Fibonacci – Page 86 – 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.

Man of Steel (by Nathaniel Goodwin)

By Tim Knight - 16 years ago (21, Apr 2010 1:07:32 PM)

The one thing I find more embarrassing than my inverse ETF positions is the photo Tim Knight found of me in Paris.

One of the nicknames my peers gave me as a teenager was "Man of Steel", which was obviously inverse to my actual physical stature. Eventually, like so many other teenage boys, I began taking several "Growth Supplements" to enhance my body. One of those supplements worked so well that I sent a letter and photos of myself to the company overseas, which they have apparently been using unbeknownst to me.

The two adverse side effects were that my balls began shrinking at an alarming rate, and it made my skin condition even worse. I quit using the product years ago, and my physique is now back to normal.

Speaking of steel, here is one short doing well. May it shrink as quickly as my testicles did many years ago.

USD Retracement Will Push Equities Up (by Springheel Jack)

By springheel_jack - 16 years ago (05, Apr 2010 5:12:52 AM)

My last post was on how the USD uptrend still looked intact despite the
sharp pullback into Wednesday's close. That remaining the case though
was dependent on USD reversing back upwards on Thursday which most
definitely failed to happen. The USD rising channel is not yet broken,
but there is now every reason to think that this USD wave up since
December peaked at 82.24:

GBPUSD has broken up decisively on Thursday and EURUSD now looks poised
to do the same. They may yet turn back down, but that looks less likely
than a further move up.

In the context of the longer term, we are likely to have been watching
only the first wave (of 5 waves) of the third wave up since USD bottomed
at 70.7 in 2008. We should now see a significant retracement of the
wave up since December before the 3 of 3 starts and a much larger and
longer move up in USD begins. I have marked likely retracement targets
on the daily USD chart above. Here also is a look at the monthly USD
chart for the long term USD picture with what I think is the most likely
wave count:

If this USD wave up has finished, this is likely to have a very dramatic
effect on equities as well. I've said before that an ongoing strong
subwave up in USD was likely to at least cap equities into trading
sideways even if there was no corresponding equities retracement, and
equities have indeed been trading sideways for a couple of weeks now.

I was expecting that this would continue for another couple of weeks
while the balance of the USD wave up played out, and that we would then
see a powerful last wave up in equities while USD retraced. It now looks
likely that this is happening now rather than later, and if we are now
starting a period of USD retracement and consolidation that is likely to
last a few weeks, then during that time we should expect to see
equities surge ahead. On the SPX 60min chart you can see that the main
channel up since the low on Feb 5th is very much intact, and that we are
likely now to be starting the fifth and final subwave up within that
channel. I've marked the likely wave count on the chart and the fourth
wave seems to have formed an ascending triangle with a target in the
1200 area:

In the longer term the main rising channel since the bottom in March
2009 is also very much intact. I have also marked the likely support and
resistance levels on the daily chart:

On quite a few charts we are seeing major reversals and breakouts here.
FXI has broken up decisively from a broadening descending wedge, gold
and oil seem to be breaking upwards too. I'm also seeing this on a lot
of individual stock and ETF charts that I have been looking at over the
last couple of days.

How far could equities rise? Difficult to say of course. I've liked the
61.8% fib retracement at 1229 for a while now and think SPX is likely to
get there, though it may go further. I have a target of 18 on XLF from a
broken and resolving rectangle:

The nightmare chart for bears is the Vix chart of course. On the weekly
chart there is a year-old gently declining channel where the next target
is somewhere between 13 and 14 depending on the time taken to get
there. Could it really get that low? I wonder, but the level of
misplaced complacency reached over the last year is already astounding:

We are not so much climbing a wall of worry in this market as surfing an
ever expanding wave of complacency that government intervention can and
will cure all economic ills.

When the government's credit starts getting tight, and that is likely to
happen within a year of two at most and perhaps much sooner, then we'll
see how much of this subsidised optimism can survive in an market operating without the Bernanke Put.

Hamlet Has Left the Building (by Springheel Jack)

By springheel_jack - 16 years ago (26, Mar 2010 8:57:33 AM)

We finally got a break down from the wave 3 channel on SPX yesterday:

About time too really, as making this interim top has taken way too long, and this has unfortunately wasted much of the period when it could have coincided with the strong wave up in USD.

The USD wave has been so fast and so strong that it looks unlikely to last too much longer. We could reach the top of the USD channel in the 83.5 area if we get there next week, and at the rate USD has been rising, it isn't impossible that we could reach it in the next two trading days:

That's bad news for the retracement in equities, as there is a very distinct possibility that the retracement will end when USD hits the top of that channel, just as the bottom on Feb 5th was hit on the same day and at about the same time as EURUSD hit the bottom of the declining channel:

That makes the EURUSD target here of very considerable interest, and the clearest picture of that channel target is on the weekly, where the highest the target could be is 1.30. Next week it should be at about 1.295. However we could get as far as 1.285 as the previous two bottom channel hits both pinocchioed through before bouncing.

In the very short term though, EURUSD has been bouncing overnight, and I'm expecting that it may well rise a little further to hit the bottom of the current short-term declining channel just above 1.34. Given the greater targets on this, EURUSD looks like a very nice short indeed from there:

One chart I've been checking very regularly for a while now is the XLF chart, where a beautiful rectangle top pattern has been building for several months on the weekly chart. Last week it was trading above the rectangle for much of the week, but returned to close within it last Friday, and I'm expecting to see the same thing happen today, which would mean a return to 15.75 or lower. As and when this does break, and assuming it breaks to the upside which is likely, the pattern target is 18. Rectangle tops of course, despite the name, break upwards 69% of the time:

I don't trade gold much, but this head and shoulders pattern, which could well play out over the next couple of days, also looks very inviting:

Overall I'm expecting to see sharp drops in both equities and EURUSD today. I think that we're in a subwave 4 abc correction, and that we probably saw the a wave down yesterday and have been seeing the b wave retracement overnight.

I've marked in the fib retracement targets on the SPX 60 minute chart at the top, though it doesn't include the 23.6% target which would be 1158 SPX. I'm expecting to see 1144.5 SPX for the 38.2% fib target, and am hoping that we will see 1133 SPX for the 50% retracement, though I'm less optimistic about that now that we have wasted so much time making this top.

If we see anything lower than 1112.42 SPX then this wave count is wrong and the main wave up from March 2009 will most likely be finished already

Until and unless we see that though, this is just a short but pleasant interlude for the bears before another wave up, and is primarily a good opportunity to get good long entries.

Are We There Yet? Yes! (by Springheel Jack)

By springheel_jack - 16 years ago (24, Mar 2010 9:19:53 AM)

Well we blew right through the resistance that I was really expecting to hold on the SPX yesterday. Fortunately I was given some warning because I had been playing a classic broadening top pattern both short and long on the ES all day. I saw a partial decline and return to the top trendline which was an early warning signal for the upside breakout that followed shortly afterwards:

I really had expected the resistance to hold though, so I went back to my SPX charts to see what I had missed. I came up with the following SPX 60min chart which at first glance at least made very depressing
viewing for the short side:

There were a number of interesting things to note about this chart.

Firstly it is now obvious that what at first appeared to be a rising wedge on SPX was in fact merely the top diagonal half of a channel which only later became apparent. This is of course exactly what happened in the broader SPX uptrend since last March, where the main rising channel also appeared to be a rising wedge until the bottom was made on Feb 5th, and the perfect rising channel was then revealed.

Secondly we closed at my last significant internal line of resistance yesterday, and if we broke through it today then I could see no significant resistance until we reached the top of the current channel in the 1190 SPX area. That target was reinforced by the slightly dubious quality IHS that has formed in the last few days, with the neckline broken in the last hour of trading yesterday.

Thirdly the SPX wave structure since the bottom on Feb 5th looks very obvious from the chart, with a first, second, and ongoing third wave structure apparent. That would make the imminent interim top and retracement a wave four of course, and I saw a very nice count at PUGridiron's blog after I had depressed myself completely by doing my SPX chart. Here's his take on the current wave count:

Now with the greatest respect to EWI enthusiasts, Occam's razor tells us that the simplest explanation is generally the correct one, and on that basis the primary count for the market we see before us has to be that we are now in the fifth wave up of a bull market wave up since March 2009, and that we are currently in the third sub-wave of that 5th wave. Looking at the wave structure of that third sub-wave, I would agree also with Pug that we appear to have been playing out the fifth subwave of that 3 of 5, and that the interim top and correction that I have been expecting would therefore be the end of that wave and the fourth wave retracement after it.

The bad news is of course that after the fourth wave retracement, there will be a fifth subwave up to take us to the final top of this bull market wave sequence, and the good news is that we should then see a deep abc correction of the full move since the March 2009 bear market bottom.

USD is important here. I've been writing over the last few days about how a new USD wave up is likely to coincide with sideways or negative equities action in the next couple of weeks, and I was remarking to Anna yesterday that a good confirmation signal that an equities interim top was in would be a new high in USD and new low in EURUSD. That is exactly what we have seen overnight. Here's the USD 60min chart at the time of writing:

We're seeing the same picture in mirror image on EURUSD overnight with the strong support from the previous low broken with an impulsive wave down:

The USD target for this wave up is the rising channel top in the 83 area, and the EURUSD target for this wave down is the declining channel bottom in the 1.29 area.

So what does this mean for equities?

Well USD hasn't been a particularly reliable guide lately but it is now likely that we have seen the short term top in equities at the close yesterday, though a rise a little further to the wave 3 channel top and Pug's target at 1189ish is not yet completely off the table.

In my view though, we have seen the wave three top, or are about to slightly higher than yesterday's close, and that view is strongly reinforced by the following SPX daily chart, where we are right at the top of a six month internal channel within the main SPX rising channel:

What are the targets for this retracement then? Well if Pug's wave count is correct then it cannot be lower than the top of the first wave at SPX 1112.42, and I still favor the 61.8% retracement of wave 3 at 1120 SPX, which is also the mid channel line of the six month internal channel on the last chart above.

We may not get that far though, and the other likely targets are the 38.2% and 50% fib retracements at 1140 and 1130 SPX respectively.

This will be a pleasant interlude for the bears before the next wave up. Everyone have fun trading it!

Has 61.8% Stopped the SPY?

By Tim Knight - 16 years ago (18, Mar 2010 9:51:22 AM)

The market has rolled its eyes and continued marching upward for most of the past twelve months, in spite of whatever trendlines, oh-so-extended wave patterns, Bradley Turn Dates, Biblical Cycles, Rainbow McHugh Phi Mate Dates, or God-knows-what-else has been thrown on a chart.

I still think there's a meaningful amount of utility in Fibonacci retracements, so I use them regularly. I notice that the SPY has bumped up against its 61.8% retracement. Only time will tell if the market backs away from here or continues to roll its eyes. This price level is also important since it represented support before all hell broke loose in the glorious salad days of Autumn 2008.