Market Anthropology: Chartcap – Debtolution

Sunday, July 31, 2011

Chartcap – Debtolution

Here’s a recap from my notes this week with some context provided to connect what I perceive as the dots. Bottom line is if you are an investor looking for the entrance or exit ramp these days, it pays to extend your timeframes in a listless market such as this. With that said – the prevailing wind direction has been shifting so frequently that by the time it materializes on the charts – it has typically been too late for many traders to duck the boom. I have been able to maintain consciousness by sticking to simplicity in contrasting the several secondary and tertiary indicators that I utilize as reference guides. These continue to be various asset class relationships and like market environments that have colored my near term expectations. 

As the debt ceiling debate comes to a head this afternoon, I believe it is wise to keep in mind that the weakness encountered in the market this past week comes from a conglomerate of sources and was more a reflection of a moderating economy than the mexican standoff between our dysfunctional political system. Certainly, it has complicated an already clustered dashboard of issues for traders to focus on. In this regard it may alarm money managers that when the debt ceiling debate is resolved and the market exhales with a champagne rally, it pivots once more back towards the bottom rail of support that comes into view on the weekly charts ~ SPX 1267.


“And while a debt ceiling compromise of some kind is very likely in the near term – I believe a tradable low for the year is still several weeks away and likely lower than the one carved in early June. The year long consolidation will eventually be broken – and most likely in the fall with a strong forth quarter rally. 

Until then it pays to be patient and pragmatic with opportunities in the near term more likely on the short side of equities than long.

A closing high above the late April top on a weekly basis would likely pivot my trading posture from opportunistic on the short side to quite bullish. Considering we are currently trading towards the top of that range, it provides a tight stop with ample potential on the short side of equities.”  The Achilles Heel


“In some of my first notes in early spring I felt that this year’s market would be personified as rangebound, because of the great uncertainty in emerging from the Fed’s extraordinary monetary policies. 

This forecast drew on the market’s recent historic parallels in emerging from a recession and reacting to the Fed’s initial response of decreasing monetary stimulus. The market in late 1983 and 1984 consolidated within a range for approximately 18 months before breaking out to new highs after the Fed raised interest rates. The market in 1994 was rangebound for approximately one year after the Fed raised rates. And in 2004 the market consolidated for the better part of a year as the fed began removing the extraordinary monetary policies now deemed laissez-faire. It is interesting to note that the last leg down to the final low of that range began after the Fed started raising rates in late June of that year. On a relative basis – we could look at the end of QE2 in June as an inflection point in current monetary policy.” Home On The Range

“Judging by how the precious metals market has responded this week to whispers of resolution in the debt debate (quick pockets of weakness) gives traders some insight as to how the currency markets, and by extension the precious metals market, will likely respond once the issue is resolved.

The euro hit its 61.8% fibonacci retacement level Tuesday from the early July low and has pivoted sharply back through the descending triangle on the daily chart. Judging by the momentum oscillators it has a ways to run back towards the bottom of the formation ~ 140.” Debtageddon

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(Positions in UUP, ZSL & GLL)

Disclaimer: This is not investment advice. Always do your own due diligence. Erik Swarts is not a registered investment advisor. Under no circumstances should any content from this website be used or interpreted as a recommendation for any investment or trading 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