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.
Major Resistance Breaks (by Springheel Jack)
Equities have, on SPX and NDX at least, just been chopping around uncertainly this week. There are definitely some worrying signs of weakness on both SPX and NDX particularly. Here's the updated broken rising wedge on the SPX 15min:
Here's the updated broken rising wedge on the NDX 15min:
Both look potentially bearish, but I'm unconvinced. The Russell 2000 is still within a strong rising channel, though the latest touch of the lower trendline without an intervening touch of the top trendline is a possible warning signal. Here's how it looks on the RUT 15min:
Elsewhere though, there's little to suggest that we're seeing anything more than consolidation before another move up. My EEM vs SPX daily chart looks very solidly bullish:
On copper my resistance target at 438 was made yesterday, and there was a reversal there to start forming what I was expecting to be the right shoulder on an IHS with the neckline at that very significant resistance level. Overnight however copper broke up and broke the 438 level with considerable confidence. That was a very significant break, as copper broke the big declining channel from the high that I posted last week. The next upside target is 445.6 but we may well not see a significant retracement until copper hits the next major resistance level (and potential IHS neckline) at 455. Either way this break up looks bullish for equities:
The resistance breaks with the widest implications this week however have been on EURUSD and gold. I posted the EURUSD resistance trendline in the 1.428 – 1.43 area yesterday morning and it was broken yesterday. EURUSD has returned to test the trendline overnight, and I'm waiting to see the weekly and monthly closes for full confirmation, but if sustained this break is very bearish for the US dollar, and has wide downstream implications for the bond markets and commodities particularly that I'm going to need to give some thought. Here's how that looks on the EURUSD weekly chart:
Reinforcing that resistance break on EURUSD is the big resistance break on gold. Looking at the daily chart the broken resistance trendline was retested yesterday, and more upside for gold looks very likely:
There's some scope for further weakness on equities this week I think, and if ES and NQ can break 1320 and 2315-20 then they could retrace back to the daily 20 SMAs in the 1300 and 2290 areas respectively. I'm doubtful about seeing any retracement that deep here though, and any further dip here should be bought in my view.
Dow Theory Buy Signal (by Springheel Jack)
Dow closed over the February highs yesterday, while the Transports index remained over the February highs, so we have a new Dow Theory Buy Signal. Strangely I haven't read much about that in my morning reading. Neither Arthur Hill nor Cobra mentioned it in their daily wrap-ups last night. Odd. This is further confirmation however, if any were needed, that a new wave up is in progress. Here's the Dow daily chart with a decent though not quite perfect rising channel from the summer lows last year:
I was delighted to see though that the lows on SPX and NDX yesterday fit exactly with the support trendlines that I posted on my SPX & NDX 15min charts yesterday morning. That is very significant, as it means that we have short term rising wedges on both indices, and a break of those support trendlines will mean that a retracement is in progress. Here's the updated SPX 15min chart where the support trendline is now a very solid four hit trendline:
Here's the updated NDX chart where the lower trendline only has three hits, but the setup looks pretty solid there too:
I find myself somewhat out of sync with some others this morning in that I think we may be looking at a retracement starting now, though there is definitely scope for another high within those rising wedges. ES and NQ have both been weak overnight and if SPX and NDX open below those support trendlines then I'll be expecting a continuation lower. If that happens I'll be watching 1300 ES and 2290 – 2300 NQ as strong support levels. On ES and SPX that would fit with a retracement to the daily 20 moving average, currently in the 1300 and 1304.5 areas respectively:
If we are to see new highs before a retracement that would seem to be supported by the copper chart at the time of writing. Copper reversed at the potential IHS neckline yesterday and the subsequent low (so far) is a close match to the left shoulder on that potential pattern. If that continues to form that would look bullish for equities. A break down from this forming pattern would look distinctly bearish, and on copper that would most likely target strong support at 407.75:
I've been having a look at silver this morning, trying to see if there are any obvious reversal levels. I don't have anything very strong, and the thing that springs to the eye most on the silver chart is the very strong internal support / resistance trendline, which has acted mostly as support, but sometimes as resistance since silver was at $18. That is main support at the moment, but I do have a resistance trendline that may provide some resistance in the 39.5 area:
I was talking yesterday about the debate about whether continuation head and shoulders patterns exist. I tend to take a practical view that as I see them a lot, and they frequently play out, then I might as well treat describe them as that. To an extent though the debate misses the point, as the essence of any HS pattern is the formation of a strong support or resistance trendline, and the strong move that is often seen when such a trendline breaks. For what it's worth here's my favorite long term continuation IHS, seen on Dow forming between 1969 and 1980, with the neckline break in 1983, and which played out a long long way beyond the pattern target at 1400. It has crossed my mind more than once that SPX may have been forming a similar continuation IHS since 2000, and if so, we're in the late stages of forming the head on that pattern:
I'm in two minds about market direction today and I'm watching the support trendlines on my SPX & NDX charts to see whether they are broken. Until they are, I am guardedly bullish. As soon as they are broken I will be regarding the retracement as in progress, and will be seeing a test of the daily 20 SMAs as the most likely target.
Monday Chartfest (by Springheel Jack)
Friday's rise was in line with the historical bullishness of the first trading day of the month, and April is of course historically the most bullish month of the year, but the strength of the rise on Friday was disappointing, and I'm wondering whether the first wave up from the March lows is petering out. Pug thinks so, and if so then I'd be expecting a moderate new high today, followed by a wave 2 retracement that should stay above strong support at 1300 ES. The trendlines on SPX and NDX aren't giving a lot away, but for what it's worth here are the 15min charts showing the current situation as I see it. Here's the SPX chart first:
Here's the Nasdaq / NDX 15min chart:
Copper is showing some strength this morning. after bouncing off a strong internal support / resistance trendline that I only picked up over the weekend, copper looks ready to retest 437.6, though it has to clear resistance at 431 to get there first of course. It has made a decent low with positive RSI divergence on the 60min chart, and coupled with the bullish break of the short term declining channel, I'm expecting a decent move up within what may well still be a larger downtrend. It's worth noting that both 431 and 437.6 are potential IHS necklines:
In terms of the health of the current advance the Dow made a new intraday high on Friday but failed to close at a new high, so there's no new Dow Theory Buy Signal as yet. We may see that new closing high today and it would be nice to have that confirmation, though the last Dow Theory Buy Signal was just before the February high of course and this should definitely be seen as a longer term bull market continuation signal rather than a short term directional signal. Vix closed the 16.88 gap that I've been watching, and has bounced since, but longer term I'm expecting Vix to head below 16 in the coming weeks:
More encouraging than either of those from the bull perspective however is the break up on EEM, which has now started to outperform SPX again after a several month period of underperformance. This is very encouraging for the bull side, and should signal a strong period of equity performance lasting at least a couple of months. I'm expecting the summer high to be put in somewhere between June and August, so that fits well with my view:
I've had a couple of requests to give my longer term view on gold, and I haven't finished charting that up yet, but I thought I'd post my medium term view for the rise since last summer, where there is a very nice setup on the daily chart. Gold hit support last week and a break below 1410 would be bearish, indicating towards support in the 1360-70 area. However the overall setup looks bullish to me, and a break with confidence of the strong resistance trendline now in the 1450 area would be extremely bullish. I'm inclined to interpret this setup as a continuation IHS, though I know many regard IHS patterns as being reversal patterns only. I disagree, and I'll post some classic examples of continuation IHSes in a weekend post when I have time. One of those of course will be the one on gold with the neckline in the 1000 area that has played out to target over the last couple of years. Looking at the negative divergence on the daily RSI there is some reason for caution on gold, and it is probably worth waiting for the resistance break before playing this pattern:
I was planning a weekend post on the complex EURUSD technical situation, and though I charted it up, I didn't finish writing the post in time. I'm planning to wrap that up and post it tonight before I have to redo the charts, but here's one of the charts to illustrate the important resistance level on EURUSD that we have almost reached. There are good arguments for both a reversal here and a major resistance break, but currently I'm leaning towards a short term reversal. That resistance level is in the 1.428 – 1.43 area:
I'm leaning bullish today. I think there's unfinished short term business on the upside even if wave 1 from the March low is winding down. Copper looks bullish short term, it's Monday and it's the most bullish month of the year historically. Altogether I'm thinking that equities may well just gap and go today.
The Gap Guy advises that fading gaps on the second day of the month is riskier than normal, though I would add to that that the second day of the month has not been more than modestly bullish statistically since the March 2009 low. That modest average masks substantial variability, but the only two big down days in the series so far have been during significant corrective waves in July 2009 and May 2010.
Market Neutral : Short TRGL, Long IMO
Hey fellow Slopers,
Below is a market neutral trade I e-mailed to members of the market neutral trade notification list Wednesday night. I plan to place this trade Thursday. First, a quick, final reminder about the Short Screen message boards contest: today is the last day to enter to win an iPad 2 for posting a comment about a stock. Details here. On to today's market neutral set-up.
Toreador Resources Corp. (TRGL) is an oil & gas E&P based in France. I shorted TRGL as part of a market neutral trade (paired with a different long position) last July, when it was trading below $6 per share. I got stopped out for a loss a week later, when the stock was just above $7. As you can see from the chart below, TRGL went on quite a run from there, though it has since pulled back from its high earlier this year.
As of its closing price Wednesday, TRGL was trading at 12.29x its trailing twelve month sales.
Short Screen shows an Altman Z"-Score of 1.03 for TRGL (recall that Z"-Scores below 1.1 indicate financial distress, according to the model).
Audit Integrity rates TRGL as having "aggressive" Accounting & Governance Risk (AGR®), placing it in the 15th percentile (i.e., it has higher accounting & governance risk than 85% of the 8,000 companies Audit Integrity rates).
I plan on using a trailing stop here, in the event TRGL shares again buck the company's seemingly weak fundamentals and go on another run.
Imperial Oil, Ltd (IMO), an Exxon Mobil subsidiary in Canada, isn't a pure-play E&P: like its parent company, in addition to its exploration & production ("upstream") operations, it has downstream and chemical operations as well. Still, as with its parent, the bulk of IMO's earnings come from its upstream operations: 71% of IMO's earnings came from upstream operations in 2010.
As of its closing price Wednesday, IMO was trading at 1.8x its trailing twelve month sales.
Short Screen shows an Altman Z-Score of 5.24 for IMO (recall that Z-Scores of 3 and above indicate financial strength). A quick note about why Short Screen shows a Z-Score for IMO, and not a Z"-Score, as it does for TRGL: Short Screen uses Standard Industrial Classification (SIC) codes to class to categorize a company as manufacturing or non-manufacturing. Companies in SIC codes 2000-3990 are considered manufacturing companies. Although only a minority of IMO's earnings come from its refining business (part of its "downstream" operations), the company's SIC code is 2911 (Petroleum Refining).
Audit Integrity rates IMO as having "average" Accounting & Governance Risk (AGR®), placing it in the 40th percentile (i.e., it has higher accounting & governance risk than 60% of the 8,000 companies Audit Integrity rates).
I plan on using a trailing stop on IMO as well.
