Market Anthropology: the Illusion of Strength

Sunday, February 5, 2012

the Illusion of Strength

Here’s something I have been keeping an eye on as a possible guide coming out of the next pivot. It is the retracement blowoff that culminated in the markets in May of 2008. Most of these charts are of the underlying assets respective hourly 10 period SMA’s. Notable similarities in the equity markets structure, volatility, and the equity to bond ratio (SPX:TLT). Notable divergences in where the SPX peaked relative to higher beta, but this was primarily due to how the financials strongly led the market lower in the first phase of the breakdown. The Russell eventually caught up and exceeded the SPX’s losses during the fall swoon, in just another example of where price gave the illusion of strength under the guise of momentum. 
Here’s a quick look.