Slope Of Hope with Tim Knight

Nice Inverted H&S Pattern

2012-02-16T09:31:03-08:00

Tim Knight

Hyperdynamics Follow-Up

2012-02-16T08:52:57-08:00

Last month, on January 6th, I did a post suggesting symbol HDY as a speculative short play. I've marked with a red arrow when I made the post.

The chart pushed a little higher from where I suggested it, but as you can see, it worked out pretty well as a short, down about two-thirds from where I mentioned it. Unfortunately, this was one of those very rare instances that my broker couldn't find a single share of stock, so I didn't partake. But maybe one or two of you did...........in any case, in spite of being a little early, this was a good one.

Fresh Opportunity to Short the Miners

2012-02-16T07:48:47-08:00

......closer up.......

Rolling Over (by Springheel Jack)

2012-02-16T05:21:15-08:00

I was saying yesterday morning that a pinocchio through trendline support was generally soon followed by a more definite break, and we then saw that hourly close below rising support from the December 19th low that I was looking for:

That isn't enough to preclude a new high, but it is a strong indication that the short term high is in, and initial resistance today is at that broken support trendline. If that holds we can expect more downside to follow swiftly. SPX bounced within a few ticks of the previous day's low however, and ES bounced at last Friday's low overnight so there is an open possibility that H&S patterns are forming, and that we will put in the right shoulders on those patterns today. I've looked at that on the ES 15min chart where the neckline is at 1334 and the likely right shoulder high would be at 1348 resistance, with a possible overshoot to match the left shoulder into 1252.75 area resistance. A break with conviction below 1334 should eliminate this possibility:

Ideally there would be no H&S and 1334 ES would be broken swiftly today. If we fall directly from here, which would confirm the bearish engulfing candlestick that is obvious on the SPY daily chart, though for technical data reasons not on the SPX daily chart, then I have a series of support levels / targets for this retracement:

I've marked up the main EW counts on the chart above as well, and they are (bullish count) that we have completed a third wave up from the October low and are starting wave 4, and (bearish count) that we have completed an ABC correction from the October low. Wave 4 cannot cross into Wave 1, so on the bullish count SPX could not fall below the October high at 1292.66. I have a number of targets in the 1290 to 1315 area, and ideally we would see a retracement into that area to provide ideal long entries with stops below the October high.

A couple of other charts are interesting today. EURUSD reached my target at 1.303 last night and blew through it. That was a major support level through to 1.30 and the prospects for EURUSD now look much more bearish. I've done a bigger picture daily chart with fib levels:

The other interesting chart is the Vix, where Vix closed over the upper daily bollinger band yesterday. A close back within the bollinger bands would generally be seen at or near a significant low, so the bears need to see more weakness on SPX today, and more strength on Vix. Bollinger bands notwithstanding I have marked up the obvious Vix targets / resistance levels in the 24 and 30 areas:

I'm looking for more weakness today but it's worth mentioning that the middle bollinger band on SPX (or 20 DMA) is at 1331.14 SPX, and that is significant support. A reversal back up from there seems unlikely, but it's worth bearing in mind.

Are You Ready for a Pullback? (by Andy Crowder)

2012-02-15T20:30:45-08:00

It was an amazing day in the market if you are a bear. Not because the decline was anything to write home about, but because the latest daily trend was broken.

The trend – open lower, close higher.

Today’s price action - open higher, close lower.

Of course, we will need some bearish confirmation over the next several trading days, but I think with the current amount of lopsided bearish indicators in the market the probability of a continued mover is high.

Almost every indicator I follow is now in a bearish state and there are more notable bearish stats from sentiment analyst Jason Goepfert to add to the list

The first is the Fear Barometer from Credit Suisse. According to Mr. Goepfert the barometer has nearly set a record, meaning that there is heavy demand for put protection on the S&P 500. The previous times it hit this level preceded market peaks.

But the stat I found to be the most amazing related to the price action in the behemoth Apple (Nasdaq: AAPL). Goepfert stated that there have been 3 other times in 15 years that Apple stock rallied at least +2% to a 52-week high, then reversed during the course of the trading days to close at least -2% lower. Every time, the S&P 500 declined at least -6.8% at some point during the next month. Moreover, if you just took the 1% reversals in Apple, the S&P would have lost on average -5.2%.

Could all of this underlying bearishness finally lead to the bull’s last stand? One thing is certain, we will all know very soon. My two cents - we should see a near-term 5-8% pullback. As I have been saying over the past few weeks I would not be surpirsed to see a pullback to close the 1/3 gap in QQQ.

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Where's the Actual Value in the Homebuilders' ETF?

2012-02-15T18:23:11-08:00

Data released today showed an increase in home builders' sentiment with respect to current and future single-family homes (the graph is not currently available as I write this post, but here is the link to it on www.forexfactory.com).

However, as I discussed in my post of January 26th, new home sales still remain depressed at the lows of the 2009 levels where they've been since their decline began in 2006.

Contrary to actual sales data, the Homebuilders ETF, XHB, is trading up from its 2009 lows, and has bounced by almost 33% since its decline began in 2006 (see the Monthly chart below)...a difference of a gain in value of 33% versus the 0.00% gain in actual new home sales since 2009...makes me wonder what's driving the price of this ETF and whether it has actual value, particularly sustainable value.

As can be seen, price is sitting in the vicinity of Fibonacci and price confluence resistance and is currently held below that level in a trading range. I'd be skeptical of any breakout to the upside (and would question its sustainability) without seeing a dramatic and steady improvement in new home sales to back it up.

This confirms what I concluded in my post on January 31st.

http://www.strawberryblondesmarketsummary.com/

1250 in the Cards for S&P 500 Index?

2012-02-15T16:23:57-08:00

Possible scenario for the S&P 500 Index...it drops and holds below the Weekly consolidation level of 1340ish, as shown on the chart below, down to a Fibonacci and price confluence level of 1260/50 to form a potential right shoulder of an IH&S pattern or the handle of a cup & handle pattern before resuming its upward trek.

Probable scenario? Time will tell...

http://www.strawberryblondesmarketsummary.com/

Survivorship Bias (by Consistently Incredulous)

2012-02-15T14:38:00-08:00

I tripped across a Standard & Poors announcement last week that CBOE Holdings (CBOE) will replace Temple-Inland (formerly TIN) in the S&P MidCap 400 index as International Paper (IP) (S&P 500) completed its acquisition of Temple-Inland on February 13th. This reminded me of a good Seeking Alpha post I read last year about Survivorship Bias in Index Performance.

I highly recommend the full post; but in a nutshell, survivorship bias in the indices:

“Specifically, in the process of rebalancing (selecting and or deselecting stocks) the indices it is the tendency for failed companies to be excluded from indices because they 1. No longer exist, 2. Their market capitalization has fallen or 3. Their industry is in decline (which likely caused the first two reasons); this is considered Type 1, survivor bias. Inherent in this type of bias is the error you make in just counting the survivors.”

A couple of other great lines from the post:

“Money managers, fund managers, investors and even Traders struggle with this issue of survivability bias because it can cause a real discrepancy between a thoroughly back tested trading model and the real life market. In mutual funds many well regarded fund managers believe that survivorship bias can also overstate a mutual fund's performance returns by more than 1.6%.”

“This is inherently problematic on two levels. On one level it creates a false level of optimism as the companies included in the index on or by some date excludes a significant number of major deadbeats, and in the same vein the companies that were replacements to the deadbeats most likely exhibited extraordinary growth in a short time period. The second level is a bit more sinister as, when the ‘deconstructionists’ forgo inclusion of the dead beats in their five-year look backs, they gloss over the amount of risk you take on.”

As someone who primarily trades ETFs in intermediate-to-long time frames, I was more than a little concerned that survivorship bias affected my performance. So I took a look at the S&P500 close data back to September 1953 (the year we moved from 270-300+ trading days/year to the current 251-253) to see if anything jumped out relative to the 10, 50 and 200 SMAs and EMAs. As one would expect, the % above is higher for the longer MAs:

In the period reviewed, price was above the 200d MAs over 2/3 of the time.

Although Standard & Poors is quite clear as to their current methodologies, I couldn’t find a running history of methodology changes – certainly not back to 1953 – to confirm which indices rebalance quarterly or by the same criterion. So I did a quick check of annual data on the 200s, and found no tendency (i.e. the data suggests we are neither tending to become more or less optimistic over time) with the annual averages almost spot-on at 67.3% and 70.2% on the 200SMA and 200 EMA, respectively:

As one would expect, the market reflected the economy. Of the 59 years in question, there were 16-17 years where price was below the 200MAs > 50% of the time (28%, orange), and only 5 instances (8.5%, red) where price was below > 80% of that year.

Does survivorship bias affect my performance as an intermediate-long term trader? Looking over my wins & losses over the last 15 years, I would say it did have an impact: generally speaking, it has augmented my long returns in non-recession years and augmented short returns in significant recession years (the red ones). Where I tended to have weaker returns- both long & short- can essentially be summed-up when “fighting the trend” (including those periods when there was no trend).

I do realize that many Slopers have the ability to trade intraday, however for my current trading style; I will be more apt to lean on a buy/sell model 2/3 of the time and selectively short in periods of significant weakness.

“One minute you're up half a million in soybeans and the next, boom, your kids don't go to college and they've repossessed your Bentley.”

AAPL's Climax Run

2012-02-15T13:01:59-08:00

(Note from Tim: David from AllAboutTrends posted this several hours before today's close, so this was not an "after the fact" musing; nice stuff, David!)

WOW! How about that stick save into the close yesterday in this All AAPL 24/7 market we are in!

What do the two charts below have in common with AAPL?

Talk about using a heavily weighted name to paint the tape and distribute under the surface, man that's bold.

For those wondering what happened after my Uncle Gus (as in Greedy Gus) bought GLD and SLV on the date of those charts above take a look at SLV below.

PS -- My Uncle Gus (as in Greedy Gus) RARELY calls us. But when he does we take notice. He called today asking about AAPL. Just saying.

For the Newcomers: Figure 1(a)

2012-02-15T12:03:49-08:00

Tim Knight