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.

Doe-Eyed Optimism

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As a gentle reminder on my long-term view of things, I do not join those with their hands quietly clasped in their hands who believe the most dramatic plunge we could have is a 1.5% drop to 1300 on the S&P.

I am looking at a vicious multi-year bear market that takes us below 600 on the S&P and completely transforms the government of this country and the position of the United States in the world. Permanently.

What we're about to enter isn't a girl's tea party, and iPads and Zynga aren't going to save us. Nor is color.com, for that matter.

0411-spx

Key Level on Australian Dollar (by Springheel Jack)

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Another day of sideways chop yesterday, and SPX has built up a worrying series of topping candles. These don't always signal a trend change, but they do that much of the time, and that is a real concern here until overhead resistance is broken. Here it is on the SPX daily chart:

To add to the worrying technical picture, the Russell 2000 broke down from the recent rising channel yesterday, and that is a warning signal to consider seriously:

On the bull side NDX bottomed yesterday at one of my support trendlines and it might well hold there

I have mixed feelings about equities here and there is a real risk that we are seeing a double top on SPX if it can't break up from here soon. Copper has broken up very convincingly but if SPX just chops sideways until copper reaches the potential IHS neckline at 4.55 that would be a warning signal. As it is copper is still some way short of there, though it has broken 4.45 with confidence and looks likely to reach 4.55 next. I won't post the copper chart today as I already have seven other charts I'd like to post, and yesterday's chart still covers it well, but if HG/copper should retrace to 446, that should be a nice long entry level with a target at 4.55.

The US dollar had another bad night, and is now below 75.5. EURUSD has now reached the upper wedge trendline in the 1.44 area and we might see a reversal here:

The really interesting forex chart today though is AUDUSD, where AUD is hitting a four year rising wedge upper trendline intersecting with another 18 year support / resistance trendline. If we are going to see a reversal on AUDUSD anytime soon, this is the place. Here's the setup on the weekly chart:

I was looking at 30yr treasury yields this morning for a directional clue on equities. That tends to trend up or down with equities, but sometimes weakens ahead of them. I'm not seeing any reason to think these are about to reverse seriously, though they're obviously overbought on the 60min RSI:

The last chart of the day is the very interesting chart for the Nikkei. I had a look at that yesterday after a talking head on Bloomberg suggested that Nikkei might be a long term buying opportunity. Looking at the chart, I'm inclined to agree, as the Nikkei has recovered and retested the broken rising channel lower trendline. As long as that trendline holds the Nikkei's looking pretty solid. :

I don't expect a serious equities reversal here, and I'm not really expecting to see one. There are some worrying signs of weakness though, and until ES and NQ break up through 1338 and 2350 respectively, there's definitely some reason for short term caution on equities.

Major Resistance Breaks (by Springheel Jack)

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Equities have, on SPX and NDX at least, just been chopping around uncertainly this week. There are definitely some worrying signs of weakness on both SPX and NDX particularly. Here's the updated broken rising wedge on the SPX 15min:

Here's the updated broken rising wedge on the NDX 15min:

Both look potentially bearish, but I'm unconvinced. The Russell 2000 is still within a strong rising channel, though the latest touch of the lower trendline without an intervening touch of the top trendline is a possible warning signal. Here's how it looks on the RUT 15min:

Elsewhere though, there's little to suggest that we're seeing anything more than consolidation before another move up. My EEM vs SPX daily chart looks very solidly bullish:

On copper my resistance target at 438 was made yesterday, and there was a reversal there to start forming what I was expecting to be the right shoulder on an IHS with the neckline at that very significant resistance level. Overnight however copper broke up and broke the 438 level with considerable confidence. That was a very significant break, as copper broke the big declining channel from the high that I posted last week. The next upside target is 445.6 but we may well not see a significant retracement until copper hits the next major resistance level (and potential IHS neckline) at 455. Either way this break up looks bullish for equities:

The resistance breaks with the widest implications this week however have been on EURUSD and gold. I posted the EURUSD resistance trendline in the 1.428 – 1.43 area yesterday morning and it was broken yesterday. EURUSD has returned to test the trendline overnight, and I'm waiting to see the weekly and monthly closes for full confirmation, but if sustained this break is very bearish for the US dollar, and has wide downstream implications for the bond markets and commodities particularly that I'm going to need to give some thought. Here's how that looks on the EURUSD weekly chart:

Reinforcing that resistance break on EURUSD is the big resistance break on gold. Looking at the daily chart the broken resistance trendline was retested yesterday, and more upside for gold looks very likely:

There's some scope for further weakness on equities this week I think, and if ES and NQ can break 1320 and 2315-20 then they could retrace back to the daily 20 SMAs in the 1300 and 2290 areas respectively. I'm doubtful about seeing any retracement that deep here though, and any further dip here should be bought in my view.

Peeling the EUR USD Onion (by Springheel Jack)

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I've been meaning to do a dedicated post on EURUSD for a few days but have been struggling to find the time. Given that EURUSD has now reached a critical test in the 1.428 – 1.43 area overnight however, it will wait no longer, so I'm doing this as a second post before the open today. All charts were prepared last weekend but the technical situation hasn't changed much other than the small move up into the key test that I've been expecting.

In the short term, EURUSD is within a rising wedge. That's bearish though it would be much more bearish if the upper trendline for a break up to evolve into a rising channel hadn't already been established. There's a similar rising wedge on AUDUSD with resistance now in the 1.05 area. As with EURUSD, AUDUSD is still well short of testing the upper wedge trendline:

The context for the current rising wedge is within a greater rising channel from the summer lows last year:

The reason the 1.428 – 1.43 level is interesting however is because of declining resistance from the all time high on the 5 year chart. That trendline is the resistance trendline on a (bullish) falling wedge indicating to the 1.60 area on a break up. If wedge resistance holds on the current move up then there is a technical target in the 1.10 for a move down on EURUSD here, though for reasons that become obvious on the next chart, it seems unlikely that EURUSD could make that downside target:

To get the true big picture on EURUSD though, we have to look back into the 1990s, where the support trendline on EURUSD that first hit in 2002 is matched by an upper channel trendline dating back to 1997. The sharper eyed observers among you will note that the Euro was only launched in 1999, but the currency mix within the Euro was already long established, and the chart therefore goes back before the launch.

The current area is key because of the five year falling wedge and declining resistance from the 2008 high, and a break above will look extremely bullish to my eye. If EURUSD breaks above the falling wedge then the shorter term rising wedge is the pattern to watch for long entries, but the overall picture will be looking towards first a test of the all time high just over 1.60, then a break above to channel resistance in the 1.75 to 1.85 area over a likely timescale of the next one to three years.

As I'm writing EURUSD is trading slightly over 1.43, but I'm waiting to see a break of 1.43 with confidence and the daily close.  If we see that break then rising wedge resistance should be hit next in the 1.4375 – 1.439 area, and that could well be an important short term high, though I'd then be inclined to buy any dips on EURUSD on the longer term picture.

Will EURUSD reverse here? It may well. EURUSD made the last major high in November 2009, four months before the end of QE1, so the timing looks promising. We could well see an important high here followed by a several month retracement into the announcement of QE3, just as we saw last year.  The DX chart is looking promising for a reversal, though a conviction break below support would negate the current bullish setup:

I'll be watching for that retracement, but it's hard to be optimistic about the US dollar's longer term prospects here. Dollar bulls are fighting the Fed in just the same way that equity bears are fighting the Fed. The Fed's strategy is to flood the world with newly printed dollars to create strong asset inflation. It's hard to argue with the results of that strategy so far, and the laws of supply and demand argue for a big fall in the value of the US dollar in response. That large rising channel shows the likely shape of that decline in my view, and if EURUSD reverses here I'll be watching carefully to identify the next big low, which should be a good multi-year long play.

April Fool’s Day (by Springheel Jack)

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Yesterday SPX respected the dismal stats for the last day of the month, and closed down three points from the previous close. Today is the first trading day of April, which is the strongest performing month on the Dow since 1955, and the trading stats for the first of the month since the March 2009 low are extremely strong, notwithstanding the bull massacre at the beginning of last month.

The most effective trading strategy over this period on the first of the month has been to go long at the close on the previous day, and sell at the close on the first trading day of the month, unless the SPX gaps down, in which case you should sell at the open as the four gaps down in the series have ended up down 14.5 points for the day on average.

A less effective strategy has been to go long at the open, unless there is a gap down from the previous close, but that would still have yielded 194 points in total since April 1st 2009, against 234 points for going long at the previous close. Here's the updated table:

The Russell 2000 had already made a new high, but yesterday the Transports index also closed above the previous high. That's important, because we are now close to an new Dow Theory Buy Signal, which we'll get as soon as the Dow also makes a new high. Here's the Transports index, which is in a perfect rising channel:

The Dow is close to exceeding February's high as well. I don't have a rising channel on Dow, but I do have a strong support turned resistance trendline that's currently targeting the 12800 – 13000 area:

Looking at ES, the rising channel I posted the other day is still holding and the hourly RSI is no longer overbought. Channel support is at 1316 and channel resistance is at 1344. I have the February high just over 1338 and that may provide some resistance:

NQ is leading ES again, which is bullish, though NQ is still over 50 points below the February high and looks most unlikely to make a new high before ES. Nonetheless the declining channel has been broken and strong support has now been established at 2328. A somewhat alarming large triangle or rising wedge has formed on NQ which I'm obviously looking to break up today, and the obvious immediate upside target on a break up would be resistance in the 2363-70 area.

Copper is the fly in my generally bullish soup today, and I posted the longer term chart yesterday to show the potential for a much lower low there. The rally yesterday was feeble and served only to establish the upper trendline of a declining channel. Support is at 425 and if that breaks the next declining channel target is at 418.5. An hourly close above 430.5 will break the declining channel;

I posted the longer term EURUSD chart yesterday, arguing that there was a high probability topping area in the 1.425 – 1.43 range, supported by the current rising wedge on EUR. I have another forex chart at a similar stage, and that's AUDUSD, where the 20 year chart shows that a long term support turned resistance trendline is about to intersect with the upper trendline of a four year rising wedge on AUD. That double resistance hit should be in the 1.0475 area and is a likely topping area if that too is going to reverse. It isn't all over for the USD bulls yet, and if these long term resistance trendlines on EUR and AUD hold, then we could be looking at a very major low for USD coming up shortly. Here's the AUDUSD chart:

I'm leaning strongly bullish today unless we see a gap down on SPX, which looks unlikely at the time of writing. We also have strong support established slightly below at 1315-6 on ES and 2328 NQ, so if we have an unexpected bull massacre as we had a month ago, then the support levels are clear at least. On ES immediate resistance is at 1325.75, which has had six hits so far (15min candles) since yesterday afternoon. When it breaks ES should be off to the races with an immediate rectangle target at 1330. If there's a large gap up today the stats do not favor a gap fill.