Sand Spring Advisors LLC
Metals & AD$ Too Extreme
December 7, 2003
by, Barclay T. Leib
An avid follower of the PEI Cycle called on Friday and asked what we thought of the markets. Friday, December 5th was after all a minor 4.3-month PEI cycle date, and the equity market appeared to be starting yet another downside reversal. Was this turn finally real? From a 1552.87 high in 2000 to a 768.63 low in 2002, would not 1068.21 be the perfect 38.2% retracement? Maybe one should just consider the 1074.30 actual high last week as just an irritating throwover?
Such an interpretation is of course possible. In our heart, we'd love to have it turn out this way -- as we remain stubbornly short on a personal basis for the longer-term equity move down.
And yet some of our Fibonacci rhythms now point to 1089-1091 as a possible high. The daily Fib rhythm below is one of these.
Our answer on equities is thus -- frustratingly -- that we can't be sure whether a high is in place or not. For our own account, we remain short, but almost expect that 1089 might still be seen. A turn on the exact Dec 5th PEI date would be ever so nice, but we can hardly expect such perfection. We'll give the current pattern a few more days to develop and comment on it further as it does.
Instead, we believe that it is potentially appropriate on this PEI cycle date to focus on a few other markets that appear to be reaching momentum extremes. We're sorry to gold bulls, but at current Market Vane Bullish Consensus sentiment readings of 87, and the chart construction below, we are now turning officially bearish gold -- at least for a trade. We would however suggest 12-month put options as the best way to express this view so as to avoid getting run over if we're wrong or early.
Another market that has been our worst call for 2003 has been copper. At the beginning of the year, our Fibonacci rhythms suggested that a missing low existed down toward 57 cents, and that this level beckoned. Instead, the market -- driven by strong Chinese demand -- went straight in the opposite direction. Might copper now be peaking on the PEI Dec. 5th date? We still think 57 cents will be seen at some point. This just wasn't in the cards for 2003. It will be at some point.
Lastly, look at the chart of the Australian dollar below. We well remember the last positive sentiment extreme in this market back in 1996 above 80 cents. I personally caught that high while running Proprietary Trading at Societe Generale. Another high around .7400 -- a 76.4% retracement of the 1996-2001 decline -- should be near.
This pattern appears: 5-years down; 2-years up; How about 1-year down now into the very important Dec. 31st, 2005 PEI cycle date?
Perhaps we will regret these ruminations and prognostications on the currently oh-so popular metals and AD$ markets, but it would appear to us that the "inflationary recovery story" is now over-subscribed. Instead, it's time again for a new whiff of deflationary wind.
Paying attention to the news, we also suddenly hear of weak toy sales -- KB Toys, BJ's, Mattel, and FAO Schwartz all having sales problems. Walmart discounting is immediately blamed. And yet, Walmart itself is starting to stumble, with a still horrific looking chart pattern.
Is all of this the first sign of a tapped out consumer? Throw in a little bit of snow this past weekend, and maybe America's "shop 'till you drop" proclivities are finally on the wane.
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