Slope of Hope Blog Posts
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This Comment Merits Its Own Post
Springheel Jack is one of Slope's most esteemed and valuable participants, particularly since he does a substantial post every weekday morning. He has my gratitude, as he does the vast majority of the community.
I noticed a comment he made recently, and I'd like to share it in its entirety (with a few items emphasized by myself) since I think it's worthy of its own post. Thanks, SHJ, for this, and everything else.
Here's a repost from my reply to Tim's post on the last page. It's sort of a resigned bear's manifesto:
Tim, great post and I know exactly where you're coming from. The last twenty months have been bruising for all those of us who have read enough economic history to expect current policies to end very badly.
Timing as with so many things is the key here. I think the old Dow Theory maxim that the basic trend of the market could not be manipulated has been convincingly disproved since March 2009. It was the first time this maxim has really been tested thoroughly and as it happens, it was wrong.
What we're left with I think is that the market can be supported by the US gvt and the Fed as long as their credibility and credit holds out. That might take a year or two even at current rates of spending and in the meantime we could see some extraordinary and obviously unsustainable things happen, as one can see in any bubble.
Pug thinks that we are starting a new secular bull market and thinks that current imbalances will somehow be sorted out by the market within that secular bull. I disagree though I'm expecting it to be sorted out by the market too, but I'm expecting that to be in the traditional manner that the market deals with any spendthrift borrower, through rising interest rates, tightening of credit and eventually default. When we see that process advance to the stage that the Fed can no longer easily borrow or print huge sums of money, the house of cards that they are building now will collapse and we will see the end of the current secular bear market in the traditional manner with an unmanipulated cyclical bear market and revulsion low.
I was talking to Trader1 yesterday about the view expressed by many slopers that because of market manipulation, technical analysis is now irrelevant. I told him that in my view that was back to front, and that as long as the market is being supported this way, it is economic analysis that is irrelevant, and the only thing likely to guide us through this is technical analysis, which has been working just fine if we tune out the broader economic picture.
Just my 2c as a long time admirer of your work. I'm no less bearish than you in the long term. I'm just further along the road of accepting that this will end when it ends, and in the meantime we should just trade what we see rather than what we expect.
EUR Seems Very Shortable Here
Wave 5 Targets (by Springheel Jack)
We've seen enough in the amazing move up in the last two days to establish in my view that a powerful new wave up is in progress. I'm not actually expecting it to get a lot further than this, though there is obviously a risk that it will. My current view is based on two main assumptions. The first assumption is that this is a wave 5 move of whatever degree, and that seems reasonable from even a glance at the action since the July low. The only two EW bloggers that I read on a regular basis, Pug and Alphahorn, both think so too. The second assumption is that USD is now in an uptrend and while there's every technical reason to think so, it could be that assumption is mistaken. We shall have to see whether USD holds or folds after the current retracement reaches target, and if it folds, we might see a lot more upside than I'm currently expecting.
On USD the retracement is well advanced and the important support level at 80.13 has been broken. Channel support is marked on the 60min chart and an alternate support trendline if channel support is broken as I'm seeing that USD and EURUSD are slightly out of sync, and if EURUSD is to reach declining resistance, USD may have to break the obvious rising support:
Taking a fresh look at the a move from the July low, it now seems obvious that ES is in a rising wedge and that the obvious target for this wave 5 move is at the upper trendline of that rising wedge in the 1250 to 1265 area, depending on when it is reached. I've added in some other trendlines to the chart that are worth noting if that level is exceeded:
In terms of shorter term charts, I'd have more to work with if we had seen a significant retracement on the way up so far, but I've done my best with what is available. All my wave 4 channels and patterns have now broken and looking at the action since the low I'm seeing rising wedges on both ES and NQ that I'm expecting to broaden into rising channels. I've marked the alternate trendlines for a break up or down from the wedges, and I'm favoring a break downwards at the moment. Here's the rising wedge on the ES 15min chart:
Here's the rising wedge on the NQ 15min chart:
I've posted the right angled and ascending broadening formation on the Vix 60min chart a few times before, and it has been a very good performer over the last few weeks. I am watching the current move down on Vix carefully to see whether the pattern breaks to the downside. If it does that may well indicate that my relatively modest equities wave 5 scenario here is in trouble. Vix closed at 19.39 yesterday and strong support is in the 17.75 to 18 area:
