if equities are going to bottom here, then the miners will be one of the leaders to the upside as per the easy money bull market that has surrounded us over the past two years.
Members of The PPT and 12631 click here for an extensive list of the silver miners.
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I expect whipsaws during this options expiration Friday, and so far we have seen just that. There remains considerable risk to being aggressive in either direction at this point. We could also simply continue to flop around in a violent manner, as we have essentially done over the past week. To be sure, there are stocks printing prices that many thought would never happen in the foreseeable future, with HPQ taking out its 2008 crash lows. While I am still inclined to believe that we are attempting to stabilize at the lower end of a massive two year trading range, I am in no rush to make a bold bet that the bottom will not fall out again.
In addition, the fear trade is still on the table, with gold and Treasures stubbornly refusing to roll over. Until that unravels, it is going to be tough for the bulls to make much progress for more than a day or two.
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The ETF for Brazil, EWZ, captures the essence of equities over the past several years perhaps better than any other chart. Due largely to its stockpile of natural resources as well a growing population, it is hard not to include Brazil in any serious discussion about global growth. As you can see on a zoomed out weekly chart below, Brazil had a spectacular run up, along with other emerging markets, from late 2002 until the middle of 2008. Along with the rest of the world, Brazil crashed in a ferocious manner over the next year, followed by the obligatory snapback rally off of the major bear market lows. When you consider the mass psychology that will always be relevant to the market, it makes perfect sense to see that pattern: Bull Market–>Euphoria/Bubble–>Crash–>Sharp Recovery.
Since then, Brazil has essentially traded sideways for nearly two years, muddling along in a trading range. Once again, the psychology is consistent with this: After wild rides up and then down over the past several years, the next phase is one of relatively tighter action without too much direction. In light of the recent swoon in world markets, the lower end of this trading range has been probed.
The newsflow when price was probing the top end of this range was largely bullish, with breakout plays appearing to be low hanging fruit. Now, the headlines are grotesquely negative, complete with plenty of traders soundly converted into the bear market camp, looking for another 2008-style event. And yet, if you block out the noise and emotion it is pretty clear that Brazil is still following the script, churning sideways in a large trading range.
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