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.

Comparisons to the April 2010 Top (by Runedge)

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We've all been studying charts trying to find any sign of price finally breaking for some sort of a correction. The longer this market rallies without a correction the larger that correction should be. Before digging into the chart below, few points need to be realized in understanding what is underneath this current market:

Leverage is back to LEH levels which can exacerbate selling as margin enhances losses and causes phone calls from brokers.

Bullish ratios have been above historical highs (and bearish below historical lows) for weeks on end now.

Insiders continues to sell at the 100 plus to 1 ratio versus buyers and it's been going on for months now.

Money continues to flow out of domestic equity funds. We are on about 37 weeks with only one minor inflow at year end 2010 (working from memory but think the inflow was less than 1 billion).

The VIX has bottomed and matched the prior lows of the May correction.  Note it bottomed two weeks before the SPX topped.  There was an interesting read on Zero Hedge about the VIX in some sense not being very cheap.  It was based on the fact that realized volatility has been very low (not a lot of volatility when markets just go up and up).

Let's look at the chart of the SPX and see some comparisons to the prior sell off in May 2010 (which seems like an eternity now).

Notice the bearish divergence on the MACD through the entire rise off the Feb low to the April high (lower MACD levels while SPX price was rising).  Very similar divergence to the current rally.

Notice how long the slow stochastic stayed overbought in the Feb to April melt up and how it compares to the current melt up.

Orange horizontal lines on the current melt up are the gap fills that need to be filled at some point. There are seven that I count.

Notice in both melt ups how price hung on the upper bollinger band for most of the move.  The SPX has not touched the lower bollinger band since 8/25 (almost 5 months ago).

The May high was exactly 135 points above the 200MA on that day.  Today's closing price was exactly 135 points above the 200MA today.

Notice the candlestick pattern inside the two orange boxes.  Fairly similar price action.

Screen shot 2011-01-12 at 9.40.29 PM

Submitted by Runedge.  If you want to follow my blog please visit - Ultra Trading

The Analog – Warped Surge or Death Knell?

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It's been exactly a month since I took a look at the 1937-1942 analog.

What's discouraging is that this analog, in retrospect, nailed every single turn in the market for two solid years, but the recent surge made have been the equivalent of a fatal knife wound to the analog. Here's the S&P – – point #20 is the aforementioned wound.

1221-present
Below is the corresponding past…….point #20 was supposed to stop at about the same area as points 16 and 18, which would mean the S&P should have stopped at about 1130. As it is now, it's all the bears can do but pray that the S&P returns to that level, having blasted past it by 120 points and counting.

1221-past
Could the analog get back on track? Sure it could – – – the entire point in front of #19 might be "POMO elevated". But it's disquieting to see my best friend the analog potentially mortally wounded at this point.

Good night…….

A Comparison to Consider

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Let me preface this by saying that my bear mojo has been almost completely drained from my veins at this point. The best positions I have are all long ones, and after 20+ months of hearing (and repeating) Why The Drop Is Going To Start Now, I'm getting close to just focusing on the long side. Call it capitulation if you like; I think I'm past caring.

Having said that, I humbly offer up this interesting comparison between the market top in 2008:

1202-one

……..and our present market……

1202-two
If we get a rally tomorrow (and the jobs report, I suppose, will decide that), the above is rendered moot.

I once again want to thank the gracious contributors to Slope – – – both those who create posts and those who comment. You guys and gals are the heart and soul of this community, and I am more grateful to you than I can express. This is a special place, and I thank you for making it so.

Good night.

Long-Term Analog Update

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I haven't taken a good look at the 1937-1942 analog lately, so I thought I would do something a little different this time and back it up – way up – to a larger timeframe.

First, here is the chart from 1928-1943. I have numbered the major turning points. For those not acquainted with my work, let me drive home the point that this has absolutely nothing to do with anything resembling Elliott Waves, which in my experience have proved to have zero predictive value. These are just plain old numbers. Nothing more.

1122-analogpast

(As usual, if you click on either of these images, you will get a larger version of it.)

My belief is that we are at approximately point #25. There has been a huge amount of noise the past several months in the markets, making the identification of our "location" quite difficult, but based on this interpretation, I think the "grind it out" slow descent has begun, and there won't be any big drop until sometime in the middle half of next year – – – let's call it April, give or take a month.

1122-analogpresent

The notion that the market isn't going to make any big moves in either direction for a while sort of makes sense, given:

+ QE2 is obviously kind of a pile of wet kindle right now; a $700 billion joke that's already been fully taken into account;

+ Earnings clearly aren't falling to pieces; they might not get hit with Reality until Q1 2011 reports come in, which would coincide with a "shock event";

+ What's the best or worst news that could happen in the short term? The market has been buffeted by a lot of news lately which, in normal markets, would be cataclysmic, but with the Permanent Fed Backstop, all moves are muted.

Now any time I mention this analog I hear the same tired old excuses: "It's different this time. We are in a totally different world than the 1930s. Everything has changed." If you seriously believe a historical chart cannot inform your present-day decisions, I don't know what your interest in technical analysis is in the first place. To my way of thinking, historical analogs are an important premise for the entire realm.

The good news for bulls and bears alike, I think, is that a steady market is a chartist's market. I have plenty of beautiful long and short positions that I really like, and I'll be happy to acquire more. This kind of "smooth sailing" really reduces my bias, and I'd prefer to have a mix of bullish and bearish charts that I really like instead of having to tilt hard in one direction or another.

A Fascinating Parallel

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My friend Serge sent me this amazing parallel between the market in the 1930s (which capture the 1937-1942 timeframe I've watched so closely) and the NASDAQ today. Click on the image for a larger version. It seems more and more bearish technicians seem to believe that any Big Kahuna of a drop has been postposted until Spring or so, which also agrees with Serge's illustration. Anyhoo, have a good Sunday.

1121-analog