Slope of Hope Blog Posts
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Sorry to Tim … I drafted this post Thursday pre-market by taking a quick copy/paste from my own blog from my site … the pictures didn't work so Tim could not post it. I did a follow-up post after the market closed on Thursday so I will add that to the bottom of the original post. I think it is worth the read so I hope you all enjoy it.
======== Original Post pre-market on Thursday =============================================
So was yesterday's action a warning shot across the bow, pointing to more weakness in the days ahead? There were plenty of technical reasons why a pull-back in the equity markets was overdue. I'm not going to go into those with this blog post … I wanted to talk more about what we should be looking for in the immediate few days ahead.
There is an old adage that tops are a rounded and bottoms can be "V" in shape (quick, strong thrusts). If we are making a top in the equity market, the process should take several days before the real fireworks start. If all we are doing is making a minor correction on the way to higher levels, we will again do that over several days.
I've gone over how to monitor a change in direction with earlier posts, so I won't re-hash that. What I'm going to do with the rest of this blog is to try and look back at a recent period of topping action to give people a reminder of what the next few days could look like.
It is very rare to find any two periods in time to be identical, but they often will look alike. So having that caveat out there, I would like to look more closely at the topping action from back in April 2010.
Now the action in April 2010 came at a different spot in the larger trend … just as an example of that, the April rally end came after only an impulsive move that was 54 days long. The move off of the July lows on this thrust is already at 138 days. QE2 has been very good for investors.
Enough with the PG movie warnings … how was April's topping action??
Well, I had forgotten what these feels like, but it was a good week. The market seems to finally be fracturing, and more importantly, the items which should be experiencing bullish breakouts are rolling over limply. Here's to more of the same next week!
Oracle Corp. (ORCL), which has been up nearly 50% in less than six months, showed strength again Thursday despite the correction in Nasdaq. ORCL jumped 70 cents, or 2.23%, on one of the heaviest-volume sessions in the last couple of months and closed at 32.31, just 4 cents below the highest price since 2001.
I expect continuation of current momentum and a possible test of the upper trend line around 33.80 area in the next couple of trading days. Preferred entry (buy stop) price is at 32.55, with a stop loss at 31.65.
Originally published on TraderHR.com.
In my video a couple of days ago, I specifically called out Jones Apparel as one of my shorts, based on its massive head and shoulders pattern. Well, it looks like the pattern is starting to really kick into gear, as the stock is down double-digits this morning. There is almost nothing supporting the price at this point, and as outlandish as this might sound now, I'm targeting a low single-digit value for this one.
NQ was a lot weaker than ES yesterday, and so rather than NQ hitting the lower trendline of the megaphone at 2266 at the same time ES hit wedge support at 1257, it hit while ES was only at the daily 20 SMA at 1267. They both bounced there and now we will start to see the shape that this correction will take by seeing how far the bounce goes. It's still possible that we could see new highs before the correction really gets going, but there's now been so much technical damage elsewhere that I think that's unlikely. On both NQ and ES we now have fully established declining support trendlines. On NQ that trendline is shallower and I'm expecting it to break on the next big move down as the megaphone, or broadening top to give the proper name, breaks downwards. As for bounce targets that's hard to say, but I have a declining resistance trendline in the 2300 area that I'll be watching carefully:
On ES a declining support trendline has been established that will be a buy level on the next big move down. The big rising wedge support trendline was not hit at 1256 yesterday and is unfinished business. Declining resistance for today is in the 1287-8 area. If declining support there is broken then a new high or double-top is still on the table:
Elsewhere on the equity indices the RUT made a nice support break yesterday and has formed another broadening top. Interestingly the target (on IWM) for the broadening top would be the strong support level at 74:
Worldwide there's less damage so far. I always watch EEM as an indicator and there's a very promising looking double top with negative divergence on the weekly chart there. The shorter term support trendline needs to break but when it does it will look like a very attractive short:
EURUSD disregarded my beautiful chart yesterday and went on to make a new high overnight. GBPUSD made a significant support break though and AUDUSD broke a major support trendline, so I'll console myself with the thought that at least EURUSD made that marginal new high with significant negative divergence on the 60min RSI. It should reverse soon I think, but we may see it go higher again while the current equities bounce is ongoing. I've given some thought to the last chart I'll post today, as there are a lot of interesting charts to choose from, but I think I'll have to go with the silver chart, where the H&S neckline and ten week rising channel both broke down yesterday. The target is in the 25 area at a significant support level, and I'm hoping to see a decent bear pattern for the decline so the bottom can be easily identified if it isn't there. I'm a long term silver bull so the low will be a major buying opportunity IMO. It is worth noting however that the 25 level is also a potential neckline for a much larger H&S, and that there is therefore the possibility after a bounce there, of a much larger decline later in the year:
I started off writing this post with the thought that I would combine it with an argument that we have just seen a very major top on commodities, but there were just too many charts to do that. I've therefore written a second post on that subject that I'll publish tonight as a weekend read.