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.

Euro Saved! – Take #58

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There was a very large move overnight as the EU eased repayment rules for EU banks, and announced a $149bn plan to promote regional growth at the EU summit. Much has been made of Merkel's isolation at the summit and I was reading this morning that French President Hollande won't be backing down on his demand that Germany back a Eurobonds plan, so it seems that risking future German bankruptcy is a risk that the (ahem) French are prepared to take. We'll see how that goes today, but given that unconditional agreement by Merkel looks like political suicide at home, that she stated earlier this week that no such agreement would be reached in her lifetime, and that it would most likely be ruled unconstitutional by German courts in any case, it seems unlikely that Hollande will get his way. 

What we might see however is German agreement to a Eurobonds scheme conditional upon Euro members surrendering a lot of fiscal sovereignty to, in effect, Germany, and that might have the potential to kick any major crisis a few months down the road. We'll find out what has been agreed over the weekend. 

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Downside Risk for Commodities

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This is going to be quick, because I have camp-ish things to do (archery among them!) but I wanted to throw out some bear porn as to potential medium-term direction of the charts below. The sad fact of the matter is that if I had simply put on my short positions in early April and spent the next three months yodeling on a rooftop, my profits would be substantially higher than they are now. Such is the case of a downtrend.

Tomorrow's a big day, with another stupid summit kicking off as well as the Supreme Court decision on healthcare. Strap in.

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Mean Reversions (by Springheel Jack)

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I'm a trendline and support/resistance level chartist mainly, and these should be important tools in any chartist's toolkit. Both of these are what I would describe as linear support/resistance level tools, as in the case of a trendline it is a straight line moving upwards or downwards at an angle, and in the case of support and resistance levels and areas, these are static levels that have been demonstrated by past market action to be important. 

These can last a very long time indeed, and a good example of that can be found on the BP monthly chart, where I used a 13 year support level on 25th June 2010 to argue for a low in the 26-7 support area, and a three year declining channel to argue further that BP might well close June back above 28. BP bottomed the next day at 26.51 and closed June back above 28. You can see that post here, and it's worth noting as an aside that BP then recovered back to the top of that declining channel, made a potential double-top there, and has since retraced half of the move up from the 26.51 low. The point I'm making is that trendlines and support/resistance levels can last a very long time and have real force. 

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2012 Roadmap (by TnRevolution)

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Happy Memorial Day Slopers!  Before I dive into the Revolution roadmap, I would like to offer my sincere appreciation to the men and women of the U.S. military.  Bravery and sacrifice are to be honored, and I thank you for that.  With that said, bring our troops home, where they belong.

Now, let's get to the charts.  I continue to use GDOW as the best overall view of what is truly going on in the markets.  From a fundamental standpoint, I would argue that U.S. markets have been skewed higher as money has fleed other global markets, fearful of currency/sovereign crisises.

GDOW52812

GDOW is currently resting on trendline support coming up off the March '09 bottom through the October '11 bottom.  A break of this trendline, should lead to a quick impulsive move down.  Also, notice the structure of the overall decline since the 2011 top.  From February '11 through July '11, the index formed a downward sloping head & shoulders top.  It then formed a similar structure from February '12 through April '12, as the move higher off the October bottom topped out.  Ideally, what I would like to see is another similar structure develop.  Let's take a look how 2012 might play out.

GDOWforecast

What I'm looking for over the next two weeks is a break of the trendline support, and then a quick move down beneath the October '11 low.  This would then be followed by building a right shoulder through June/July '12, backtesting the trendline break as well.  A break lower out of this downward sloping head & shoulders structure would have the potential to yield a powerful bearish move, a la 2008.  Is this possible?  Let's take a look at GDX and the VIX to see what they are saying as well.

GDX52812

As has been well documented on the Slope by our gracious host, the GDX head & shoulders top continues its breakdown.  After making an initial impulsive move beneath it's neckline, GDX has enjoyed a bit of a bounce, moving back into overbought territory on the daily stochastic.  It is ready to resume it's fall.  Looking back at the 2008 GDX analog, I would put us around the beginning of September 2008.  From September 2nd through September 11th, GDX fell from 37.19 to 27.86.  The move was swift.  I believe GDX is signaling the same thing it did in 2008, a deflationary crisis event.

On an aside, for my view on where gold is heading once this flush is finished, I encourage you to read a post TK (and Serge) made last August.  Goldy von Moldy.

VIXforecast

Lastly, let's take a look at the VIX.  After breaking out of its inverse head & shoulders setup, the VIX impulsed higher, and then has since moved back to ease off its overbought levels, backtesting its breakout as well.  Ideally, I'm looking for a quick move higher into the low 40's, before running into trendline resistance coming off the August/October '11 highs in the VIX.  Notice that the VIX has continued to honor it's uptrendline on the daily MACD.  A break beneath this trendline would be a red flag. 

1-2-3? (by Springheel Jack)

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Obviously I've been posting a lot of seriously bearish looking long term charts in recent weeks, and I should take a moment just to emphasize that I don't think that it's time yet to buy in a large supply of ammunition and baked beans and head for the high ground in preparation for the end of the world as we know it. What I am saying is that these setups need to be borne in mind as part of the overall technical mix, and that these patterns being at a late stage of development, at a time when we are looking at the potential for the forced breakup of the eurozone and a string of possible sovereign defaults, is definitely something to think about. I'll be posting some more of these charts today looking at US equity indices. 

Short term however we have a distinctly bullish looking setup developing on SPX after the deep retracement from Tuesday's high. Obviously the declining channel from the high was broken on Tuesday, which was bullish. The deep retracement after Tuesday's high to establish a higher low has then set up a possible W bottom, which has a target in the 1365 area on a break over Tuesday's high at 1328.49. This setup also looks classically like a first wave up, followed by a deeply retracing wave 2, and that would put us currently in a wave 3 up so we'll see how that develops. There are a couple of other comments to add about this however. 

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