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Connecting the Dots

While we appreciate the instant gratification, the recent news out of Cyprus on Saturday was nonetheless surprising in light of our silver:gold/SPX performance model that fulfilled the criteria of a sell signal at the end of last week (see Here). Not making the comparison that some in the media have extended this weekend, but we couldn't help but notice the last occasion the spread flashed concern was directly before the Lehman Brothers bankruptcy in September 2008.

Silver:Gold SPX performance Spread

Despite the newborn fracture in the equity markets, the now maturing and cascading trend in the euro is starting to make greater headline and fundamental sense - in light of the explosive correlation conditions highlighted in the ECB Hubris Meter chart over the past two months.

Euro USD Index Spread

Come Monday, the euro's Mirrored Pivot track should fulfill another downside proportion on its way to likely an initial test of long-term support ~122.

2011 Euro versus 2013 Euro Chart

Although we recognize the strength of the US recovery to-date, we feel the primary driver of the US dollar is considerably less motivated by the vintage of economic prosperity that drove its last secular turn. The long and short of things - we feel the juxtaposition this time around the block looks weak.

US Dollar                                               Qe versus QE Free Weekly Chart

Downstream, the asset relationships that are heavily impacted by dollar strength / euro weakness continue to appear vulnerable to further declines.

Euro Silver Weekly Chart

1992 Nikkei versus 2013 Silver Chart

Gold 1979-1981 versus Gold 2011-2013 Weekly Chart

Gold versus US Dollar Index Monthly Average Chart

US Dollar Index 2000-2003 versus Australian Dollar Weekly Chart

2002 NDX versus 2013 CRB Daily Chart

RUT:SPX USDX Weekly Chart

We will be closely watching the Shanghai Composite Index to see if it continues to roll-over - or rekindle the trend higher as the breakout leg of the 1982 SPX comparative did. Should the uptrend reestablish itself, we would consider it a major positive proxy for the balance of growth X-Europe and primarily driven and smoothed by US demand and Chinese stimulus. Color us skeptical to say the least.

1980-1983 SPX versus 2008-2013 Shanghai Weekly Chart

 


* All stock chart data originally sourced and courtesy of www.stockcharts.com and the Federal Reserve Economic Database

* Subsequent overlays and renderings completed by Market Anthropology

* A labeling error on the previous Silver:Gold/SPX Performance charts was corrected this week from: 03/17/00 to 03/24/00. The data was always accurately derived from the weekly high on 03/24/00

 

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