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.

Mole To The Rescue

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Alright, I have seen enough. It's time for someone to step and set the things straight over here at the Slope. Although I can't blame Tim-ay for relenting to bearish exhaustion it's important that we fade emotions and look at all evidence at hand before we get married to the long side. Quite frankly, I almost feel pity for the bulltards – for they have no idea what they're dealing with.

2010-08-04_angry_mole

I said 'almost'…

2010-08-04_SPXA200R 

This chart is something my stainless steel rats are more familiar with. I'll try to explain it this way: What you are seeing is the difference between the 'average' (think moving average) and the 'median'. 

What I have labeled on this chart are instances of when the SPX was in the 1120 – 1130 trading range. Which was a lot more often than I care to recall – we seem to be trapped in this range and I am starting to feel like Bill Murray. Anyway, the yellow marks are periods we spent in this range and the green marks connect to the moving average of the percentage of stocks above the 200-day SMA during that time. So, back in December (yes, half a year ago – the horror!!) we were at roughly 75%. Three months later at number 2 we were at around 65%. In May at number 3 we are at roughly 60%. And now/today we are at – gulp! – 46%.

What does that mean? Do we care? Yes we do. What it means is that there is a distinct and rapid steepening of the lead curve. And by that I mean that there is a greater polarity between the number of stocks in the SPX which are pushing up sharply and the ones which are flat or dropping. That’s the difference between the average and the median.

Jeezzz Mole – what does that mean again?

The average (or mean) is the sum of the values of all the observations, divided by the number of observations. It is the average value. The median is the value at which 50% of the observations lie above, and 50% lie below. Alright, now your head is spinning – let me fix that. Here is an example:

Here is a series of numbers: 1, 2, 3, 4, 5000, 9000, 8700. The median is the one in the middle: 4. To get to the average add them all up and divide by 7 – which is 3244.

Aaaah – I’m sure a light bulb just went on in your head 😉

You can assume that the median for stocks is usually lower than the average close to market tops. In other words again (and now we finally get somewhere), the price on the SPX represents the average, as it is a free-float capitalization-weighted index (please don’t ask me what that means), and the median (sort of – it’s based on the 200-day SMA) is the SPXA200R (which I put an SMA on, just to confuse you further).

Moral of the story: On the median side we can see that an increasing amount of stocks are dropping below the 200-day SMA, despite price claiming that the ‘value’ of the SPX is the same.

And that, boys and girls, is the definition of 'distribution'.

2010-08-04_SPXA50R 

Here is a similar view, this time with a slightly higher 84-day SMA – we want to fade the noise. What I'm seeing is the exact same pattern we saw during the fall 2007 topping process. This actually confirms Karl Denninger's theory that we are going through a similar price fractal right now – maybe someone here can post the link, I can't find it.

2010-08-04_DJI 

Thus my outlook for the rest of the year is pretty clear. We are currently in a zigzag flat correction which may take us close to this year's high of 1219.80 on the SPX – and maybe we will even exceed it but that is by no means guaranteed. I also do not think that the Dow will exceed its high mark of 11,258.01. We may count a new high as an irregular top or we may slap another wave label on it to satisfy our never ending desire to make sense of this woodchipper of a market. Whatever floats your boat – but don't lose sight of the overall picture.

For the market internals are very clear – I have tons of charts in my repertoire (and which I present on a regular basis at my evil den of financial doom) which strongly suggest that this is nothing but a second wave correction in equities. After all – they are known to be brutal and leave most bears on the wayside. 

Remember – the bus always moves fastest when it's empty. 

Medium Term

2010-08-04_count 

Here are my short term musings on my SPX wave chart. That little overlap last week caused me to pull a very rare 'ending diagonal' card, but since it only happened on the SPX I may just choose to ignore it. The third option is to project new highs for the year – as this would mean that we are in a sub-dividing 3rd wave. And as Tim-ay pointed out – it may drive us a lot higher than any self respecting bear would care to imagine. 

2010-08-04_gold_silver 

My gold/silver ratio chart is already bouncing exactly where I suggested it would. Bear in mind that this supporting indicator can dance along that lower line for a while until equities finally relent and drop to the downside.

2010-08-04_copper 

Copper is still pointing to the upside and it's been spot on all year. Which means that we're not turning just yet – give it until mid August, which in my estimate will be the curtain call for Soylent Green (i.e. the green scenario on my SPX wave count chart).

Whatever you do – stay frosty and don't yield to emotion! 

Cheers,

Mole

EWI Target Met

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I had mentioned last night that the folks at Elliott Wave International had projected a drop into the tinted zone that I had drawn (shown below) before a partial push up and then – – – the big, fun plunge.

The tinted area has indeed been penetrated, satisfying the prediction. I had some nice gains going long IYR and IWM in day trades earlier today, and I'm pretty much totally short again. Looks like another fun day.

0624-es

SPX Retracement Targets (by Springheel Jack)

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I got the reversal confirmation that I was looking for yesterday, albeit
not by much. We broke the declining channel I posted yesterday, cleared
the neckline of the IHS comfortably enough, though getting much past it
was a slow and painful business. The Vix closed under my channel
trendlines on the 60 min chart, just a little bit but enough, and the
RSI on the SPX daily chart broke up from the declining resistance
trendline of recent weeks. For my money, we're there, and the interim
low is in.

Even EURUSD has risen from the deathbed it has been
occupying in recent weeks and is showing some signs of life. I have a
retracement target if reached within two weeks of slightly over 1.30 for
EURUSD, and of slightly over 1.50 for GBPUSD over the same period. 

My $SPX:$VIX indicator on the 60 min chart, one of my favorites as it
tends to trend and pattern well, broke up from the recent broadening
descending wedge, retested the broken trendline and broke upwards again.
Normally this wedge would indicate a return back to the highs and lows
of SPX and Vix respectively, but I don't tend to regard such targets as
firm for this sort of derived indicator:

100528 SPXVIX 60min BD Wedge Breakout

Now some of the more bullish EW analysts have regarded this fall from
the high as an ABC correction and are regarding wave C as completed. If
so, we can expect that we would make a new high within the right angled
and ascending broadening formation on SPX in the 1250 area.

Possible, but unlikely I think. If they are right though, we'll find out
when EURUSD and GBPUSD reach their retracement targets and then break
upwards from their respective declining wedges. In the event that
happens, this will be worth another look.

In the interim however, I'm sticking with my primary EW count, which is
that we have just finished wave 1 down, and have now started wave 2.
That is important, as wave 2 retracements are often very deep, and can
retrace almost all of the preceding wave down in some cases, as we saw
with the first two waves after EURUSD peaked a few months ago. I don't
think that's likely, but it could happen, and I'll be looking for some
indicator and forex confirmations before I short the top of this too
heavily.

On the SPX 15min chart the IHS still looks pretty good, which is
reassuring as the right shoulder was beginning to look a bit of a mess
on ES yesterday afternoon. I'm expecting that the neckline at 1090 SPX
should be a firm floor for SPX in the next few days, and that any drops
below it will weaken or even invalidate the IHS, which has a target of
1140 SPX. I have marked in a rising support trendline on the chart, and a
very tentative rising channel line above as a possible immediate target
area. That only has one touch so far though, and until we see the next
short term reversal it is only an educated guess:

100528 SPX 15min IHS and Support Trendline

I've marked in possible fib retracement targets on the SPX 60min chart.
The main ones are the 50% retracement at 1130.29, which seems low for
me, and my preferred target of 1151.41 at the 61.8% fib. That would be a
typical wave 2 retracement, and I have two important trendlines that
will be near that level within two weeks. I have also marked in a
declining channel trendline from the top in early May that looks
compelling, and that I am seeing as the first serious resistance in the
1120 – 1125 area:

100528 SPX 60min Wave 2 Fib Targets and Declining Channel

On the SPX daily chart I am seeing two key broken trendlines that look
interesting as potential resistance and they are the broken lower
trendline of the main SPX rising wedge, which will be in the 1150 area
within two weeks, and the broken lower trendline of the main SPX rising
channel from the March 2009 low, which will be in the 1170 area within
two weeks.

The main declining trendline from the SPX high will intersect the broken
rising wedge trendline in the 1150 area in two weeks as well, and that
too is likely to prove significant resistance and is another reason why I
like 1150 as the retracement target from the low this week:

100528_SPX_Daily_Resistance_Trendlines

In terms of timeframe no doubt you'll have noticed that I'm using a
working timeframe of two more weeks for this retracement, specifically
with a speculative working target of Friday 11th June. That is a
workable contender for a turn date, and I don't think that the USD
currency pairs leave room for a much longer retracement period unless
they break up from their declining wedges. In practical terms I am
assuming that we have at least another week of retracement and perhaps
as many as three.

Prechter Video on Long, Long Bear Market

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Robert Prechter discussed the recent global sell-off that has sent all major
U.S. averages 10% below their 2010 highs with Yahoo! Finance Tech Ticker host
Aaron Task on May 20, 2010. Prechter says that the current climate shows that "we're
in a wave of recognition" where the fundamentals are catching up to the
technicals and that it's time to prepare for a "long way down."

For
more information from Robert Prechter, download
the free 10-page issue of the Elliott Wave Theorist.