Commodities – Page 111 – Slope of Hope with Tim Knight

Slope of Hope Blog Posts

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You’ll Never Take Me Alive, Copper!

By Tim Knight - 15 years ago (29, Sep 2010 4:42:38 PM)

I've often heard it said how one commodity – copper – mirrors the equity market very closely. I took a look at this tonight, and since 2002, this has indeed been the case. Here is some recent history comparing copper, shown in black (on an adjusted continuous contract basis) with SPY, shown in blue.

One interesting thing I circled in the picture above is that copper called the market's bottom nearly three months in advance, by bottoming out on Christmas 2008. Equities made their final bottom on March 9 of the next near.

It's interesting to note the Fibonacci retracement levels of copper as well. I've circled the four major instances where copper seemed to head south after hitting the Fib level at about 3.75. Food for thought.

Buy The Dips (by Springheel Jack)

By springheel_jack - 15 years ago (27, Sep 2010 2:53:43 AM)

Friday was a very good day for the bulls and a number of key support and resistance levels fell that suggest that we've a lot more upside coming. After the slight break back down through the SPX IHS neckline on Thursday it was weakened, but not greatly so, and the neckline was recaptured with a lot of confidence on Friday. On the 60min chart we've now established a support trendline to go with the already established resistance trendline. Together they look like a rising wedge, but there aren't enough crosses between the trendlines to make it one really:

Copper has broken upwards from the rising wedge and well established resistance trendline and the rising wedge target is 397, which fits with the two alternate resistance trendlines that I've marked on the chart. This break could possibly still be a wedge overthrow, but I wouldn't put any money on that:

USD has now broken down from both the H&S neckline and the support level that I marked in on Friday's chart. The next obvious targets for EURUSD and GBPUSD from their charts are in the 1.375 and 1.595 areas respectively so I'm not really seeing much reason for a bounce here:

Oil broke declining resistance and the H&S that was forming now looks unlikely to finish forming the right shoulder. Oil's probably the weakest long here with the high stocks position looking likely to be a drag on any move up:

Financials are often a good indicator for equities and I've been looking at the XLF chart over the weekend. That also looks encouraging for bulls, with a falling wedge that has broken up and retested, and a smaller rectangle bottom that has formed at the bottom of the falling wedge. Rectangle bottoms, despite the name, break down 55% of the time, but this one looks likely to break up under the circumstances. On an upward break this has an 85% chance of reaching the target at 16.8. The falling wedge target is 17.05:

All in all the technical picture overall looks very bullish now and the best strategy here looks likely to be buying on weakness. We may see some weakness this week and I'm seeing a big move today in one direction or the other. If that move is down then it is likely to set the direction for much of the week. If that move is up then I'm seeing strong resistance in the 1161 – 1165 area today.

Mixed Picture (by Springheel Jack)

By springheel_jack - 15 years ago (24, Sep 2010 7:15:41 AM)

I've been having a careful look at the overnight action this morning and, at best, we are looking at a very mixed picture.

On the bear side on the bigger picture the Gann guys have been talking about this week as a likely key reversal week, and while I know some don't take them seriously, I've seen them be right so often in the past that I always watch them carefully. Any key reversal here would seem likely to be downwards so far, though if we saw a big decline today then it could possibly be up.

On the chart side SPX has faltered before reaching 70 on the daily RSI, which is so far failing to confirm a change in trend to bullish in my view, and the daily RSI has broken the recent rising support trendline, which is bearish. The obvious target is the support trendline on MACD which I'll be showing in my SPX daily chart below, and that would suggest a reversal towards rising support from the July low in the 1060 area.

Financials across the world also look relatively weak, and longer term the US economy is being forced down the rabbit hole by well meaning but short-termist policymakers, which doesn't give much confidence on the bull side for equities longer term. My personal assessment of the odds that we started a new secular bull market in 2009 puts those odds close to zero, though we have definitely been seeing a cyclical bull market since within the overall secular bear market, and that cyclical bull market may not have peaked yet.

On the bull side USD has faltered badly under the repeated recent assaults from the Fed, and may well soon confirm and strengthen the current downtrend by breaking a key support level at 79.63. That is traditionally bullish for equities. Copper is also in a strong uptrend and if the current rising wedge breaks up, will soon make a new high for 2010, which would also look bullish for equities. SPX broke back below the SPX IHS neckline yesterday though, which while it doesn't invalidate the pattern, makes it less likely in my experience that we will see it play out. A close much below yesterday's would weaken it further.

Here's the SPX daily chart and I would draw your attention to the RSI and MACD as there is a distinctly bearish short term message there.

USD has been very weak overnight and as I said, we are very close to key support now, as well as significantly below the neckline of the scary looking but uneven H&S pattern:

On copper we have a very nice rising wedge on the daily chart that is showing some signs of breaking upwards. I've put this wedge in the context of the larger picture. as and when we get a break from the wedge on a daily close basis I will be regarding that as a very significant indicator of where SPX is headed next.

Back in the short term though, ES fell sharply yesterday in the pre-market and then rallied to touch declining resistance before falling back to support again. That was good short-term bearish action and unless we see a break of that resistance trendline I'm on the short side today. We should know soon as I am watching that trendline being tested while I write.

If that trendline breaks on an hourly basis, I'll be a lot more cautious about shorts today and will be watching the thinner declining trendline a little above it. If that breaks even for a couple of ticks then I'll be out of shorts today altogether. The main decline trendline is slightly under 1128 ES at the moment and the higher trendline is slightly under 1130 ES. Add 5 points for SPX of course. Here's the ES 15min chart:

I'm expecting a significant move today, probably downwards. If this resolves down I'm expecting at least a test of gap support at 1110 ES, but my preferred target is 1099 ES. If declining resistance breaks then I'm expecting a move that may well be capped at 1140 ES, but could make it as far as 1155. If the higher target is hit then I'm expecting a reversal on Monday that would reverse most of the gains today.

While I've been watching ES has broken up through both of my short term declining resistance trendlines and I'm therefore very doubtful about the short side today. There is still some possible resistance at the lower trendline of the broken wedge at 1132.75, but that's already been tested once from below. A second test suggests that it is breaking up.

I'm out for most of the trading day today at my younger son's birthday party so everyone have a great weekend.

ES Breaks Support Overnight (by Springheel Jack)

By springheel_jack - 15 years ago (23, Sep 2010 4:31:34 AM)

Well the big news today is obviously that ES broke support overnight and that a retracement has started that should take us through today and tomorrow. I've marked the main targets on the 60min chart:

The first key target to fall was the IHS neckline at 1125 ES and that has been broken on an hourly close basis. That makes a visit to gap support at 1110 ES likely now, and if that gap can be filled then the wedge target is 1099 ES. Add 5 points for the SPX figures of course.

This is a very interesting development technically as a conviction break of and close below the IHS neckline will weaken that SPX IHS considerably, and that's what I'd like to see in trading hours today.

On USD we saw a return to the H&S neckline yesterday and an intraday move below it. USD is still in a strong downtrend but the odds of seeing a decent bounce here are pretty good:

On copper there was a strong move up yesterday within the recent rising wedge. I played around with the lower trendline a bit yesterday night and this is a very good quality wedge. On a break below the wedge I would expect to see a return to rising support in the 325 to 330 area. On a break above I would expect to see a move to rising resistance in the 390 – 400 area:

Oil is testing the recent support trendline, and with the drop on ES / SPX I'm expecting to see that support break and a return to the H&S neckline just over 71:

I'm expecting that we may well see a big move down on ES by the end of the week, probably tomorrow, and I'd put the chance of seeing an 1100 ES retest by then at about 50%. At the moment I'm expecting that to be followed by a move back up next week.

Waiting for USD Confirmation (by Springheel Jack)

By springheel_jack - 15 years ago (22, Sep 2010 10:07:44 AM)

(Note from Tim: personally, I think the EUR topped out today, as a post later will show; but, as always, just to keep things fair and balanced………)

I'm still not 100% sold on the bullish scenario here. It is looking very good, and has to be the primary scenario until proven otherwise at this stage, but looking around at the already bombed out economy and at our fearless leaders dropping ever more fiscal bombs on it from their helicopters it is hard to feel very optimistic about the future of anything at this stage other than precious metals.

If current political and financial leaders in the US in the US have a creed to operate by it is that 'if it isn't working, try doing more of the same'. They've been saying the same in Japan for twenty years without doing anything other than making default in the next few years seem a likely prospect, and I can imagine that lemmings, if they could talk, might be saying the same as they widened and deepened their cliff-diving strategy.

Equally I hear a lot that Bernanke and Obama must know what they're doing, and will therefore be proved right in the end, because there's no way that they could possibly drive the US economy off a longer term cliff in the way that they appear to be doing. I've read a lot of history and economic history though, and that's unfortunately simply untrue, as few things are as well demonstrated historically as politicians' penchant for doing exactly the wrong thing from a confused mishmash of good intentions, ignorance, and short-term expedience, and of the tendency of large numbers of eminent economists to recommend exactly the wrong action in a crisis situation. As Ronald Reagan said, the scariest words in the world are 'I'm from the government, and I'm here to help'.

Fortunately, for the next few months at least, independent confirmation is available. The SPX IHS has broken up, and that has made the main bull case for equities here, but for confirmation we have the big H&S pattern on USD, and when we see a close below the neckline at 80, I'll be taking that as the green light that we are very likely indeed to see 1250 SPX in the next few months.

I had thought we would see a test of 80 on USD in the SPX 1170 area, but I reckoned without the almost magical power of Bernanke to wither the US currency, and after his strong commitment to inflationary policies yesterday USD has plunged to the 80 neckline. We will see if it holds, but if we see a close below it then I'm going to write off the bear case until we reach 1250 SPX at least:

On EURUSD we see the IHS target at 1.325 made after Bernanke spoke yesterday and then the August high at 1.333 broken overnight. I'm seeing a likely trendline target just under 1.34. I've marked it as slightly over 1.34 on the chart, but it looks as though EURUSD may make it to target before the markets open today, which is faster than I was expecting:

GBPUSD has been underperforming EURUSD recently, and the IHS and channel target at 1.586 target looks like a stretch from here. I'm not expecting to see that made before the next pullback. Note however the series of channels that GBPUSD has evolved through as it has reversed in a rounded bottom. A very big pullback looks doubtful here:

30 year treasuries made the second low of a double bottom yesterday and bounced powerfully. If equities are going to rise strongly over the next few months then this rally looks doomed, but we could see a strong retracement and I've marked the most likely retracement targets if they can get over 133:

USD may have crumbled since Bernanke spoke, but we saw no big move up on SPX, which has continued to respect recent overhead resistance. USD is likely to bounce here I think, and if so, then the chances are that SPX will be retracing for the rest of the week. SPX also has a strong recent support trendline that I've marked the chart and if SPX can break back below the IHS neckline at 1130 then we are likely to see a retracement to at least the gap support at 1115 SPX. A break below the IHS neckline would weaken the case that the IHS will play out somewhat and we may well not see it as 1130 SPX should now be strong support:

One interesting pattern I was looking at yesterday was a possible bearish gartley pattern on SPX with the next upswing target in the 1175 SPX area. I was thinking that a move there, and with resistance from the May high at 1173 in the same area, might coincide with USD hitting 80, but clearly that won't now happen. Interesting chart though and thanks to Keirsten for posting it at TTW:

If we are going to see an equities retracement from anywhere near here, then retracement here and now looks most likely, and there is some support from copper for that view. Copper has been struggling to break resistance at 352.2 convincingly for most of September, and looks ripe for some retracement here:

I don't see much hope for the bears here on balance, but if we are going to see a turn then the bears' best chance for a serious reversal is with the USD at 80, and we have that today. We are likely to see at least a short period of SPX weakness here and that could develop into a deeper reversal. Once USD closes a day below 80 though, then in my view at least, the bear case will look dead for the time being, and it will be too dangerous to short this market for anything but short term counter-trend reversals.

I'm out all day today. Good trading everyone.