Slope of Hope Blog Posts
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Here is a look at the XLF that I've been watching closely since I posted the Euribor numbers the other day (Sept 16th) which I thought might be a tell as to the direction of the market. The truth is that banks have been sluggish lately as they have churned around in the upper portion of the range over the last couple of weeks.
Even after this post, we saw a breakout that started to get me excited and then it has turned out to be the ultimate head fake (what is new since all patterns have turned out to be head fakes?).
The chart posted below is a good one in my opinion because it shows a confluence of many trend lines all centered at the $14.75 area. As we open up this morning, it wouldn't be too much of a stretch for XLF to drop to the $13.45 lower portion of the range we've seen and then bounce.
I don't want to overdo things here by getting too bearish and assuming that we are going into the pit. The recent trend has been to open lower and end the day higher, so I will sell all of my short trading position (long FAZ calls) this morning at the open just to lock in some gains. There has also been a recent trend to have weakness at the end of each month and especially at the quarter end and then rocket higher after portfolio managers complete their window dressing for regulatory disclosures.
TRADING STRATEGY –
Overall, I'm harvesting gains (last night was the harvest moon) and not getting too bearish and greedy. I like nailing a trade like I did yesterday where I bought those FAZ calls at the close, but I don't want to endanger those profits by getting greedy. The recent strategy to accumulate longs on weakness has been profitable, no reason to change this now. I will look to add to long positions as we near the bottom of the range (if we get there).
I'm still an uber bull on commodities since Bullard's telegraph of the Fed QE2 strategy in July and August. Commodities have been on a tear and the dollar has been just clobbered thanks to our great leadership. We'll probably see more of the same and countries are really getting after trying to crush the values of their currencies. Competitive devaluations are pretty nasty and it is every man for themselves right now. Just ask the Japanese and Brazilians. Look for active devaluations as this is really heating up. China and Japan tensions are getting hot. Watch this issue.
Here is one last parting shot on TLT. Remember when the market was rallying and everyone was saying that the long bond (treasuries) were a buble and they were going to blow up and everyone wanted to buy TBT forever? Pretty interesting reversal again and still over that important $100.15 level that is market here as a breakout. As mentioned several times, we will have 3% 30 year mortgage rates and we will only get there when TLT stays at these levels and higher. I don't anticipate going back underneath the $100.15 level for a long while.
My roommate runs around all day saying things like, “I’ve earned my stripes, cuz!” He talks about the “enemy” and how I shouldn’t associate with them, he also talks a lot about what defines manliness . Nobody is sure how he has earned his stripes or who the enemy is, but that is why we call him the Colonel.
I was excited to see the new military stars in the comment section. Like the colonel; I feel “I’ve earned my stripes!” here, but will be proud to have the status of Private Goodwin if I’m demoted to one star.
The new ranking system also got me thinking about how I used to visit my grandpa and his partner Dennis as a child. Dennis was an avid WWII buff, and used to tell me all sorts of fascinating war stories. One he spoke of was how the secret Nazi Rainbow Warrior Unit would quietly infiltrate European counties to weaken the men of an opposing army before blitzkrieging the whole place.
Dennis said that the reason the Rainbow Warriors were successful was because their leaders knew they had a good group of men behind them, ready to bring it up the rear when the hot action started.
This chart then came to mind, Worden’s T2100 Advancing/Declining line which I check at least once a week. It is one reason I have been careful on the short side the past couple months. Often it seems that when a divergence occurs with the A/D line and the market, the A/D line wins.
Analogies have been discussed lately, so here is another one related to the military and A/D line. Trouble is afoot when the Colonels are leading (SP500 moving up), and the warriors are not following (A/D line is falling). However; this chart shows that the Colonels have been basing sideways, while the warriors are gathering behind them with their broadswords at attention. This chart seems to be telling me to buy the dips, and I could see Tim's analogy fitting with this. Another correction down, then significant move up.
I’m ready for action, and off to go polish my broadsword. Good luck everyone!
Well the big news today is obviously that ES broke support overnight and that a retracement has started that should take us through today and tomorrow. I've marked the main targets on the 60min chart:
The first key target to fall was the IHS neckline at 1125 ES and that has been broken on an hourly close basis. That makes a visit to gap support at 1110 ES likely now, and if that gap can be filled then the wedge target is 1099 ES. Add 5 points for the SPX figures of course.
This is a very interesting development technically as a conviction break of and close below the IHS neckline will weaken that SPX IHS considerably, and that's what I'd like to see in trading hours today.
On USD we saw a return to the H&S neckline yesterday and an intraday move below it. USD is still in a strong downtrend but the odds of seeing a decent bounce here are pretty good:
On copper there was a strong move up yesterday within the recent rising wedge. I played around with the lower trendline a bit yesterday night and this is a very good quality wedge. On a break below the wedge I would expect to see a return to rising support in the 325 to 330 area. On a break above I would expect to see a move to rising resistance in the 390 – 400 area:
Oil is testing the recent support trendline, and with the drop on ES / SPX I'm expecting to see that support break and a return to the H&S neckline just over 71:
I'm expecting that we may well see a big move down on ES by the end of the week, probably tomorrow, and I'd put the chance of seeing an 1100 ES retest by then at about 50%. At the moment I'm expecting that to be followed by a move back up next week.