We have been in this position before only to discover that the biggest challenge to be faced is boredom. Not boredom with the markets exactly but instead boredom with writing the same things and making the same arguments day after day after day.

We tend to work well in front of the markets so we can create a set up for a trend change months in front of the actual event. By the time the markets finally line up our tendency is to move on to the next set up which ends up being more intellectually than financially stimulating.

The point? We are going to do our best to be boring this time around which means that we are likely going to be making the same arguments on a fairly regular basis. If, as, or when things stop working we will move on to something new but for now we have a thesis that is going to require some time to simmer.

First is a chart of the Nikkei 225 Index and share price of Citigroup from 1991 into early 1993.

Next is a comparison between the Nasdaq Composite Index and the CRB Index from 2001 into early 2003.

The dominant theme- the theme that rose to a bubble peak- during the end of the 1980's involved Japanese asset prices.

The dominant theme- the theme that rose to a bubble peak- during the end of the 1990's involved the Nasdaq.

The argument is that Citigroup began to recover around the end of 1991. The CRB Index represented the leading edge of the cyclical recovery which began at the end of 2001.

The previous decade's dominant themes did not make a bottom until nine to twelve months after the leading edge turned positive. The thesis is that at the beginning of 2012 we are in the very early stages of a cyclical recovery similar to Citigroup in 1992 and the CRB Index in 2002 even though the dominant theme from the previous decade won't reach a bottom until some time closer to the end of this year's third quarter.

Equity/Bond Markets

We used these three charts on yesterday's third page but have moved them up so that we can expand on today's first page argument.

Quickly... when the ratio between Wal Mart and the S&P 500 Index starts to trend upwards it tends to mean that there is downward pressure on energy prices. However, in both 1997 and 2008 there was a second price peak for crude oil nine months after the WMT/SPX ratio began to rise.

In both instances the entire cycle took roughly 18 months. In other words once the WMT/SPX ratio began to trend higher with corrections generally holding near the 50-day e.m.a. line the ratio did not peak and oil prices did not bottom for about 18 months.

Now... consider how this fits in to the first page thesis. The chart below shows the current situation so a case can be made that the WMT/SPX ratio began to rise at the end of the first quarter in 2011.

If history were to repeat then there are two points in time to consider. First, about nine months after the ratio begins to rise there should be a second top for crude oil. This fits in very nicely with what happened through the final quarter of last year.

Second, the price of crude oil would be expected to bottom out around the end of this year's third quarter. On page 1 we argued that the dominant theme from the previous decade would be expected to wash out around the late summer or early autumn of 2012. Strangely enough the 18-month cycle suggested by an upward swing in the WMT/SPX ratio at the end of March in 2011 points to a similar bottom for energy prices very close to the start of the final quarter this year.