Doc and the old man: A likely false dawn amid summer relief
Many indicators became overdone to the downside in June and July. Certainly sentiment indicators did. But so did cyclical/counter-cyclical indicators. One major tankage was in our often reviewed Copper/Gold ratio (a ratio of a cyclical and inflation sensitive metal vs. a counter-cyclical and less inflation sensitive metal), which persisted in indecision mode all through 2021 and finally cracked, as anticipated.
Now we find hopeful (cyclical) bulls raising the ratio and I think you can tell the decision point that lay in wait should the sentiment bounce persist a while longer. That decision would be to confirm the bear, which is now the trend, or if the Good Ship Lollipop sails on through the monsoon with no further damage, a negation of it. But again, things have broken bearish and that is the existing condition with a bullish view bearing the burden of proof.
Yes, what a neat time for a sentiment recovery, during deep summer while da boyz is sippin’ dem mahgaritas out in da Hamptins. The big picture view of the ratio shows that enough damage to the stock market has already been done per previous occasions of Copper/Gold failure.
If Cu/Au and other indicators to cyclical/counter-cyclical recover strongly then we may be done with the bear. The other option is that after the summer of relief the grizzly stuff will resume for stocks and this time maybe take down the CRB index as well.
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Gary (this is MikeC), I want to ask a really basic question.
Why does the continuum / bear / bull status change when say, the 30 year rate goes above 3.4% or so? And why does the status change if copper/gold goes to some ratio or break 200DMA?
I understand the chart support/resistance/MAs, but I am asking more like a dumbass here, on purpose. So the ratio goes above the 200DMA around .026/.027. It was above that ratio from 2004 to 2008, in a bull. It was below that except for a few peeks above in the time since, and the correlation to market drops in the second drawing, heck, most barely register as a blip anymore. In a bull nearly the whole way.
I can see how people likely became worried in the huge runup in 2006-2007, but since it’s meandered in a pretty reasonable channel with some peeks above at times.
Just trying to understand the significance of some of this stuff vs. just closing my eyes, buying with the trend up or down and using trailing stops to not get decimated by shock events.
Sorry, man, I am just frustrated. We were hopefully going to get clarity after July. Now it will hopefully be after Sept. But no one really knows.
Mike, we got clarity after July. That clarity was the expected summer rally, likely a bear market rally. Now it’s another waiting for clarity juncture upcoming. The summer rally was viewed as a respite, not a new trend.
With due respect, it feels like it’s your expectations that are not syncing up with time periods and details within the analysis. Just an observation. The details matter. The market goes in cycles. This one is more than likely still a bear cycle interrupted by the summer rally, which again was expected.
Should be no frustration if following the details, the timing of which no one has any control over.
No easy answers and there is a reason I use a multitude of indicators. Any single indicator can go dysfunctional at any given time. For example, the Gold/Silver ratio rose during the 2011-2019 Goldilocks phase. But there were other indicators telling us GOLDILOCKS.
No easy answers here Mike. Never. Easy answers are for sale elsewhere.
I’m going to give my POV (as a co-dummy). The market transmits messages: fwd-looking, pricing, human psych, decision points, etc., in various time-frames (hr, d, wk, mo). These messages are translated as various indicators and moving averages. After the drubbing Cu took this summer the message is that a bounce is, not surprisingly, in progress; the other message is that this bounce might just continue, conveniently at summer end, prior to FOMC, which will be another messaging opp.
As a trader/investor, I think one has to make a commitment as to which time-frame to operate in, taking messages/translations in a given time-frame and act in that time-frame. If one multi-tasks and operates in various sectors and time-frames then trading has to reflect those decisions rigidly (discipline) to mitigate frustrations. One must not allow messaging from one time-frame to muddle the plan in another time-frame. My current mental hurdle is: cash is a position, cash is a position, CASH IS A POSITION! (and making progress. Lol)
“One must not allow messaging from one time-frame to muddle the plan in another time-frame.”… Brilliant! As was your entire response. Thank you.
(MikeC here),
Timeframes is absolutely the core of my psychological issue!
I have enough cash in i-Bonds, SHV and savings accounts that alone should have an absolutely calming effect.
It’s completely a case of Dr. Jekyll and Mr. Hyde.
Dr. Jekyll wants to look at the macros, longer time frames, ignore this daily/weekly noise.
Mr. Hyde sees people (a certain friend in particular) very ably taking advantage of shorter trends, which he can never do effectively and gets upset! He also sees the few things he holds seemingly never going up, always down. He tries multiple methods, either failing, or with mediocre results.
I strive to be Dr. Jekyll! But it’s hard because I should be smart enough to make money on every darn trend! I know I can’t and it’s illogical.