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Before I start today’s post, can I draw your attention to the
post of October 3 http://bbfinance.blogspot.ca/2012/10/wooing-wednesday.html
. There I wrote the following: Normally
the 1st break, up or down is a head fake and the real move is opposite.
After 5 trading days, you can see the validity of that statement. SPX broke the
triangle to the up side and now stands at the bottom of the Bollinger Band.
The cycle low which was expected today did come on schedule.
However it closed below my target line which was 1430 in SPX futures. At the
time of writing this post, /ES (Futures) have broken below that line and is
sitting at 1422 which is convincingly below the line.
Late last month I penned a posted titled, "5% Drop in the Transports Dead Ahead". Like many of the posts that I hang out there, the HFT bots must have read the headlines and conspired to make me look a bit foolish on timing as the market has been able to tread water and the transports didn't immediately lose 5% with 3 minutes of posting like it should have!
Seriously though, as soon as I posted it, I began to look at the action in the transports over longer time frames and make some notes that I wanted to share. The first point I wanted to show is that the transports are important! There is a pretty strong relationship between the transports and the stock market, and darn it, between the real economy too. While I remind myself daily that the stock market is not the economy and the other way around, in longer term time frames the economy does matter to the market. Ben Bernanke seems to think so as well, since he believes strongly that the market can drive the economy. If he didn't, he wouldn't have spent trillions increasing his balance sheet to buy treasuries and MBS to make everyone feel like the economy is better. Remember, feelings may lead to reality….he hopes.
Very simply, we may see the 4 Major E-mini Futures Indices (YM, ES, NQ
& TF) continue their trek down to the bottom of the channel on the Daily charts below. None of the RSI readings are oversold yet,
nor are they diverging to signal a bounce. I would, therefore, assume that the
recent selling will continue.
As of today's (Tuesday's) close, downside
price targets would be:
+ YM = 13175 – 13200
+ ES = 1400 – 1410
+ NQ = 2650
+ TF = 800
To confirm any
further pullback, I'll be watching the two Daily ratio charts
below comparing the S&P 500 and Russell 2000 Indices to their respective
The first is of the SPX:VIX. Price closed today below the bottom of channel
support, but is resting on trendline support, which is a bit lower. A break and
hold below will spell further weakness for the SPX as volatility rises. A lower
Momentum reading is signalling more downside for the SPX, as there is no
positive divergence yet.
The second chart
shows the RUT:RVX. Price also closed today below the bottom of
channel support, and is resting on horizontal price support. A break and hold
below will spell further weakness for the RUT as volatility rises. A lower
Momentum reading is signalling more downside for the RUT, as there is no
positive divergence yet.
SB's DISCLAIMER: The information contained within
my posts may not be construed as financial or trading advice. Please do your
own due diligence before engaging in any trading activity.
Yeah, yeah. Pandora. Zynga. LinkedIn. Facebook. I know, I know. It's a whole new era of 22 year old multi-billionaires, all of whom, strangely, are gorgeous, white, and have English accents.
If you ever need proof that this entire thing is going to come crashing down on their heads, watch the video below. Take it from me – – – I know the Silicon Valley backwards, forwards, and stone-cold sideways. I've lived here decades. I live every day in the centerpoint of it all. I've started and sold a successful high-tech startup. I know many venture capitalists and some of the most storied entrepreneurs in this area.
But when cultural saturation has reached this level – – – when the Silicon Valley has become the new forum normally reserved for the bubble-headed pontifications of the Real Housewives – – it's all over. And you can bet your Facebook put options on that.
I posted a possible broadening ascending wedge just after the high on ES last Friday, and ES reached support trendline yesterday, bounced there and then broke down. The target is a test of the late September low at 1424. The odds of making the target are only 57% but given that this wedge incline is so shallow I'd be inclined to put the odds here rather higher. Overnight the action looks like a bear flag: