Retracement Targets (by Springheel Jack)

I posted on Sunday at slope that my expectations early this week were that I was 'expecting a pullback testing 1084.5 ES on Tuesday, with a slight further deterioration to the support floor / wedge target in the 1074.5 - 1077 area on Wednesday / early Thursday.'

I've not seen anything overnight to change that view. Here is the broadening ascending wedge on ES that I posted on Friday, and which has broken overnight as I was expecting:


I could paint a picture here that we may have made a major interim top, and there are some arguments for that, but not enough of them, and it seems more likely to me that after a retracement we will be retesting the June and August highs at 1130 soon, so I'm just looking at short term retracement targets today.

That's not to say that I'm buying the argument that we are about to see a bullish breakout from 1130 yet. I'm struggling to believe that a major upward breakout could happen with the current economic backdrop, but this is a mainly technical market and it could happen. We'll see how it looks when we get to 1130 but until we see that breakout we're just bouncing within the 1040 - 1130 range that we've been trapped in for most of the last four months.

Short term I gave a target of 1.29 to 1.292 for EURUSD to reverse and it did reverse there. That isn't a good thing from the bear perspective as that is the neckline for a building IHS, and this reversal is probably the precursor to more upside. In the short term I have two retracement targets marked on the chart, and I'm favoring the lower one in the 1.2685 area:


I posted a falling wedge on GBPUSD at the end of August, and said that I expected it to evolve into a declining channel. It has done that, but other USD currency pairs are looking bullish enough that I'm doubtful about the channel holding. The next channel target is 1.51, but I think a higher target at 1.5275 looks more realistic for this week:


Teich50 alerted me to a rising wedge on AUDUSD on Friday and we were kicking round targets for a retracement this week. Overnight the rising wedge has broken and I have marked the two most likely retracement targets on the chart with my rationale. In the event that the wedge plays out closer to the classic wedge target I'm seeing main rising support at 89 and I have an upside (longer term pattern) target afterwards in the 93.85 area so this is looking like a very attractive spec long on this retracement:


I'm seeing a likely major equities interim top coming in the next two or three weeks on my SPX:Vix indicator, and two other charts I am looking at that may support that by then are copper and 30yr treasuries. On the copper chart we have seen a reversal at the 352.50 level I predicted last week, and are retracing to a likely retest of the 340 area. There is an argument that we may have just seen the top of the right shoulder on a huge H&S pattern, but I doubt that, and I'm expecting to see the 352.50 area retested and broken in a few days. On that break the obvious next upside target would be the upper trendline of the megaphone or broadening top in the 390 area, at a new high for 2010. Copper has been much more bullish than SPX over the last two months, and if we hit that target as my other indicators are peaking, that will be a powerful argument that we will see a major interim top there:


On the 30 year treasuries chart the recent top confirmed a rising channel from March, and we are now retracing to the lower trendline of that channel and should reach it within a couple of weeks. What happens then may define equities action for the next few months. If the channel holds then we should see a major interim top on equities there while treasuries start another wave up. If the channel breaks then the equity bulls could get the upward breakout that they are expecting:


In the very short term I've been considering the possibility that we might see a gap fill at the open this morning. ES has been stronger than the USD currency pairs overnight, and it looks possible at the moment that we could see a gap fill and broken wedge trendline retest in the 1104.5 ES area this morning. I'm writing this over three hours before the open though, and if we break down through 1094.5 ES before the open, then I wouldn't expect the gap to fill today.

The Trouble with Honesty

I've been doing this blog for a very long time, and during these many years, I have consistently tried to be as open, honest, and transparent as possible.

That has been a good decision, because the "metrics" that matter to me - - a growing base of readers, a fantastic community of highly intelligent and mutually supportive Slopers, and a respectful atmosphere - - is exactly what I set out to achieve. Sometimes the truth can make me look foolish, and I certainly open myself up to trolls and mean-spirited outsiders by being so open - - but I'd rather be open than a charlatan.

There are fee-based newsletters which excel at making themselves look right, no matter what their track record is. The art of using weasel words and revisionist history seems to flourish in the realm of financial opinion. (Try declaring "Wave 2 is through!" for twelve consecutive months and see how it sounds). I don't want to be a part of that.

Of course, this is on my mind because last week was a rough one for me, and I did a couple of posts that made me particularly vulnerable. One spoke in stark terms about the horrible day I had on Wednesday, September 1st, and another asked quite openly for help from my readers on seeking a technical indicator which quickly got dubbed as an unfindable "holy grail."

Neither of these posts were necessary, but both of them were consistent with how I run this blog. The easier choice on Wednesday would have been to simply Change The Subject and talk about something else (pretending it wasn't an awful day) or, if I were a real scumbag, say what a terrific day I had. Instead, I opened myself up to derision (which was probably like Christmas  to the frat boys at you-know-where).

It's funny, because when I was making triple-digit gains, I was accused by some of being full of it. And yet when I bemoan a 4% loss, a few people laugh at a supposed train wreck. I'm still very much in the game, fellas.

This all got brought up because of an incident today. I noticed that Dutch had zapped someone on the site for some nastiness. Since the nastiness was deleted, I didn't see what it was, or who posted it, so I forgot about it. Later today, the author of the aforementioned nastiness emailed me, going off on me about banning him from the site (which I didn't) and not being open to other opinions (which isn't true).

This fellow and I have been emailing each other back and forth pretty much all day long. His concern has been that my bearish bias has been leading readers into "ambushes". I have made no secret that I've been seeking concrete techniques as a counterweight to my well-known bearish bias, and I think I've got a few solid ones now, thanks to the help of dozens and dozens of people that have emailed me their suggestions.

The bottom line for me is that Slope has a culture I like, and part of that culture is borne from being open and honest, through the good and the bad. Sometimes I'm brilliant, sometimes I'm a moron, and most of the time I'm somewhere in between. (Lately "moron" would probably be about right). I will leave you with this:

People are often unreasonable, illogical, and self-centered;
Forgive them anyway.
If you are kind, people may accuse you of selfish, ulterior motives;
Be kind anyway.
If you are successful, you will win some false friends and some true enemies;
Succeed anyway.
If you are honest and frank, people may cheat you;
Be honest and frank anyway.
What you spend years building, someone could destroy overnight;
Build anyway.
If you find serenity and happiness, they may be jealous;
Be happy anyway.
The good you do today, people will often forget tomorrow;
Do good anyway.
Give the world the best you have and it may just never be enough;
Give the world the best you have anyway.
You see, in the final analysis, it's all between you and God;
It was never between you and them anyway.

A Good Labor Day Read

As I've mentioned in the past, most folks tend to move from liberal to conservative as they get older. Contrarian that I am, I'm doing this all backwards, because I would make the most avid libertarian embarrassed with my reactionary politics from my teenage years, whereas the bailout from the financial crisis has caused the inner lefty within me to start creeping out.

Anyway, I read this terrific piece yesterday, and I urge you to do the same. Here's a tidbit:

Instead, we are talking about people who are already fantastically rich.  And who, despite this, are absolutely hell-bent on getting richer, even if that means depriving hundreds of millions of people in the American middle class of their middle classness, and in many cases, ultimately of their lives.  How do we explain people like this?  Are they not essentially sociopathic?  Are they not made of essentially the same stuff as those who can kill without guilt or remorse?  Especially when you consider that even the greediest among us reach a limit beyond which one can effectively make use of the next dollar and the one beyond that, so that pushing others into poverty is no longer even for purposes of your own benefit, but instead for some kind of sick sport?  Aren't these the characters whose essential sickness preachers and philosophers and shrinks have been trying to sort out for millennia? 

The Goodwin Omen (by Nathaniel Goodwin)

I have seen many great posts on indicators and techniques recently, so I thought I would share one of my own. I call it the “Goodwin Omen”, and it was triggered about two weeks ago.
The Goodwin Omen has been triggered before every powerful rally for the past 4 1/2 years. A specific criteria or set of events need to take place within a one month time frame for the Goodwin Omen to be triggered. When it is triggered, it is time for the bears to go back into hibernation or have their faces ripped off.

The first criteria for the Goodwin Omen to come to fruition is for the daily 10 and 20 day moving averages to be headed south.

The second criteria/event of the Goodwin Omen involves my cat, Joe Bangles. Joe Bangles needs to suffer from diarrhea for 3 days out of 5 with at least one day of normal solid scat in between bouts of diarrhea. This omen signal was validated Aug 19-23.

The third criteria involves my grandmother falling off the wagon and verbally abusing the television while watching The Young and the Restless. I’ve found it critical that she is arguing with the cast of Young and the Restless, any other show seems to weaken the omen. This omen signal was validated by my Mother Aug 11th.

The final criteria/event involves a nasty acne or contact dermatitis breakout which was validated Aug 27th, and is still haunting me as I type this. (Shoutout to Justin Bieber and his Proactive commercial, it's working better than Tim Knight's shipment of Oxy10)

If the Zweig Breadth Thrust is also triggered this Tuesday or Wednesday by rising from 40 to 61.5 within a 10 day period (which many will consider very bullish for the next year and a half), I will celebrate another successful Goodwin Omen prophecy to have taken place. If we instead drop like a stone; that’s okay also since the market has already successfully accomplished the 3.45% gain which is required to validate the Goodwin Omen. Best of luck to all of you.


Market Jazz (by Market Sniper)

This Labor Day weekend we have been treated to some very remarkable posts. Our illustrious host, Tim Knight, kicked it off with an after the Friday Bar post. In that post was a heart felt appeal to the Slope for some help. Tim, you;re a remarkable man. Such public openness and baring of the soul is extremely rare in a public trader. It rivals Don Miller  in this aspect. The community response was also telling. It is a very remarkable community that has coalesced here on The Slope. Following that, we were treated to a very insightful post by our Slope den mother and resident muse, Leisa. Market Shamans taking us to the primeval roots/aspects of trading..remarkable.

As traders, we are faced with an absolute fact. NOBODY knows what happens next. How then are we to deal with an unknown and unknowable future? How do we keep our sanity, retain our trading capital and add to that capital? We learn to think in probabilities. The market is constantly speaking to us, giving us information. In fact it often sings. The market's notes are prices. If we are tone deaf, the market will find us out and trading equity will suffer, eventually, driving us from market participation.

To me, most often, the music of the market is American jazz. It is both spontaneous and extemporaneous but within a certain form. The jazz musician plays a note or a short series of notes. From that, various combinations of those notes create a theme or "riff." From that riff comes additional new combinations with a final addition of a note or more at the end of the previous and a new riff develops. There other types of music, however! What happens when the type music changes? There we are, right in the middle of a superb composition by the great John Coltrane and in the middle of a riff, we hear the beginning of a Brahms lullaby! We are not only disconcerted, we are confused which, if we are trading the music, we might even freeze with a loss of trading capital if we have not accounted for that probability which just happened!

In listening to the music the market is playing through price, we are fortunate that the notes the market is playing, price, has a memory. This is why we look at charts. The trader must know what kind of market he is in. It is either trending (up or down) or going sideways in a channel. When in a trend, it plays like jazz. When it hits support/resistance it continues to play jazz or we begin to hear the Brahms lullaby start as price channels sideways. Probabilities are in play at resistance/support. Does the market start a new riff and retrace or does the riff continue? These areas I have found to be very good places to do business. Regardless of your outlook, your in a price area that allows cheap stops. Relative minor price change will tell you whether correct or incorrect in following the riff. Gains, potentially great, if correct in your assessment. Listen to the notes. They will tell you very quickly to either exit the position with a relatively small loss or steadily garner gains as the notes you hear are the ones you thought you might hear. Always stay aware of probabilities as price unfolds.

In conclusion I would make the following observations. I am absolutely convinced that 98% of trading success is done by the creation of The Holy Grail between your own two ears. All the indicators, TA, sentiment, astrophysics, numerology, etc. is merely 2% of what makes a trader a success at this business. The construction of that Holy Grail is self mastery and discipline. The Holy Grail does not exist extraneous to self. If you undertake to search for The Holy Grail outside of yourself (99.98% of all traders attempt the search) you will be frustrated, disappointed, lose money and eventual fail. No trader has looked around and found it because, outside of yourself, it does not exist. That 98% is the hard work. Do your work there and you will find the trading business to be almost stress free and simple. The other 2% can be taught to and learned by any reasonably intelligent 12 year old. I find it telling that almost all traders spend 98% of their time on the 2% that can be learned competently and quickly and only 2% of their time and effort is devoted to what creates successful traders (defined as an individual that can extract constant profits from markets at will). Could it be that this is the root cause of the failure of 95% of the people who attempt to succeed at this business?

Yours in the eternal quest for the elusive trading edge, Market Sniper




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