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.

ISEE Red Candles

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Hello Slopers – Mole here from Evil Speculator. 

The following post was actually written on Thursday morning during which I was blissfully ignorant of the deep hurting experienced globally and on the index futures side. The reason I'm re-posting those charts here is that I believe the ISEE data collected and put into proper context is incredibly accurate and should prove to be extremely valuable going forward. 

Okay, so I lied. I was planning to completely forget about trading during the long Thanksgiving holiday but then I ran into this chart this morning and just couldn't help myself:

2009-11-25_ISEE

This is the equities only portion of the ISEE chart. In response to some of the pitfalls in the traditional put/call ratio the International Securities Exchange (ISE) publishes their own modified version called the ISEE index. Unlike the old school p/c ratio the ISEE filters out trades from both market makers and broker/dealers. The ISEE further differentiates itself by using only opening long trades in it's tabulations.

As such the ISEE presents a much clearer picture of how retail options traders are positioned. The ISEE also uses a different equation than the regular p/c in calculating their index. To formulate the ISEE, the exchange takes the modified call volume, divides it by the put side and then multiplies the result by 100. Hence the ISEE is always a whole number.

With a normalized p/c equation a higher reading symbolizes greater put activity to calls while the ISEE formula generates higher readings if call buyers outweigh put buyers. So while a traditional p/c ratio of .75 would mean more puts than calls an ISEE value of 75 is the exact opposite. Like the CBOE the ISE also offers updated calculations of their p/c index several times an hour.

Okay, now that we're all on the same page you might get an idea where I'm going with this. The high spikes I highlighted mark extreme ISEE readings above 230, which just so happen to precede turning points by a few days. Now, let's correlate these spikes with daily candles on the SPX:

2009-11-25_ISEE_SPX
 

As you can see the ISEE spikes precede turns by a few days, but they are very reliable. Hey, I prefer a few days early than a few days late. What's particularly notable is the 247 reading last Tuesday, which is the highest as far as I can see back. It was followed by a 241 close on Wednesday, which would be a strong reading on its very own. So, chances are that a significant market decline is imminent, and it is most likely only a few days away [again, I had no idea what was happening while I was typing this – LOL]

We now again find ourselves at highly overbought conditions coupled with wide-spread divergences across various averages. Gold and other precious metals were up, with oil and natural gas down as well as the dollar down. The inverse correlation between the dollar and equities are beginning to soften as new extreme down moves in the buck are not accompanied by equally strong up moves in equities. I think Chris Carolan said it best:

"The accelerating nature of the dollar decline and gold rally may finally have reached the point where any international earnings positives for stocks are outweighed by the downside of the obvious increasing monetary instability.  The markets look like they’re about to get scared again."

In other words – the dollar carry trade is running out of oxygen. I believe Karl 'No Slave To Fashion' Denninger made the same point just two weeks ago, and you might want to take a look at his latest update on the subject. Another strange new phenomenon is the VIX rising and falling in line with equities, which confirms Carolan's point that fear is creeping back into the market. All this suggests that conditions are now favorable for a market decline. You have been warned.

I have been quite verbose on the notion that the thinly traded rally of past few days was designed to further discourage the bears and to shake out weak hands. I'm sure that many traders simply gave up and cashed out as to not to suffer from further theta burn throughout the long weekend. I myself was very tempted but did not yield to my emotions.

After posting the above I got a bit excited and as I was too lazy to head to the gym during turkey day I decided to finally put together a proper ISEE chart on my own:

A little update – I got fascinated with the ISEE and worked all day to import the data into Excel – here are some follow up charts for you guys:

2009-11-26_isee
 

Now, isn't that a lot nicer? I have also highlighted all spikes above 135 and all drops below 100 in the past year.

2009-11-26_isee_ma
 

Here is the ISEE 10-day MA version – the focus here is twofold: First we have divergences which seem to indicate that a medium term trend is running out of steam. Then we also have a pretty obvious channel to the upside, which seems to also be a precursor for turning points lately – it's actually more timely than the pure data as of late. You might have noticed that we have not pushed into the upper channel line this time around, so perhaps more upside is a possibility.

2009-11-27_ad 

Now, before you complain that I only peddle my lukewarm charts from yesteryear here on the Slope – here's one I just posted over on ES. This is one of my own chart contraptions which shows me the NYSE A/D ratio during the daily session. It actually closed nearby at 1.79 today but what you might not be aware of is that it was at 0.05 earlier this morning, not that's not a typo. After the opening bell the futures went completely ape-crazy (damn, I can't really curse properly on this PG-13 blog) and traversed 20 ES points in a matter of 90 minutes. All the while the NYSE A/D ratio never pushed above 0.2, that's right.

Sorry folks – I just can't take today's snapback seriously. Of course there is a good chance we fill the gap on Monday – it's quite obvious that the boyz have become quite brazen and outright complacent when it comes to putting a floor underneath the market, at least compared with their Asian or European counterparts. However, long term – my dear Slopers – long term I'm looking at a market that's curling over. And you really don't need all these fancy tools above to see what's happening – a good old fashioned volume chart speaks volumes:

2009-11-27_dji

Quite obvious what's happening but I highlighted the pertinent parts for you guys – sideways or caving volume on up trends and rapidly rising volume during sell offs.

The events in Dubai are completely meaningless and should be faded – remember, the market never follows the news, it's the other way around. What happened in Dubai is merely symptomatic of a much larger problem which is not merely limited to the gulf region. As a matter of fact after a one year reprieve the U.S. mortgage industry is now again looking at a huge number of monthly mortgage resets (which will trigger defaults) in the CRE and private real estate sector. Which brings me to my last chart and perhaps the one you might enjoy the most:

2009-08-15_mortage_resets
The CS portion of this charting monstrosity shows what the freight train that's heading for the real estate market. I took the liberty to extrapolate the data with my own wave count. Print it out and keep it handy – either it will by my chart of shame (i.e. I was wrong) or it's the chart evil Mole will be remembered by.

Enjoy the rest of your holiday weekend.

Cheers,

Mole

Welcome to Flight 1120

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"This is Co-Pilot nummy-nums here and I'd like to welcome you to Flight 1120 with Gold Man-Sacks Airlines where we not only get you there, but we teach you how to pray.  Please put your seat backs and tray tables in the full upright and locked position.  On our multi-day journey we will be cruising at an altitude of about 10,450 Dow points (or 1120ish S&P points) and if the turbulence kicks in, our cruising altitude may be up around 10,680.  In a little while, please don't forget to see the magnificent view on the left side of the plane of the Grand Canyon.  We will be offering the red pill or the blue pill again before landing.  We will be arriving in Honolulu at dawn.  Oh … and they don't know we're coming."

Short-term count of this last wave we've been experiencing. We could keep subdividing and I'd have to reconsider the whole short-term count if we keep blasting higher. But keep in mind, EW counts are usually wrong in the short-term and more accurate in the long-term.

Click on charts for hi-res.

In the RUT (by Nathaniel Goodwin)

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Hello everyone, Nathaniel here. I always like to keep two Elliott wave counts in my charts, one bullish and one bearish. Then I like to compare each one and see which one "looks better” as to the way the rest of the market is reacting. I can then determine where I could initiate a position and set stops. I've been following the $RUT closely lately and here are two counts I see that make sense to me.


The bearish chart of IWM I have looks like P2 may have finished for the $RUT. It really looks weak compared to the SPX. I also really like the way the volume looks, very bearish.


IWM-Bearish


Next is the bullish chart I have. If the other indexes rally and the $RUT catches up and breaks it's high, I can see it playing out like this. It would be short term bullish, but then turn bearish again. If it breaks the high and continues up, well back to the drawing board…


IWM-Bullish


Elliott Wave is just one tool I use, but it can help to set up where to enter a position and where stops should be set. Early next week, if I was to go long, I would put my stops at where red B is in the bullish chart. If I was to go short; I might put stops at where the blue 2 is in the bearish chart if we open down on Monday, or at the top of the red C in the bearish chart if we gap up on Monday.  Do your own analysis or flip a coin if you like to gamble and want to play in this market, just make sure you have an exit plan if it doesn’t go your way.

Corrections Close to Completion (by cantabnomad)

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To continue with the theme of foreign (to US residents) markets, here is my take on the Italian MIB index. Italy is eurozone's third largest economy.

BOTTOM LINE: Corrections higher in risk and related assets are likely very close to completion. While major US indices advanced about 1.5% higher than expected, EU indices, notably EURO area indices are moving along the expected lines. Internal structures of these indices suggest that the next leg of the decline is imminent.

Below is an hourly chart of the Italian MIB index (Italy is the world's seventh largest economy – just below the UK). The MIB has been much weaker than most EURO area indices, and currently retraced just about 50% of its 11.3% decline. The internal structure of the decline and subsequent rally appears to conform very well to wave guidelines, with the correction finishing (?) with a clear impulse higher (15 minute chart below the hourly chart).

Mib
This is a very short-term, 15 minute chart of the Italian MIB.

Mib 15m 

I hope you find this useful, and have a good day. – – - Aidyn Kussainov

European Indices (by cantabnomad)

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Good time of the day, Slopers.

It is perhaps a testament to importance of the US to global markets – absolute majority of financial blogs out there focus on major US indices, such as SP500, Nasdaq, DJI and Russell.

As I am based in Europe, I mostly trade EU indices, which I also often find clearer from a charting perspective. Perhaps that is because many fewer people trade those. Perhaps also my posts on EU indices might be useful to you from a cross-asset perspective.

I bring two charts today, both of which look a lot more bearish than US majors, in my opinion. 

This is an hourly chart of EuroSTOXX50 – an index composed of 50 largest stocks in the Euro area (which in terms of GDP is only 5% smaller than the USA). The EuroSTOXX fell through their early October low, and so far retraced about 62% of their 9.3% decline from the high (SP fell a much more modest 6.6%, high to low).

Eurostoxx H

This is an hourly chart of the German DAX (fourth largest economy on Earth). This is one of the weakest Euro area indices, which so far retraced less than 62% of its 9.75% decline.

Dax short term

It is quite unlikely that US markets go much higher without us Europeans. As European markets are much weaker, and do not look like they could challenge the highs any time soon, I'd say chances are high that the second leg of the decline begun on 20 October is about to begin. 

Thank you and have a great week. – - Aidyn Kussainov