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.

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.

The S&P, the Dollar, and Libya

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Its funny, post history everyone will want to blame a sell off in the markets on Libya. The reality is that the Mr. Market has a mind of his own that is very difficult to understand. Sometimes he wants to go up when there is only bad news and even while Egypt wants to rebel and put at risk the largest oil stores in the world and sometimes he wants to go down when a little country with a relatively small amount of Oil contributed to the world oil markets is also falling into revolution. The reality, is that the markets were going to go down regardless of Libya and seemed to want to go up regardless of the any reasonable analysis of Benny BURNake and the Ink Jets, the Banks, the manipulated data or the vast amount of unemployment. Below is an example of why…a 35 year trend line can do the trick especially when combined with a 75% retracement from the highs.

2011-02-23_1357_SP500Marked 
for a more detailled view of this chart click here

2011-02-23_1159_DollarMarked 
For a more detailled view of this chart click here.

…get your army boots on because its not long before they will be needed.

Also for more information regarding the dollar please read this post.



What Are the Odds? (by Springheel Jack)

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I was taking a lot of flak last week for posting broken support trendlines on ES and NQ and suggesting (gasp) that this POMO driven market might ever retrace even to provide a bigger dip to buy. Here we are this morning and the opening gaps down on ES and NQ are looking likely to be substantial. Will it last? Perhaps, and I think the obvious retracement targets are at a lower level than I'm seeing this morning. We'll see.

First up this morning is the ES 60min chart, where I'm seeing an obvious target at the 1310 level, for a wedge turned channel support trendline and potential HS pattern neckline:

The target is less clear on NQ, but I'm liking 2388 as another potential HS pattern neckline, and NQ has reversed in the pre-market (so far) at the obvious short term resistance area, which is the broken wedge turned channel support trendline:

Oil's been spiking heavily on the news that unrest in the Middle East may topple some incompetent kleptocrat dictators in the oil rich countries. I've been having a close look at the oil chart and the last low has established a rising channel with the next target just over 98. There is some longer term resistance at 96.6:

I've been watching USDJPY (inverted yen) in recent days and I'm wondering if the Yen is likely to make one last outing as a flight to safety trade before it resumes the march to likely oblivion. It looks promising:

I saw an amusing headline from those sly wits at Bloomberg this morning and it read ' Stocks in developed countries are rising the most since 1998 while emerging markets slump, a sign the U.S. is returning to its role as the engine of world growth aided by a recovery in Europe.' What is it exactly that the US is doing to be the engine of world growth at the moment? Simple, the US is the world's leading manufacturer of money, and is exporting it worldwide along with its inseparable companion, asset inflation. Fun while it lasts, but it can only last until the first serious revolt in the bond markets, and after that the US will have to consider alternative ways of boosting growth with an empty wallet and deflating assets.

I haven't called a top here, and I'm not planning to, as the end of QE2 is still months away and it's hard to see how we can see a major top until it ends. Nonetheless I think this bull market is unlike other bull markets in a number of important ways, mainly that it's stronger and faster than any bull market since WWII, and that it is the only bull market supported by huge deficit spending and money printing since WWII. These characteristics are obviously linked and considering the prospects for this bull market without considering the future of quantitative easing is a nonsense.

What's my point? I was reading the other day that no bull market since WWII had more than one correction over 10% before it ended, and as the retracement last year was 17%, that ruled out a retracement larger than 10% this year. For the obvious reasons that's not really applicable to the bull market we're trading here, and if, like QE1 last year, QE2 finishes with the Fed talking about an exit strategy for quantitative easing and without announcing QE3, then a major retracement this year is very much on the cards, and if there is no QE3, the bull market may well finish with QE2.

I've been watching the emerging markets too, as they have often worked well as a lead indicator for SPX in the past. EEM starting to underperform SPX was one of the indicators for the equities top last year and we're seeing something similar now. That amusing Bloomberg headline could have been posted in March 2010 as well looking at this chart. The bottom section of the chart is EEM:SPX and that definitely looks interesting here:

Why's that interesting now? Well I posted yesterday that the main resistance trendline on SPX had either broken or overthrown, and I'm watching carefully to see how far this retracement now goes. On the SPX daily chart my targets are in the 1315 area for the lower trendline of a possible rising channel since July, 1295 area for the lower trendline of the rising wedge on SPX, and if that last target breaks with conviction the technical wedge target would be 1040 SPX, with the overthrow ruling out the possibility that the wedge would become a rising channel. I'm not expecting to see that, but with what the EEM chart is showing it's worth bearing in mind:

The buy the dippers should be out in force today, and we might bounce from the open, but if not I have 1310 ES and 2338 NQ as the likely reversal targets and I'll be watching those.

Has the Euro bottomed? (by Springheel Jack)

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Yesterday and overnight were so dull that there's not really much to add about equities today. IWM made the upside target on the small rising wedge and we might see a retracement today into the 81.5 area:

Copper and silver made new highs yesterday, though gold didn't which was interesting. The most interesting thing that may be happening at the moment though is the possible low on EURUSD. I noted yesterday that EURUSD broke through the lower trendline of the falling wedge. That wasn't followed through and so it raises the significant possibility that this is a wedge overthrow after an ABC correction. An IHS could now be forming with the neckline at 1.350-1.355. There's a nice writeup on this as a possible reversal area for EURUSD from a blogger friend of mine at his blog MarketLetters:

I know almost everyone seems to be expecting EURUSD to go much lower here but I have very serious doubts about that. I have two big active perfect channels on EURUSD, and the last high wasn't at a significant level on either. If this has been an ABC correction then I'd expect the real test to be in the 1.40 area, though to get there might break the main support trendline on USD. I'm watching EURUSD carefully here and at the moment I'm leaning long.Here's the EURUSD daily chart with the two major channels marked, one rising and the larger one falling:

AUDUSD hasn't made my target trendline but I'm wondering now whether it will, as it bounced at a level yesterday which established a possible channel support trendline that is exactly parallel to the current resistance trendline. That may therefore have also been a significant low on AUDUSD:

John Murphy posted an interesting chart the other day, and it was a chart of the SPXEW, the version of SPX that gives equal weight to the components. John Murphy made the point that the SPXEW, which gives much lower weights to financials particularly, is now almost back to the 2007 highs. There were a couple of interesting things to note about the four year chart, mainly that SPXEW has a perfect rising channel from the March 2009 low just like SPX, and that it made a lower high when SPX peaked in October 2007:

Looking at the move from the July 2010 low on the hourly chart I was surprised to see that there is no rising wedge on SPXEW. Instead we have another perfect rising channel, though we have been seeing a thorough test of the mid-channel line:

Food for thought. I'm leaning short without great conviction today, but we're still just below main rising wedge resistance on ES, and IWM looks due for some retracement here.