Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

The Economic Food Chain

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In a world where the currency market is the major mover and shaker of global politics and the world economy, it’s fascinating when we recognize that it is the least known global market, and it’s filled with misnomers and misconceptions about investing, forex charts, and the art of currency trading.

The economic food chain is like a regular food chain. The food chain has bottom feeders and it has middle level feeders, and then big time predators rule the chain. The economic food chain is structured in a similar fashion.

People who trade manual labor for money would be at the bottom of the economic food chain. Then the commodity and future traders enter the chain; they trade goods for money. Above them are information traders who sell information for money, and then we have the money for money traders like bankers, and ever since the Bretton Woods Treaty was abandoned in 1990, which was the system where a country maintained a fixed value exchange rate for its currency, the main predator or group of predators in the economic chain are the country currency values, which are measured against currencies in other countries, which is better known as the Foreign Exchange Currency Market.

The Foreign Exchange Market Affects Everyone

This economic food chain affects everyone in one way or another. When the dollar’s value drops, buying power decreases, which is the melting pot for inflation. Even though the Bretton Woods Treaty was put out to pasture, and we changed our worldwide financial books, new books have not been written to deal with these new mighty predators.

Most people believe inflation comes from a business cycle, but it comes from printing money and creating an excess supply. Since the new predators are connected by forex trading, there are elements in the system that didn’t exist before. Foreigners can buy local currency and dry up the supply. Local central banks then print more currency to compensate, and a new inflationary tool is created where currencies compete for their own destruction; this new game is called who can inflate more, and how fast can they do it.

In a global currency market filled with countries that are dependant on each other for goods and services, especially in industrialized nations, and in particular the G8, the value of a countries currency determines how many goods and services can be purchased and imported. The delicate balance of financial power is obvious in the forex market; there is a constant shift of value from one currency to another. When we need to exchange Dollars for Euros in order to buy products or use services from Europe we fuel a predator, and when Europe doesn’t return the favor by buying our goods and services, because the value of the Dollar has changed, we pay the price in higher costs, which is one of the elements of inflation.

Our lack of understanding of how the Foreign Exchange Market works is creating new global predators, which impact our modern lifestyle in some way. But in spite of all the risks, and the inflation threats that are associated with the currency market, investing in the currency market can be a low risk personal venture if you’re willing to do some research, and find a professional that can evaluate the performances of different strategies, and then choose one that fits your investment goals and risk profile.

Market Musings

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I was going to do a video, but I decided to just put a few charts together instead.

Even though the Dow was up for the 182nd day in a row today (or whatever the number was; it hardly matters at this point), I actually posted a profit in spite of a heavily bearish portfolio. This is probably because my shorts are very much in the small-caps space, and small caps fell today in spite of a strong Dow and even stronger Transports index.

The bears got a helping hand today by strength in the dollar. If you look at the EUR/USD on a minute bar basis, you'll see a sudden swoon, driven by rumors of an imminent rise in the discount rate. But even though the dollar was quite strong, in the end it didn't budge the S&P. The EUR/USD dropped 85 basis points, whereas the S&P dropped………3! So the strength from the bulls was able to hold up well against a very weak EUR.

On the daily chart below, you can see the pattern being hammered out is very similar to the "Gee It Should Push Higher From This Base" that we saw in the third week of January. Of course, the failure of that base brought in the far-too-short swoon in the market, which tragically terminated on February 5th.


A few days ago, I pointed out the NASDAQ Composite was approaching the underside of two major trendlines. Well, the index isn't exactly cowering in fear at these lines. It has managed to push a tiny bit above each of them. I tend to be a stickler about trendlines, preferring they stay in place as opposed to taking on the properties of rubber that some technicians use. The cold fact of the matter is that these trendlines are both – strictly speaking – violated.


The $NDX is murky as well. The dark green  horizontal line you see is a major Fibonacci retracement level, whereas the diagonals are fan lines dating back many, many years. We are still safely beneath the fan line that served as resistance for the January push higher.


As for precious metals – – I have no meaningful positions right now, but I say again that I don't see how anyone could be bullish about this market. I know all the arguments about fiat currency, trillions of dollars in new paper, a store of value, and all that hoo-ha. But I'm just a simple chartist, and this chart doesn't seem like a compelling buy to me. Indeed, it seems positioned to fall, just as it did back in 2008.


Our old friend the Russell 2000 has both a Slow Stochastic and RSI configuration that is sky-high; I've highlighted a couple prior instances of similar configurations, the first of which didn't amount to jack squat, and the second which preceded a decent tumble. I wouldn't be a buyer at these levels, to be sure.


That's it for me today. We've got one more day of this confounded OPEX week to endure, and although the Econoday calender is utterly blank, and quadruple-witching hour should bring some chaos. I'll see you Friday.

Has 61.8% Stopped the SPY?

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The market has rolled its eyes and continued marching upward for most of the past twelve months, in spite of whatever trendlines, oh-so-extended wave patterns, Bradley Turn Dates, Biblical Cycles, Rainbow McHugh Phi Mate Dates, or God-knows-what-else has been thrown on a chart.

I still think there's a meaningful amount of utility in Fibonacci retracements, so I use them regularly. I notice that the SPY has bumped up against its 61.8% retracement. Only time will tell if the market backs away from here or continues to roll its eyes. This price level is also important since it represented support before all hell broke loose in the glorious salad days of Autumn 2008.


The ES Rising Channel (by Springheel Jack)

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The ES rising channel is very strong, and has resisted all attempts so far to force it to break down with the sheer power of persuasive charts suggesting that it must, but while we're waiting for inevitable break, whenever that might be, this ES rising channel is extremely tradeable, particularly for futures and CFD traders, as there are multiple useful good support and resistance levels within it:


The first set of support and resistance trendlines are the internal parallel diagonal trendlines within the channel. These have been important as you can easily see. 

The second set of trendlines have been even more important so far however, and they are the horizontal trendlines that I have marked in red within the channel. These give very useful entry and exit levels for short term trades as they have been extremely good in establishing horizontal trading channels within the main rising channel. 

Once a new horizontal support/resistance channel has been established, it is rarely broken. You can see that only one level has been broken so far, and that was at the touch of the bottom channel trendline on Monday. Once broken on the way up, these then act as an effective support floor until the next horizontal support/resistance level up has been broken. 

As for the current channel, it was established yesterday with a ceiling at 1165.5, having risen straight through an intermediate channel on the way, which has happened once before lower down. The floor of the new horizontal trading channel was therefore unconfirmed until we had a spike down near the close to confirm it, and I drew the new floor level then and posted it in various places. You can see that the floor was tested again overnight and was effective support. 

A couple of further points about the main rising ES channel are worth noting. 

Firstly, the bottom trendline of the channel is now at 1153. If that is broken with confidence then the rising channel will finally be broken, and a significant interim top is likely to have been made. That breach would have to be sustained until the end of the trading hour, as this is an hourly chart, and both the top and bottom trendlines on the channel has been breached for short periods before within a trading hour, so a break below that was not sustained would not be a definitive break until the end of the trading hour. 

Secondly, the last touch of an outer trendline on this channel was at the bottom trendline, and we should not expect that the bottom trendline will be touched again before the top trendline, currently at 1176, is touched first. A touch of the bottom trendline again before that happens would be a part-rise and a strong signal that the channel is likely to break downwards. By no means would that be a certainty until it does break, but that will give a useful signal that it is time to consider repositioning short. 

That said, the obvious short term trade there would still be to go long, as the risk/reward for a long there with with a stop four points below would be so high that it would be a good trade in any case. Definitely a trade to use a tight stop though.