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.

Cloud Surfing

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A pilot friend of mine defines “cloud surfing” as flying just above the clouds – i.e. skimming the upper-side like a boat on the water.  Once again, that appears to be the action in the overall markets as well.

When last I posted (March 3rd), the 15 month ichimoku charts were all above their support zones.  The 3-ish week pullback we had from the Feb 18 high only served to bring price down to support; none of the indexes broke down through.  Since then, as you all know, the only direction has been north- and we have broken out above the clouds again.  Of interest for me is the Dow’s and S&P’s long-term overhead resistance.  NASDAQ crushed its LT resistance back in October 2010, but currently seems to be struggling (a tiny bit) with its upper cloud boundary:

S&P500:

 SPX

DOW:

 DJI

NASDAQ:

 NDQ

Just for fun, I also took a look at a few symbols that have been on Slope as of late: Latin America, Japan and the 20-year Treasury:

ILF: I started watching this one after Tim mentioned it as a short (truthfully, the Sofia Vergara photos were what caught my attention).  In any case, yesterday my oscillator warned “buy/cover” and was confirmed with a break out today:

 ILF

Gratuitous Sofia photo:

 SV

EWJ: Obvious short a few weeks ago…  I’m still holding, as I sadly do not think they are on top of anything yet.  I would cover with a break of resistance.

 EWJ

TLT: Oscillator signalled “buy” around Valentine’s Day, but I’m waiting for a conformational break through the upper cloud boundary – which looks darn close:

TLT 

One Day Bear Market (by Springheel Jack)

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I posted the stats for the first trading days of every month in this bull market at the beginning of March, and I've done the same for the last trading days of every month on the same basis today. The contrast is stark. The SPX closed at 1328 yesterday, up 662 points since the intraday low of 666 in March 2009. Of those 662 points up, 184 were made on the first trading day of the month on a close to close basis, and if you'd sold at the open on a gap down, that would have increased to 234 points On that basis over 35% of all gains in this bull market could have been made on the first trading day of the month.

The last trading day of the month is statistically very weak in sharp contrast to the first trading day, and going long on a close to close basis would have lost you an accumulated 69 points since March 2009, which is to say that the last day of the month has been a brutal one day per month bear market within the overall bull market. That could have been improved somewhat by just going long at the open on a gap up from the previous close, but even in that case, you'd be up only three points over the period. Here's the table showing the stats:


In summary, the historical odds for an up day today are poor, and the odds for a long taken out at the close tonight, and held through tomorrow unless there is a gap down from the previous close, are extremely good. On that basis the important support levels on ES and NQ are covered in yesterday's post, and I'll just mention that I'm seeing rising channel resistance on ES in the 1337-39 area in case ES beats the odds today and rises anyway.

As that's cleared some space today, I'd like to have a good look at copper, which I'm concerned about because it is divergently bearish compared to equities. I posted the current range levels yesterday, thinking as I did so that the obvious next move was to support at 426.5, and it moved there shortly after I posted the chart. It's been trading around there since then and is showing some encouraging signs of making a low, though I'm concerned that it is still in an overall declining channel, and the strongest short term trendline is the declining support trendline from 440. That support trendline now has five hits and looks a very good counter-trend long entry if it hits again, within the larger downtrend:

On the weekly chart the outlook also looks somewhat bearish, with a very strong resistance trendline that has now been hit six times in the last five years, though it has a history of multiple hits in short succession and we've only hit it once so far this time. I've added two internal trendlines to show that copper may have made a decent short term low, but if it gets back to 400 the obvious target is in the 360 area:

I've charted the second chart against SPX as there's a question in my mind as to whether equities might follow if copper breaks downwards. The evidence is ambiguous as though copper and SPX have tracked very well in the current bull market, the correlation was much weaker in the last one. Something to watch however.

The other instrument that I'd like to have a close look at is EURUSD, where a very important moment of truth is approaching. I mentioned this a few times but I'd like to underline quite how important this area is as it is the upper trendline of a huge falling wedge that would indicate to the 1.10 area if EURUSD fails to break up through it. The test will come in the 1.428 – 1.43 area, and the current rising wedge is not immediately encouraging for EURUSD. If EURUSD does top here, that doesn't have any immediate implications for equities as the last peak was in November 2009, some five months before equities topped in April 2010:

I don't know if anyone reading this trades the european stocks much, but I've seen something worth seeing if you do, and it is a simply beautiful broadening wedge on the Euro Stoxx 50. Nice clear upside target for this current wave up there:

I won't post the charts for main US indices today but the Russell 2000 made a new high yesterday, and we're close to new highs on most indices. The overall uptrend looks strong and I'm leaning strongly bullish on equities here. There are some concerns about the uptrend, but that's why they describe bull markets as climbing a wall of worry.  If ES obeys the statistics then we could see a test of 1315 today and that would be a very nice long entry in my view. Any move below 1310 would break the current rising channel lower trendline, and a break with confidence of 1300 would be a strong signal to exit longs until the situation clarified.

Major Support Breaks (by Springheel Jack)

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The symmetrical triangle on ES finally broke down yesterday morning and the downside target for that is 1252 with a 48% probability of reaching target. I'd be inclined to put that probability higher given the technical backdrop, and I'm looking for this correction to bottom out between 1220 and 1260 if it is a correction. Any lower than 1220 is a fall of over 10% and that would no longer look like a simple correction, though I have the main bull market rising channel support trendline in the 1170 area I think. SPX finally broke the support trendline on the rising wedge:

The Dow broke the rising channel since last summer:

In inter-market terms this is now looking increasingly conventional, with copper leading, and both USD and treasuries rising as flight to safety trades. 30yr treasury yields have broken the shorter term uptrend and there is a clear HS reversal pattern forming on the chart:

Much to everyone's surprise, including mine, USD has risen from its deathbed and is bouncing again in what may be another attempt to reach the upper trendline of the symmetrical triangle on the weekly chart:

EURUSD has broken 1.38 support which looks promising for USD. The oil bulls and bears are duking it out at the 100 level and the bears seem to have the edge at the moment, with a sloping H&S on the 60min chart. The real question is however whether we've just seen an interim top or a really major high. Too soon to tell for me though we've been hitting some major trendlines recently in many areas. Everyone knows about the Nasdaq resistance at the 2007 high but looking at the longer term SPX chart the level for the recent high also looks significant, just as the high last April was at a very significant channel resistance trendline:

I've posted the EEM:SPX chart a few times in recent weeks as it does support the view that this recent top may be a major one. If you look closely you'll also see that EEM has broken the support trendline from last May and then made a perfect kiss of death retracement to the broken trendline before falling again:

Hard to say at the moment though and we'll have to see how this develops. It seems too soon to me to be putting in a major top with more than three months of QE2 yet to run, and we haven't made my declining channel target on the long term CPI-adjusted SPX chart yet, though that target might not be hit in the current wave up of course:

Short term the trend is now firmly down in my view and I'm expecting more downside. ESH1 has reached the first likely bounce level in the 1285 area overnight and is bouncing so far. The next support level is in the 1275 area and I'd expect a bounce from one or the other. If we bounce today I'd be looking to find significant resistance in the 1300 area. If NQ falls a bit further today the main support area I'm looking at is in the 2250 area. I have good trendline support at the overnight lows though, and if they hold today I'm expecting resistance to be in the 2300 area.

Ichimoku Updates

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As of 2pm Friday, a look at the ichimoku cloud charts (from Jan 2010) shows that none of the indexes have broken; i.e. all are above their support zone:

S&P500:

SPX 

DOW:

DJI 

NASDAQ:

NDQ 

For those of you old enough to remember what a bear market looks like, here is the cloud chart of the S&P500 since 2007:

SPX_L 

Relative to the bull-rush of the past of the past 6 months, individual names do appear to have either broken down, or seem to be teetering on the edge:

MRK: Merck

MRK 

ODP: Office Depot

ODP 

DPS: Dr Pepper Snapple

DPS 

In that imaginary future, when the market tide goes out, names like these should be left high and dry.

US Dollar Opens Death’s Door (by Springheel Jack)

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Equities gapped up and ran yesterday for the second trend day of the week. We'd normally expect to see a retracement for a day or two after a trend day unless the move is extremely powerful, but ES held the gains overnight so far, and I'm wondering whether we'll see that retracement today. I have a line in the sand on ES, as it has risen to declining resistance from the recent high, and it has held so far. Any move over 1334 would be a clear break up. The likely target of a retracement today if we do see one is the 1320 area:

NQ was much stronger than ES yesterday, and blew through declining resistance before breaking the last high in the 2370 area. Overnight it retested the 2370 level and like ES the overnight action is looking a lot like a bull flag. If we see a retracement I'd be looking at the 2340 area as the most likely target:

The copper IHS is still looking good, though I've been playing around with the neckline a bit as it's hard to pin down exactly. The retracement yesterday has confirmed a supportive rising channel and I'm expecting to see more upside. Immediate resistance is at 454 and the next rising channel target is in the 467 – 72 area depending on when it is reached. Channel support is at 449.5 and key support is at 445. A breach of 445 support with any confidence would badly damage the bull scenario:

For any of you following the longer term Yen short setup, I was saying that USDJPY (inverted Yen) had most likely bottomed the other day. It went a little lower subsequently but has now broken declining resistance at 82.5 (since I did the chart) which confirms the short term low. I have longer term declining resistance at 83.8, the main target is in the 86 area, and if the full Yen meltdown scenario plays out to target, the potential move is to 124. An alternative play on Yen for anyone wishing to avoid USD is to short JPY using another currency pair, long EURJPY for instance:

EURUSD made my upside target yesterday, and is now testing this extremely important level. The level is so important because USD is now testing rising support from the 2008 low. A break above will open up a lot more upside on EURUSD with more declining resistance at 1.43 to 1.432, but my main target would be a declining channel upper trendline in the 1.517 area, if it is hit in June or July. I've marked the rationale for this target on the chart:

The last chart today is the DX weekly chart to look at the US Dollar. I'm not optimistic about USD here, as the last bounce up looks like a dead cat bounce, and with the US effectively printing 70% of the huge deficit over the last two years the downward pressure is obviously strong. If it breaks down here then there is some support at the previous lows at 74.25 and 70.9, but USD will essentially be stepping into the unknown and it could go much lower. USD is still looking good next to the Yen, but that's a race between two currencies competing to have the worst fundamentals of any rich world currency. That Yen looks even worse is no compliment to USD. If USD falls hard here, there is also the clear risk that trading partners will move into using more stable currencies as a reserve currency, and that could turn this retreat into a rout on both USD and on US Treasuries. Anyone wanting to see the effect of a currency losing reserve currency status should take a look at GBPUSD between 1945 and 1980 to see what that looks like. Not a pretty picture:

I'm leaning towards seeing some retracement on equities today unless ES breaks up through declining resistance, but the underlying picture here will look bullish to me unless SPX breaks the main support trendline on SPX since July. That trendline is in the 1305 SPX area today.