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.

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.

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.