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.

Welcome Back, Fubsy_Cooter!

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I saw this comment from a long absent sloper this morning & thought it deserved a wider audience:

I haven't posted in SOH since 2009, but I sense a sea change in the market trands and when its time to short, this is the best site bar none, so I'm back. 

Here's my take regarding the Whipsaw, and a low risk way to get positioned near the beginning of a trend that will likely last close to a year.

Its becoming more apparent that, there is an imminent and significant trend change underway. The reversal of this trend will change the direction of virtually every asset class, and will provide a multi-month opportunity for profit by entering near the pivot. Over the past two years, a majority of asset classes have been influenced by a weakening US dollar.

Currently, the dollar is trying to put in a bottom. Sentiment has reached negative extremes that mark multi-year bottoms, and the commodity complex and stocks are showing signs of topping with sentiment having become extremely positive and price volatility increasing. When the dollar puts in a bottom, the unwinding of the weak dollar trade will take several months, lasting until sentiment reaches the opposite extreme of overwhelming favoritism toward the dollar, which will likely be the point at which the dollar begins to once again roll over.

With this trend reversal, assets that have risen for the past two years will fall..

-Commodities (oil, precious metals, and agriculture)
-Stock sectors (energy, real estate, financials, tech, retail)
-The Euro

Here is a low risk tactic for getting in on this trend early. The dollar has recently bounced at 72.69. That currently marks a potential bottom. When the dollar has its next correction, if it manages to stay above the 72.69 pivot, and reverses upward through its peak prior to correcting, positions should be bought that favor a strong dollar.

Short commodities (oil, precious metals, and agriculture), stocks sectors (energy, real estate, financials, tech, retail) and the Euro.

To manage risk, position size should be determined by setting a stop 1% below the 72.69 level on the dollar (71.97), and calculating how large a position can be taken such that one’s loss if the trade goes against them is within one’s risk tolerance.

For example: With a total hypothetical account size of 100k, I might be willing to risk 2% of my account to open this trade. Thus, if I buy DUG at 32.00 (appx where it will be if the dollar breaks through its peak pivot), and set a stop at 25.00, (appx where DUG would be with the dollar at 71.95), I could open an initial position of 300 shares. 300 x 7.00 would give me a loss of 2100 or 2.1 percent of my account if the stop is hit. If the strong dollar trend continues, positions will be added when the dollar has corrections, and when it reverses higher after becoming oversold. New stops will be set below bottoming points. The reward to risk ratio is highly favorable if one waits for this setup.

An even more compelling oppty awaits when Silver and Gold reach their bottoming points, which is why I'm only willing to risk a small percentage of my portfolio. I want to preserve capital for that time, but I believe getting into a strong dollar trend offer the potential for substantial gains in the meantime.

Whipsaw Market (by Springheel Jack)

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Well volatility is back and this whipsaw market has been confusing many of us, including most definitely me, though I've still been calling the turns pretty well. To add some clarity I've discarded all my usual trendlines and charted up various indices from scratch this morning on another computer. What I'm seeing from that is pretty interesting.

On the ES chart I can see no reason yet to think that the bullish trend up from March is in any trouble. Given the length and power of this move up from last July, and the fact that the obvious topping area for this move was always going to near the end of QE2 in June/July, I'm inclined to give the bull trend the benefit of the doubt until demonstrated otherwise. We're not there yet. The touch of rising support from the March low on ES yesterday wasn't perfect, but it was close, and this is a gently narrowing rising wedge, or ending diagonal in EW speak, which would be normal for a final stage move in a big wave up. The wedge has three touches on either side and is therefore fully formed, but it hasn't broken down yet, and the upper trendline target would be in the 1390-1400 area if immediate resistance is broken:

110513_ES_60min_Rising_Wedge
NQ has been divergently bullish on this latest retracement, and I'd generally read that as bullish for equities as a whole. I can't think of any good reason not to read it that way here as well. A strong support trendline has been established at the recent lows and NQ is now testing overhead resistance again:

110513_NQ_60min_Trendlines
I'm not as happy with my trendlines on TF, but support has been established and the overhead resistance trendline looks solid with the exception of the small overthrow in late February:

110513_TF_60min_Trendlines
The direction of bonds is very important for equities, and I've had another careful look at the setup there. What I'm seeing is that there is a declining channel from the high last August that isn't yet broken. The current retracement to test channel resistance is also in a perfect gently rising channel, and the next obvious move is down, which would be supportive of equities here:

  110513_ZB_Daily_Declining_Channel
The overall direction of USD isn't as important to equities as bonds. Equities and USD rallied strongly together from December 2009 through to the equities top at the end of April 2010. EURUSD (55% of the USD index) may have made an important interim top here, in which case I'd expect a move to rising support in the 1.35-6 area. Looking at the weekly chart though, there's still a good case that this recent move down has just been a retest of broken declining resistance from the 2008 high. If EURUSD can close below that trendline on a weekly basis, there will be a good case for a bigger move down towards support:

110513_EURUSD_Weekly_15_Year_Trendlines
I've also been having a fresh look at the oil chart. I've been calling the turns on oil very well in recent weeks, calling a top at 113.50 with a target at 96, then a bounce to 106 that only made it to 104.50, and a return to 96 which we say again yesterday. What now though? Looking at the weekly ten year chart this latest retracement may simply have been a retest of broken resistance. If that trendline is breached then I'd expect a move back to support in the mid-80s, with an expectation that support there should hold. Apologies for the strange candles in 2009 caused by bad data from my futures people:

110513_CL_Daily_Ten_Year_Chart
We're all watching the show with great interest on silver, but for overall precious metals direction I tend to use the more staid gold charts, which are easier to chart with tradeable trendlines. The best timeframe to take at the moment on gold is the six month daily chart I think, and the beautiful broadening ascending wedge from the January lows. That could break down at any time and that break would be bearish, but the current uptrend is intact until that wedge breaks down and I won't be getting excited about the short side on PMs until then:

110513_Gold_Daily_BA_Wedge
In the short term equities are hitting resistance this morning and I'm expecting a dip that I'll be buying. Until the lows this week are broken, JBTFD is still the higher probability trade in my view.

Blogger is down this morning so this is not posted at my blog today and I'm seriously considering switching my blog to WordPress.

Atypical Top? (by Springheel Jack)

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(Preface from Tim: I mentioned in the comments section last night that if you were a bearish sort and inclined toward religion, that you should pray for a hearty rally. With the /ES up 11.50 as I am typing this, it looks like God was listening. It sounds crazy, but this is exactly what we want right now. I have many small short positions right now, but I am delighted at the push higher.)

I don't use Elliot Wave much in my own charting, but I have a couple of favorite elliot wavers who are both excellent, and they are Pug and Alphahorn. Both run subscription services with an unprotected post every so often that is always worth reading. I mention this today because Pug switched his primary scenario yesterday to a count where we are in an atypical wave 4 after the wave up from July finished in February and Alpha is also considering that count.

That count would have SPX making a wave 3 top from July last year in February, then wave A down to the March low, Wave B to the high at the end of April, then we would now be in Wave C with a target in the 1250 area sometime in June or July. There are a couple of things that I'm seeing that lend some weight to this scenario.

The first is the situation on bonds which generally inversely correlate closely with equities on major bottoms and tops. It's increasingly obvious that bonds made a major low in February, and I've been struggling to fit that in with what's happening on equities. Here's TLT on the daily chart where it has clearly bottomed and broken up. There is an IHS on the chart with three possible necklines and I'm taking the target as being in the 100 area:

The other correlated market that has broken down is copper of course, which made a major high in February. That would also fit with a technical wave high on equities then. Here's the copper daily chart. My target on copper (larger timeframe) is 365 but you can see from the chart that it could well bounce here:

Do I buy Pug's count? It's very possible, though it isn't welcome news, as I was expecting a larger summer bear move from a higher level. Where we are now potential downside looks limited unless the bull market is over, which seems rather doubtful to me. Pug has a target in the 1250 area, and in my view this wave 4 could not go lower than about 1220, as that would break the main lower trendline for the bull market rising channel, which I'm not expecting to see broken until this bull market has made a final top. Here that is on the weekly chart, where you can also see that the most recent high came with sharp negative divergence on the weekly RSI:

Looking just at the rising channel from the July low last year, support there is in the 1300 area. There's been negative divergence on the daily chart since November last year and it's worth noting that the last SPX high hit the declining trendline on RSI exactly:

A large part of the immediate bull case was the IHS on SPX of course, and the neckline on that was thoroughly trashed yesterday. That doesn't mean that it can't play out of course, but it makes it much less likely:

Overall I think Pug's count is convincing, and I'm going to be assuming that is the case until demonstrated otherwise by a major support or resistance break on SPX. In that context the likelihood would be that we have seen a major interim top on commodities, but not a final high, and I'll be watching the key 365 level on copper to see whether it holds. The equivalent level on oil would be in the 86 area, and now that we have reached the 96 area that I called for last week at the oil double-top, I'm expecting a bounce, and then a move to test main support at 86:

My main target for this move down on ES is in the 1318-20 area today, but declining resistance has been very thoroughly tested overnight, and I'm wondering whether we see a bounce here that would probably coincide with the copper bounce that I was suggesting in the copper chart above. Declining resistance is now at 1339 and a move with any conviction above 1340 should deliver a strong bounce today. As I've been writing this the employment figures have come out and resistance is now broken so I'm assuming a bounce for today that may last into Monday.

Wild Reversal (by Springheel Jack)

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What a wild week. The bearish push down on Monday accompanied by a series of bearish trendline breaks has been followed by an even stronger push up, and as I write ES has peaked almost ten points above the 1319 level that held as resistance on Friday. The short side isn't quite dead in the water yet, but they're in serious trouble, and ES is now close to a new high that should signal that we are in a new wave up. On NQ resistance on the possible diamond top is now being tested and if NQ can retake 2350 and stay above it then I'd be inclined to write this pattern off:

On ES the only remaining H&S pattern in play is the continuation IHS that will indicate to the 1446 area if ES can make a new high. A couple of points worth noting as well on this chart are the broadening formation that has broken up with a target at 1348, though this isn't a pattern with a strong track record, and the resistance level and trendline at 1329, which is where ES is stalling at the time of writing. We could see a reversal from this level this morning, as the ES 60min RSI is very overbought:

Copper has also reversed back up, though not as strongly, and I'm looking for a short term high in the 431.5 area, which is also a potential IHS neckline. A rising wedge has formed from Monday's low which supports a retracement here and the obvious target for that retracement would be the 423.5 area. A break back below 420 would look bearish and would kill off the potential IHS, though I'd be watching for a double bottom with positive divergence there:

EURUSD gapped below the rising wedge trendline and then gapped back above it leaving a little island bottom on the trading hours daily chart (XEU). EURUSD is now back at 1.45 resistance and has made a marginal new high, which is very bullish. AUDUSD is also breaking up, so the outlook for USD is deteriorating very fast:

TLT consolidated above broken declining resistance yesterday, and the obvious next resistance level is 93.7. If we are seeing a major break up on equities however, then bonds are likely to struggle at best and I'd expect TLT to reverse back down. Bonds are strongly inversely correlated with equities, so I'm treating this break up with extreme caution until we see where equities are going:

I was looking through some precious metals charts yesterday, just to see how the other precious metals were doing. Platinum was interesting, as it hasn't participated in the latest stage of the PMs rally so far, though it rose very strongly from the late 2008 lows into early 2010, and is still up a lot more than gold over the same period. It looks rangebound at the moment on the weekly chart:

The really interesting chart was the weekly chart for palladium though, which has even outperformed silver from the late 2008 lows. The chart looks particularly appealing as there is a tight rising channel and a very obvious target in the 925 area. Of all the PM charts palladium looks the most compelling long at this level:

Overall on equities this reversal looks very bullish, but they're short term overbought and at serious resistance, so I'm expecting some retracement from here today. A gap fill looks very ambitious and I'd be surprised to see that. The obvious target for a retracement on ES within this bullish context would be broken resistance in the 1319 area.