bouje – Slope of Hope with Tim Knight

Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Weekly and Daily Analysis of the SPY (by bouje)

By bouje - 14 years ago (22, Oct 2009 1:14:56 PM)

Yesterday I put up a post about the Ten-Year and while that was well received I know that most people here don't really trade Fixed Income so I thought that I would do a similar analysis of the S&P but only on a weekly and a daily time frame to show you exactly how divergences work (and also when they don't work). Up first the weekly:

As you can see in late 2008 the market made a new low and so too did the MACD but in early 2009 the market bottomed out but the MACD made a higher low. This is a typical divergence and what you should look for when looking for market trend changes. Look at the RSI and again you will see a similar divergence at the bottom in 2008/2009. I also like to extend the current trend-line on the MACD and look for breaks of that trend-line to also confirm the trend-line (which in this example the S&P had a confirmed trend change in April and then broke the MACD trend line around May/June). Now the larger pick trend will stay bullish until we can first get a bearish cross on the MACD on the weekly and then if we are lucky a confirming divergence (look to the way left of the chart to see an RSI topping divergence).

Now on to the daily picture:

So I think that everyone remembers the H&S that happened over the summer that many bears got trapped on and we can look back and see what exactly happened. First there had been a trend-line (that cannot be seen) from when the bottom was formed on the MACD. The MACD actually curled up after the failed breakout and formed another point on that trend-line. Look at the bearish divergences on the daily chart and then how they didn't play out. The daily charts have had a ton of daily bearish MACD divergences (particularly in companies like GS) and so I've decided that it is better to look at the weekly as a better indicator of where the intermediate/longer trend lie. So while the bearish divergence in the daily looks good as can be seen earlier this year with the failed H&S breakout they haven't exactly behaved ideally which is why I'm not willing to say that "This is definitely the top".

This isn't all bad news for bears because the daily MACD upward trend-line has been broken now since that down move in September which is the first good sign that the rally is coming to an end. But I think that the real story will unfold when there is a trend change in the weekly and the weekly MACD finally rolls over and forms a bearish cross and (god willing) a bearish divergence.

Some things to keep in mind about the divergence:

1. You can anticipate the divergence if you see the weekly start to roll over (for the lower high) and then can go into a daily to determine if there is also a bearish divergence there and look for better entry points there.

2. The divergence isn't broken until there is a clear violation of the trend-line.

3. This analysis can be used for any time period (I really feel like it works very well for 15m charts for a look into the future of a day or 2. For example right now the TY has a 15m bullish divergence and until that trend-line is taken out the risk is to the upside in the TY.

Thanks again Tim for having me and I hope that you guys enjoy the analysis feel free to leave questions, comments, concerns in the comments and I'll try to get back to you. - – - Jason

Ten-Year Futures Long Term Analysis

By bouje - 14 years ago (21, Oct 2009 4:49:07 PM)

Hey guys so hopefully Tim will put this up, I know that I don't post that much (user-name bouje) but hopefully you'll like what I have to say about the TY.

First fundamentally as Tim has mentioned before the Ten Year and U.S. Treasury futures in general should (in the long run) continue on a down-ward path. This is because eventually one of these things will happen:

A: Foreigners will stop buying U.S. debt (or China will start selling it)

B: The U.S. will eventually have to start raising rates because inflation will become a problem and we do not want to repeat the mistakes of Japans lost generation.

Now I know that none of you come here for fundamentals but I feel like it's a good idea to try to blend the two together so with that said here are 3 charts. First up the Monthly TY chart:

As can be seen from this chart I think that there is a HUGE H&S pattern with the LS being formed in 2008 around 120, the H being formed at the beginning of 2009 around 128 and the RS just formed around 120. Also look at the descending trend-line (will be blown up later in the weekly and daily charts). Also notice the declining volume and the broken MACD and RSI trend-lines and the Divergence in the RSI and the price graph from the LS to the H. Finally, look at the fibs lining right up at 120. The neckline can be seen to be around the 113/114 area. The measured move if the neckline is broken would be 14 points which would put the TY at 100! (which is a HUGE move). Now let's take a look at the weekly:

Notice here that the weekly upward sloping trendline on the MACD that was broken on the down-move in the middle of 2009 (this shows that the weekly trend is no longer up). Also look at the end of the chart where the MACD looks to have curled over and is threatening to cross bearishly. I know that some of you might bring up the fact that on this chart the H&S pattern looks to be a more complex one with 2 LS formed already but in the grand scheme of things it really doesn't change the outlook that the Ty should continue downward. Finally here is the Daily chart:

As can finally be seen in this chart the TY has been in an uptrend for 6 months and is currently at it's trend-line for this move. As can be seen from the MACD though as the Price has made higher highs the MACD has failed to make higher highs. You can also see that the MACD trend-line from 8 to now has just been breached ever so slightly. IF the TY makes a lower low the trend-line will really break and all of the longer term charts will also start to break.

In sum: The TY is a fundamentally bearish play. The charts show only about 2 points of upside risk (1000$ a point per 1 lot) and 20 points of downside risk if the H&S plays out. IMO this is a great risk to reward. So the options are:

1. Wait until a confirmed break of the uptrend and sell

2. Wait until the TY rallies back up to the 119/120ish area.