Chart 'em sat sapienti est


6 comments:

Elmer Habavilo said...

GM - for the unwise, what are you thinking here? both of those moving upward away from / through the trendline? interesting that EEM and silver are moving so closely together... both reciprocals of the USD in large part I guess

GM Jenkins said...

Elmer, check out the correlation (the red indicator at the bottom) between silver and emerging market equities. When it's negative (e.g. now, at a level reached only 4 other times in previous decade), expect that correlation to become positive soon. Indeed it looks like it's turning up.

Then note that EEM looks like it has failed to break through a major line of resistance. Which should provide a clue about which way silver should go.

Elmer Habavilo said...

ok , interesting, I see what youre saying... lets see, I don't know that we can totally say that EEM has failed at that line at this point... I think the highest EEM reached the other day was around 45.8, but IMO we need maybe a few more trading days to make a decision on the failure or success at breaking the trendline... also, ive heard it said that the 3rd time is often the charm with respect to break trendlines... idk ...

To me what is noteworthy about the juxtaposition of Silver and EEM is the degree to which the two charts are correlated generally (i.e., in the correlation indicator red line graph at the bottom, there is a much greater area above 0.00 line than below the 0.00 line over the last decade). Also, EEM looks a bit like a leading indicator for the Silver chart.. e.g., the topping out of EEM in the fall of '07 seems to presage the topping out of silver in Mar '08... Also, silver has such a strong base built over the last 6 years at 17 - 18, that I don't see it going below there... so Im neutral to bullish on silver in the intermediate term.. and then your two charts provide an argument for being similarly neutral to bullish on EEM... a reverse causation scenario from what youre suggesting... idk, for what its worth

GM Jenkins said...

Right, I'm not saying the EEM has necessarily failed. The last time the correlation indicator got this low, which i noted back in May, EEM was at another resistance line, the starting point of which coincided with the April 2011 silver high. On that occasion EEM broke through, and the correlation w/ silver (as expected) eventually turned positive, meaning silver rallied as well. This time, though, i suspect the opposite will happen.

Daniel said...

http://i.imgur.com/6WgMq4v.gif

GM Jenkins said...

Daniel - beach towels and lollipops, eh? So i take it your Schlieffen plan worked? Keep us posted ...