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.
Is the Pope a Catholic?
Yeah, yeah, the downgrade, I know. An article on biofuels doesn't speak to its urgency. But I was on a plane. To explain:
I'm a bit of a nervous flier. I guess, being somewhat of a control freak (ahem…….), it's unsettling to be in any situation in which I have absolutely no control over what's going on. After all, if an airplane gets into trouble, the most I can do is chat with God and work out the terms of the life of charity I shall lead in exchange for not plummeting to earth in a metal cylinder.
So as I was flying from Chicago to Denver yesterday evening, there was a large thunderstorm positioned directly – and I mean directly – over the Colorado Springs airport. The woman next to me, whom I guess had been through this kind of thing before, said, "we're going to be up here a while." And she was right.
We made a huge circle around the storm for half an hour, spending about half the time violently shaking as the air buffetted us. It was the worst plane right I had ever been on, and all I could think about was how nice it would be to get us safely landed on the ground. The shaking and the flying seemed interminable, and I kept worrying who would NEW POST this site for the rest of eternity if I were to perish at such a youthful and surprisingly handsome age.
Well, I obviously made it, and my pact with God was amorphous enough that my spending time sharing my thoughts on the market for no charge strikes me as adequately charitible that I think God will approve. So I resume to the struggle.
So the big news is that S&P has declared that, in a nutshell:
+ The United States and its future does not present the most unquestionable credit risk
Not to do S&P's job, but I'd like to supplement their findings with some other equally salient facts:
+ Ophra Winfrey is, and always will be, on the fat side;
+ Julia Roberts and Anne Hathaway have unnecessarily gigantic teeth;
+ Barack Obama enjoys making public speeches
So how will the market react? I'm not sure. I've become so accustomed to perverse market reactions that I would not be surprised at all – in fact, I would be kind of pleased – if the market wound up closing higher on Monday.
As a bearish sort (perhaps I should have added Tim is a Bear to the bullet points above), I am obviously pleased with the market action we've seen lately. But – as a perpetually dissastisfed sort as well – I keep having two contrary, bummer-like thoughts:
+ I sure wish I had even more shorts on;
+ I wonder how long it'll be before we get the big bounce I need to go 200% short
I mean, I've been almost purely net short for a while, and last week was beneficial for me, but many stocks that I wanted to short at better prices still got clobbered by 15%, and I was not there to partake.
I tend to have a "bottoms-up" approach to my analysis, and the preponderence of evidence tells me that the shorting opportunity of the decade is coming up, but it requires a substantial bounce to make the risk/reward worthwhile. By "substantial", I don't mean new recovery highs – – but a 4% to 6% push higher on the big indexes would do the trick (which, for some stocks, would mean a 20%+ rise).
As for the Fibonacci time series, I remain blown away that the video I did on May 2nd (which, conicidentally, was the recovery high) specifically mentioned August 5th as the bottom for the cycle. What's the next bottom? It looks like February 3, 2013 – – which would make a certain amount of sense, since whoever President we wind up with in November 2012 will probably start off with a market that's in a death-spin.
In any event, I remain totally short, but only lightly committed, and Monday bears very close watching. Have a good Saturday.
How Far Under The Cloud We Are
Just a quick comment-cleaner as our fearless leader is visiting the core of crime, graft and corruption today…
The SPX cloud chart looks like this as of 2pm:
That trend zone since the Devil’s Bottom low has most definitely been cracked, but we are way under the support/resistance areas of the cloud.
So I took a look at just how far the rubber band has been stretched, and we are 2.5 standard deviations south of the cloud. We haven’t been this far under the cloud since the week of June 28, 2010 (-3.6) and before that Feb 17, 2009 (-4.1), early November 2008 (-6.7), Late July 2008 (-7.2), Feb 21, 2008 (-5.3) – see orange arrows.
So the question I have is do we bounce like in the last two instances? Or mark time until the next puke, like in the previous three? I think the answer lies in the bull/bear debate: we bounce if this is still a bull, and drop again if we have seen a bear turn.
Failed Bounce Overnight (by Springheel Jack)
Last night when I was about to go to bed I posted a very nice looking bull setup on ES with a falling wedge that had broken up, an IHS that had formed at, and was breaking up through, the important 1257 resistance level. That failed in the mid-1260s though, the 1257 level was rebroken and ES has been as low as 1240 overnight. This obviously looks a lot less bullish, and I'm wondering whether we'll see a move to test the broken wedge resistance trendline near yesterday's low:
On the SPX, NDX, and RUT charts I now have three very similar broadening descending wedges. The next obvious moves on these wedge are up to hit the upper trendlines, but it's worth noting on the SPX 60min version that it is the 13 EMA that has mainly been acting as resistance on this move down, and that SPX hit the 13 EMA at the close yesterday:
That isn't as clear on the NDX or RUT charts however,and the next obvious trendline hit would be the upper trendline. Here's the NDX 60min version:
Here's the RUT 60min version of this wedge:
I'm wondering if we will need to hit the key support level in the 1219 SPX area before we see a strong bounce here. If this down move is the start of something bigger, as I think it is, then I'd expect to see a bounce off this support area before a return to break it. Here's the SPX 6yr chart to show how important a support / resistance area this has been over the last few years:
On the three year SPX chart I've shown this support level more clearly, and it's also well worth noting the RSI is hitting 30 on the daily chart as well. RSI has held 30 at every hit since March 2009, and that's another reason to expect at least a bounce here. What I've also shown here is my preferred target for a bounce, which would be a kiss of death retest of that rising wedge lower trendline, which has only two hits so far and needs a third to properly confirm the trendline:
I've heard some talk that this big move down is related to contagion fears on Euro-zone debt, but I don't think that the currency action this week particularly is backing that up. EURUSD has weakened somewhat since Monday, but has been successfully clinging to the 1.427 support / resistance area:
That's in sharp contrast to AUDUSD, which has crashed almost 5% since the start of the week and looks set to fall further. A move to big support in the 1.04 area looks likely:
What does this sharp relative underperformance from AUDUSD suggest? Well, it suggests that the main concern here is that the US is close to a double dip recession, and there's good reason to think that. Here are the GDP figures since Q3 2009:
- 1.7
- 3.8
- 3.9
- 3.8
- 2.5
- 2.3
- 0.4
- 1.3 (not revised down yet)
Not an inspiring series and close to levels which in the past have almost always been followed by recessions. On average equities fall by 40% in recessions, or so I have read, so fear of recession is a very rational reason for equities to be falling sharply.
I have mixed feelings about the outlook for today. I will be strongly bullish if SPX gets below 1230.
