Despite any obvious correlations, there is always information to be gleaned in comparative cycle work. What’s past is prologue; a benchmark – and what’s present can be contrasted with the past for bearings and innuendo within the current market environment. If your timeframes run longer than a life cycle of a mosquito, but less than a 17 year cicada – ignoring the nuances of market history will likely result in the markets swatting such ignorance – as well as your wealth. Just as a historian places certain current events within a broader historical narrative for context, the same should be applied to the markets with respect to the basics of duration, performance and character. In a behavioral system that neither “creates or destroys” market psychologies – we have yet to find a simpler tool at remaining somewhat rational and grounded within the perception of at times an irrational construct. It is all uniquely – the same.
With that said, here are a few updates of our Secular Tides concept we have commented on in a variety of iterations over the past two years. Although we have typically posted the RUT:SPX ratio in our weekly updates, for clarity purposes – we utilized the inverse (SPX:RUT) as it runs with the US dollar index. Like the previous turn in the 1990’s, the dollar has led the pivot higher as the primary “tide” – with large cap stocks getting pulled higher relative to the RUT as the secondary tide.
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The most notable divergence today when contrasted with the dollar’s last breakout leg during the first half of 1997 – was the considerable strength of the move as shown in its RSI. While the dollar’s current momentum profile mimicked the previous cycle’s range through April – it has recently diverged over the past month.
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With only a few sessions remaining in May – the US dollar index is marginally holding above it monthly breakout ~ 83.50. As we see it, the risk here for dollar bulls and precious metals bears (both of which we have helped chair the Departments since April of 2011) – is the dollar becomes exhausted and similar to 1994 takes another trip lower through the range. All things considered – we still like the dollar, but remain vigilant and open to an audible lower for a spell.