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Yesterday, for no particular reason, I decided to look at how the AUD/JPY stacked up against the S&P 500. I was completely stunned by the result.
For years on end, in a relatively normal market, these two instruments were in virtual lockstep. It's actually quite freaky. Then, after the tragic September 2010 Jackson Hole insanity, these two disconnected.
There is still a gravitational pull, but one glance at the chart shows you where the S&P has been levitated thanks to Bernanke's shameless cheating (blue line) versus where it should be if the market were not so obscenely mutated by trillions of dollars of Fed manipulation (white line). Suffice it to say the market is quite overvalued.
A short watch-list of stocks to swing trade from if this market reverses
While I believe the bearish case has been slowly diminishing over the past few days (Editor's note – not me!), I don't believe the bulls have shut the door on any prospect of this market reversing and heading lower yet again.
As I always do, I maintain a long and short watch-list at all times because you never know when the unexpected is going to happen.
At the time of this post, I've included my best short setups that I can find in the market right now, but I'm not short any of them at the moment. Instead, this is the list I will work from if this market reverses course and starts to head lower again like it had been doing prior to last week's rally.
So keep this list handy – there are a number of gems that I would love to take right now, while others need further developing.
Some individual short setups to keep a close eye on
There are some very nice bear-flag breakdown patterns that are developing, namely in Youku Tudou (YOKU) and Saint Jude Medical (STJ).
While others like Corsan Limited (CZZ) has moved nicely in a long-term trending pattern, but is showing clear distribution patterns and looking to finally give traders a more extensive pullback.
TJX is an active short trade that recently came within a point of hitting the first target just
before the market bounced and once again looks to offer an objective
short entry here as it back-tests the recently broken S1 support level
(now R1, resistance). T2 (28.30) is my preferred swing target on this
trade over time and would provide roughly a 35% gain from current levels
if hit. Therefore, stops can be set as high as 10% above current
levels and still offer a 3.5:1 R/R although one could also short here
with a stop not too far above resistance on a move over the 44.40 area,
thereby giving this trade an excellent R/R of 15:1. Daily & 2-day period charts below:
As we settle into the holiday malaise one thing keeps coming across
the airwaves, and print with more intrusive annoyance than a new colored
or shaded shopping day advertisement: Warren Buffet.
Over the years he has a great track record and has delivered share
holder value worthy of praise. So let me be clear that I respect, and
applaud it. However the sycophantic drooling over what he says; or the
unquestioning must follow cult like reactions to every word mouthed is
getting not only old – it’s down right pathetic. Not only from investors
of all stripes, but the media as well.
When it comes to investing one term that gets repeated over, and
over, and over again is “I worship at the altar of Mr. Buffet.” I
understand using hyperbole to make a point. Yet what you hear next 9 out
of 10 times is that person carrying on as if there really is some alter
within a building where this person or others receives edicts from one
of Warren’s many investing guide books. (Sorry I meant gospels) As to
instruct and follow his written word as he has written.
The US indexes predictably rallied during the happy holiday week,
with Friday putting a nice punctuation on the bullish proceedings. In
fact, I caught myself looking at the TECL, NUGT and individual gold
miner positions in my trading account with a big dumb smile on my face.
Then I sold them all. Sidetracking for a moment, I have found that I
need to get back to more active trading so I am going to further fund
this account and ruthlessly trade this market in a discreet account for
Back on the post’s theme, the holiday volume was suspect to say the
least. I have a preferred macro theme for the intermediate term
however, and it is bullish for an extended rally pending a confirmation
of, or more likely a cleaning out of last week’s bullish enthusiasm.
However, for the intermediate bull theme to come about, the market
probably needs to take a break first and do some consolidating or bottom
testing to build a good rally platform. Otherwise it could be going on
to double top city and a more bearish intermediate view.
Both SPX and NDX are at visual resistance zones after retracing 50%
and 38% respectively of the sharp holiday rally. Upside limits are 1425
on SPX and 2670 on NDX. If they get above there then the immediate
term analysis will probably degrade on a risk vs. reward basis. So Mr.
Market, you are advised to take a dump soon and do some bottom testing
or at least consolidate with a downward bias.
The lows from the end of May are the absolute parameter on a new bear
market or lack thereof. Lose the May lows and these markets would be
broken. Above them and the cyclical bull market lives on. So we want
to see the leader, NDX not make a lower low to May. In fact, one signal
we might look for is a higher low (to the early November low) by NDX
while SPX potentially makes a lower one on any short-term correction
that may whip up. This would be a positive divergence by a leader and a
good bull signal.
The NDX failed (and remains below) the 200 day moving average, which I
think moved some bears to call ‘bull market over’. But the moving
averages are trumped by lateral support, which held. Let’s see how the
short-term plays out, because it is important to the intermediate