I was saying yesterday morning that the statistical odds were stacked against the bear side yesterday, and that the stats suggested that Wednesday's bearish engulfing candlestick on SPY was unlikely to confirm, which of course it didn't, in a day where most of the previous day's losses were regained. While Thursday has been the most bullish day of the week since the October low however, Friday has been the most bearish with, within a strong 300pt+ uptrend of course, 11 up closes and 9 down closes. I would note however that 5 of those up closes were in the 19-24 range, with a net 84 points made on all Fridays during this period, so overall gains on Fridays have been above the 60 point average for weekdays over this period.
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.
Dow Theory Divergences (by Springheel Jack)
The dip buyers had yet another great day yesterday as the large opening gap down was swiftly converted into a new high on SPX since the March 2009 low. That new high isn't a break with confidence of very strong 1370 area resistance yet, but if it does break with confidence then that opens up targets in the 1400 to 1440 area as you can see on the 6yr daily chart. My preferred trendline target would then be possible channel resistance in the 1410-20 area, with my reserve target being the 2008 high at 1440.24.
There is one other thing well worth noting from the chart below. Major tops on SPX are generally preceded by a sizable counter-trend spike that sets up either a head and shoulders pattern, or a double-top or bottom. We have seen no such counter-trend spike for quite a while now, and it's unlikely that we would see a major top without one. That counter-trend spike would generally precede the high for the year by a couple of months:
Survivorship Bias (by Consistently Incredulous)
I tripped across a Standard & Poors announcement last week that CBOE Holdings (CBOE) will replace Temple-Inland (formerly TIN) in the S&P MidCap 400 index as International Paper (IP) (S&P 500) completed its acquisition of Temple-Inland on February 13th. This reminded me of a good Seeking Alpha post I read last year about Survivorship Bias in Index Performance.
I highly recommend the full post; but in a nutshell, survivorship bias in the indices:
“Specifically, in the process of rebalancing (selecting and or deselecting stocks) the indices it is the tendency for failed companies to be excluded from indices because they 1. No longer exist, 2. Their market capitalization has fallen or 3. Their industry is in decline (which likely caused the first two reasons); this is considered Type 1, survivor bias. Inherent in this type of bias is the error you make in just counting the survivors.”
Topping is a Process (by Springheel Jack)
That was a very nice day for the bears yesterday until the rally in the last hour wiped out the day's losses. Overnight ES has broken to a new high and so far the broken resistance area at 1352-3 is now holding as support. Technically however, despite all the drama, nothing much has changed on the SPX chart apart from a double pinocchio of support from Dec 19th that is suggesting a bigger break downwards soon. Short term I have trendline resistance in the 1362 area, and support is now in the 1344-5 area. The 2011 high was at big resistance in the 1370.6 area and that isn't far away now:
An Ongoing Balloon Ride
Weather balloons may reach stratospheric altitudes of 40 km; well-over double the standard altitude of most commercial jets. Diminishing pressures at these altitudes cause the balloon to expand to such a degree (typically by a 100:1 factor) that it disintegrates- leaving the remains to fall back to earth.
For those of you who can recall middle/primary school science class, the Earth has five principle layers in the atmosphere. The two closest to the ground are the troposphere (up to 20km) and stratosphere (20-50km). Most of the phenomena we associate with day-to-day weather occur in the troposphere, including clouds; which stop at the tropopause- the border between the troposphere and stratosphere.
Since the October breakout, and subsequent retest, the SPX has remained well-above the clouds and the 400day MAs since November.
The question is – has price broken the tropopause? Or is there more room overhead as, much like the troposphere, it is variable depending on latitude (which in this metaphor is a bull/bear market)?
Just eyeballing the SPX altitude since 2007, we have had 3 instances of a significant post-altitude drop (purple boxes) and 4 instances [or 2 long ones…] with only minor pullbacks (orange). Notice the rising Senkou parallels such a price rise, and is doing so again today:
I don’t think anyone questions if this debt-filled balloon will disintegrate, but when. Given that we’re probably approaching the stratosphere- I closed all longs today. I would be more comfortable entering long again on a small pullback, but would hesitate to short until the full cloud is breached.
“One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley.”
