Slope Of Hope with Tim Knight

Fiscally Imprudent

My good Parisian friend Serge just sent me an interesting illustraton of financial fund XLF and its RSI.

The Bull Case (by Springheel Jack)

I'm going to take a little time today to put the case for the new bull market from the October low. Negative divergences against equities here are very numerous, and for that reason bear market continuation looks more likely to me, but it would be a mistake to think that the bulls have no case here, and I'll be outlining what I see are the main planks of that case from a technical perspective.

In the short term support on the ES rising channel is clearly still holding, and until that breaks there's not much to see on the bear side here. The upper trendline of the channel is in the 1312 area, and ES has moved up an impressive nine points in the hour since I capped this chart to beat the last high. There might be more coming. Channel support is at 1282.5 this morning:

Following Up: Optimal Hedging Costs -- a Tell For Stocks?

Happy New Year, Fellow Slopers,

I hope 2012 is a good one for each of you, and for our host.

Lessons from last year

In his post Monday ("A Major Lesson from Last Year"), Tim wrote about two of the most famous hedge fund managers who are long BAC and SHLD, respectively. There's a third money manager (this one a mutual fund guy, rather than a hedgie), whose shareholders had the misfortune of him being long both BAC and SHLD last year: Bruce Berkowitz, Morningstar's "domestic stock fund manager of the decade" for the first decade of this new century:

Meet the domestic stock fund manager of the decade

Chart Analysis of BAC (by Mike Paulenoff)

Apart from the fact that Bank of America (BAC) is up 3% the day after it hit a low 4.93 yesterday, the lowest level since March 2009, let's notice that current strength has not inflicted any meaningful technical damage to the nearest-term downtrend -- at least not yet.

BAC must hurdle and sustain above 5.23 to inflict preliminary technical damage. However, upside continuation that climbs above 5.29/30 to hurdle my 30-period exponential moving average is needed to really get my attention on the long side of BAC.

That EMA tracks directional price movement very closely, and in the recent past has thwarted upside continuation on all (failed) rally efforts. Inability of BAC to hurdle the 30-period EMA will keep me neutral to bearish.

Originally published on MPTrader.com.

Yet Another Beautiful Short Idea

XLF Broadening Top (by Piker Trader)

Financial stocks have been rising over the last few days causing XLF to rise as well.  The current price action has formed a Broadening Top Pattern. 

The Broadening Top Pattern represents a rare reversal pattern and typically represents a top and being bearish. It is the opposite of the Symmetrical Triangle pattern that was previously formed in the market.  It starts after a strong move upwards. The Pattern is then formed by a a stock or index making new high and a new swing lows, forming upward and downward sloping trendlines which represents the swing high and lows. 

Fiddling While Rome Burns (by Springheel Jack)

I've mentioned before that I have a strong bear bias that I try to ignore as I chart shorter timeframes. Why do I have that bearish bias? A good illustration of the reason was shown in a great chart on Chart of the Day yesterday. Kyle Bass sent out a newsletter to investors and used this chart in that newsletter, while explaining that defaults on sovereign debt in much of the developed world are more or less unavoidable over the next few years, and that current policies of throwing good money after bad in order to delay the problem long enough that it might somehow disappear, are unlikely to be effective over periods of more than a few months. Here's the chart and if you click on it, the link will take you to the full writeup at Chart of the Day:

XLF Declining Resistance (by Springheel Jack)

I'll do a quick extra post today as I've been having a look at XLF this morning, and there is a very important resistance test coming up shortly if XLF rallies much further. That's best seen on the daily 6yr chart and you can see that XLF hit declining resistance from the 2007 high in April this year, and has been sliding down that trendline with multiple tests ever since:

Short term XLF has put in a solid low and broken the declining channel from the October high. Main declining resistance from 2007 is in the 13.2 2 to 13.3 area now. Will XLF break up through it? Who can say? If XLF does break over that declining resistance trendline though that will look very significant, and the resistance break might have serious implications for the wider market:

We shall see. Personally I wouldn't take the view that XLF breaking up would confirm a new cyclical bull market, but I would say that in the absence of XLF breaking up through that declining resistance, any sustained move up on equities here will look doomed to fail soon.

Hedging Two Banks Heavily Exposed To Europe

"Days to save the Eurozone", then the big rally

Hey fellow Slopers,

A couple of days before Wednesday's coordinated central bank action goosed global markets, Wolfgang Münchau wrote in his FT column ("The Eurozone has only days to avoid collapse") that if the European summit on December 9th didn't lead to an ambitious three part plan to save the Euro (an ECB backstop + a timetable for a Eurobond + plus an agreement on a fiscal union) the Eurozone risked collapse:

Squid Pro Quo

It's been a while since we checked in with the single most hated company on the planet, Goldman Sachs.

Here's a fun fact - - if you had the insight to put your life savings into GS over a decade ago, you would now be wallowing in a return of just about 0.00% for getting in bed with The Squid.

I guess the partners and employees do a lot better with this despicable place than the shareholders do. Here's a percentage chart for you: