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.
When we have these long runs higher, bears need to be watchful of jumping the gun too early. After weeks of floating higher without much pullback, bears are itchy to pull the trigger on the first short signal they get. We can see how in 2007 this happened; what seemed to be the top ended up being a bear trap a month later when we printed new highs.
At some point in the next week or two, I think many sell signals will get triggered … MACD, Oscillators, RSI, Stochastics, MOBO bands, trendline breaks, you name it. Now unless we get some catastrophic crash news, it is likely to be some kind of relatively minor correction as many bulls who missed this huge run up will try to jump in and buy it up. In EW terms, maybe a zigzag, or flat (possible running flat formed today? chart not updated). We may even get a head and shoulders pattern, but the key is to be patient and stay nimble. If you feel like jumping the gun on the first short signals you see, you can still make a few points to the downside but don't expect it to be the big kahuna for swing traders.
As for targets, looking at a volume profile of this last run up gives us SPY 117 as a good possible support level in the case of a pullback. After that, I think we could run up unto the 125-126 range where I think we top out. After that, whether we drop to make new sub-666 lows or just start another major leg higher, is anyone's guess.
For anyone who cares about EW anymore, I based the 125-126 target of SPY on this count (about SPX 1255) as a max limit for this count's validity.
Yes, that really is a blinged-out iPad on his neck.
No, the centerfold isn't Keynes in a bikini … but, each month provides some interesting quotes from a significant economist. For April, we have Richard Ely. I will post the corresponding economist for each month at the first of the month along with their quotes.
Karl Marx is next up for May and Keynes is in June.
From your editor…from the previous post
Thanks to all who sent entries into the SPX Contest (http://slopeofhope.com/2010/03/spx-guessing-contest-and-slopefest.html). Also, thanks to Market Sniper and Biff for providing the prizes. So, I tried to think of something creative I could do with all of the entry data. But all I could come up with is a lame histogram. You can say more about data that has already occurred but you can only gather so much from a data series of educated guesses.
The day the contest entries closed, March 31, SPX closed at 1169. The mass of the entries is in the 1100-1150 range. Our guesses were, in general, below the close on March 31. Perhaps this is collectively our own bias showing up?
The mean of the entries is 1124 with a standard deviation of 72. The shape is, in general, a bell-curve shape. Assuming a normal, or Gaussian, distribution, this means that about 68% of entries were within 72 points of the mean. The entries aren't necessarily a normal distribution … a Weibull distribution may fit the data better. We can try to fit all kinds of distributions, but we can't gather much more information from doing that. What would be interesting to see is a volume profile of SPX from April 1 – May 7 (day after all of the entries closed until the contest date). Would be interesting to see how well the actual volume profile matches up to the histogram of the entries. Right now, all we'd have is some volume traded in the 1170-1200 (oh, so close on Monday!) range.
So can the 2004 scenario be thrown out the window? I'm arguing not yet. Why? Let's look at the move in relative terms.
The retrace in 2004 was 20.32% of the SPX move from the March lows to early 2004 highs. The subsequent retrace upward was 83.36% of the move down.
What do we have now?
Currently, SPX retraced 21.91% of the move from the March 2009 lows to recent highs. We should expect today's retraces up/down to be slightly larger than the moves in 2003/2004. Market moves today seem a bit magnified compared to 2003/2004.
So, the recent retrace down (21.91%) was 1.08 times the retrace down of 2003/2004 (20.32%). Let's assume the subsequent retrace upwards should also be 1.08 times the retrace up of 2003/2004. We get the following interesting results:
If we make a new high next week, then this 2004 analogy can be discarded, but since the sentiment out there is extremely bullish, I took a small short position at the close on Friday.