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Is the Concept of Market in its Entirety Logical?

Uncertainty prevails, as per Chairman Powell's assertion this week, with the statement, "It's far from clear what steps we ought to take." This sentiment is echoed across various market sectors.

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Uncertainty prevails as Chairman Powell echoes his sentiments, stating, "It's far from clear what...
Uncertainty prevails as Chairman Powell echoes his sentiments, stating, "It's far from clear what course of action we should take." The market sectors seem to be equally baffled.

Is the Concept of Market in its Entirety Logical?

Revised Article:

In today's topsy-turvy market world, the traditional relationship between market sectors is as irrelevant as a fortune cookie's advice. If the key player is the US dollar, what does it say when its Index plummeted to a new 3-year low just last month? Well, it screams uncertainty, my friend!

That got me thinking, so I dove deep into the world of markets, specifically the ones discussed in John J. Murphy's 1991 book, "Intermarket Technical Analysis." You know, the one that takes apart what different market sectors were doing pre-Black Monday 1987, a kind of a market wake-up call that put me on this financial analysis path.

In Murphy's book, Chapter 13 gives a lowdown on how the key market sectors related to each other back then. He broke it down into six stages:

  1. Bonds turn up (stocks and commodities falling)
  2. Stocks turn up (bonds rising, commodities falling)
  3. Commodities turn up (all three markets rising)
  4. Bonds turn down (stocks and commodities rising)
  5. Stocks turn down (bonds dropping, commodities rising)
  6. Commodities turn down (all three markets dropping)

But here's the twist – today, these relationships seem as lost as a drunk sailor in the midst of a storm. In this era of chaos theory, global markets rely on what a single person says, making it almost impossible to track the absolute intermarket connection.

Speaking of connections, I've got two of Murphy's books sitting on my shelf – this one and his famous "Technical Analysis of the Futures Market" (1986 edition). Although I believe technical analysis has gone the way of newspapers – largely irrelevant in this era of algorithm-driven trade, I never abandon Trend Analysis. heck, I still study trends based on Newton's First Law of Motion applied to markets: A trending market will stay in that trend until acted upon by an outside force, with that outside force usually being large investment money. But enough about the patterns, indicators, trend lines, etc. – those are so last century!

So, does the market make sense in early May 2025? Here's what we got:

  1. Long-term Trend of US 10-year T-note futures (ZNM25): Sideways on its continuous monthly chart, leaving investors with a healthy dose of the blues.
  2. Stock Indexes: The S&P 500 ($INX) took a nosedive in early April, plummeting more than 20% from its February high, entering the bearish territory. However, the Index saw a rally during the rest of the month, a scene that carried over into early May. I call it the West-coast embrace – a bear hug followed by a scorching kiss!
  3. 3 Kings of Commodities:
  4. Gold: Hit a high of $3,509.90 on April 22 before tumbling down to $3,209.40 on May 1. Bounced back to a high of $3,448.20 on May 7. Yo-yo much?
  5. WTI Crude Oil: Fell to a low $55.30 overnight through Monday morning, despite the market's forward curve remaining in backwardation. Huh? I know, it's a mind-boggler!
  6. Corn: Showing a long-term sideways trend similar to what was seen between 2014 and 2020. Corn, baby, corn!
  7. US dollar index (DXY): Dropped to 97.92 in April, its weakest mark since March 2022. Ever since, it's been gaining ground, reaching 100.86 by early May. A stronger dollar hinting at a possible rate hike or simply reacting to higher short-term rates due to yep, you guessed it – uncertainty!

What's a long-term investment analyst to do with all this chaos? Here's my game plan:

  1. Corn: My key market and, for now, I'll keep using the futures markets high implied volatility, rolled to the December 2026 issue.
  2. Investments in US equities have moved into short-term Treasuries based on the S&P 500's long-term downtrend during March.
  3. Long precious metals, either gold or silver, as a hedge against other investment sectors.

The bottom line is that I agree with both Chairman Powell and Warren Buffett – the only thing certain about this situation is uncertainty. Do markets make sense? My Blink reaction is an emphatic "maybe," followed by a shrug of the shoulders!

Sources:

  • Link to the piece on Salon.com
  • Traditional Intermarket Relationships Deviations
  • interpretations of Chaos Theory and Intermarket Analysis For Investing in 2025
  • Investing Amid Market Distortions and Uncertainty in 2025
  1. In light of the market analysis presented, the long-term investment analyst agrees with Chairman Powell and Warren Buffett, recognizing the uncertainty that prevails, especially in relation to the unreliable intermarket connections embodying a hinge for future trends.
  2. The sideways trend of the US 10-year T-note futures (ZNM25) and the volatile movements in the S&P 500 index call for a careful approach when evaluating the markets, making finances more challenging for investors and businesses alike.
  3. The predicted hike in interest rates with a stronger US dollar index (DXY) implies a need for keen observance of global market reactions, as such events might have a significant impact on the markets in 2024 and beyond.
  4. In the face of uncertainty, the strategy for long-term investments includes focusing on the key market, such as corn, employing futures markets high implied volatility, while maintaining a hedge in precious metals, such as gold or silver, as part of diversified portfolios for the investing world.

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