Monthly Archives: June 2009

One More Day

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Well, Q2 2009 is a quarter I'd just as soon permanently forget. It's been a tremendous amount of work for absolutely no profit. I am hoping that July 1 will bring us some relief, so I'm just biding my time until then. I've got about half the positions I would have if I were feeling really confident.

As for the /ES, we're less than a point away from breaking any potential of a true H&S pattern.

0629-es

I'm content letting the final day of the quarter burn by. I've got dozens and dozens of ideas waiting in the wings, but I'm not going to move forward on any of them until right near the close on June 30, at the earliest.

The Risk of Lottery Plays

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From mid-March until this month, low-priced, high-risk issues have been the backbone of my 401-k. They are definitely losing their steam, though, and it's also becoming evident that there are reasons these issues were battered in the first place

Take Lear Corp (LEA), for instance. This stock had a great run-up in the yellow tinted area, shown below. I did pretty well on this ride up. I then "re-loaded" when it headed back toward its trendline, and at first, this seemed like shooting fish in a barrel (see green tint). But look what happened – – it failed to exceed its prior high, it broke its trendline, and it absolutely fell to pieces.

0629-lea

Bear this in mind with such securities – – they are anything but "blue chip!"

Warm and Fuzzies

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Over the years, I've received many hundreds of emails from readers, 99.9% of them friendly and positive – – I got one on Sunday that stands out as particularly nice, and I'd like to share it with you (the sender provided his permission):

Hi Tim,

I hope you are enjoying your "vacation away from slope"
this week. I've never been one for waterskiing, but I am so glad you
are willing to give it a try again.

I just wanted to say thank
you to you and all the Slopers for everything that you have done for me
over the last few months. I was laid off in March (on the chopping
block and bored since January) and new to trading at the time.

Since January, I have found a new "job" here at Slope. I went full time the day I got laid off.

First,
I can't begin to tell you how much I have learned from the Slope. I am
a better trader as a result of all that I have learned here. Period.
Stochastics, chart patterns, option pricing…the list goes on and on.

More importantly, however, has been the community. Sitting at home
alone, all day, applying on line for jobs is really lonely and
discouraging. But with the community on Slope I felt like I had some
one to share the glorious ride down in March, the ridiculous upswing,
and painful tape since. Some of the hardest things about losing a job
are losing a sense of purpose and community, and I found both of them
here on Slope.

I write this to you today because it is my last day before starting
my new full time job at the American Red Cross. I am very excited about
the opportunity, but will miss cavorting all day with everybody on
slope. I'll stop by now and again, but just wanted to say thank you.

All the Best,
Sanjay Purohit (Butterstick)


Thanks, Sanjay! I agree that we've got a terrific community here.

Below is my victorious water skiing on Sunday, against all odds (or at least in direct confrontation of my fears of icy-cold water and general ineptness). Believe me, taking one hand off the tow was an act of faith.

0628-ski

The Outrageous SEC

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A number of months ago, a Sloper reached out to me to tell me his story of how the SEC had charged him with insider trading and how he had to defend his innocence (a seven-figure legal expense) in a preposterous case in which the SEC finally relented. I met him face-to-face, and we even briefly discussed co-authoring a book on his story. I was amazed at the things that I heard – including tales of outright fabrication of evidence by the inept and corrupt organization which we taxpayers fund – and was distraught to learn that the pressure of the entire ordeal had also destroyed a lengthy marriage.

Then yesterday I read this article in the New York Times which seemed awfully familiar. It tells of Richard Kwak, now 72 years old, who similarly faced a charge which he vowed to fight to his last breath. He spent over a million dollars defending himself, and – once again – was acquitted of charges. Here's a small excerpt from the article:

Mr. Kwak’s life is now in tatters. He is around $1 million in debt and
suffers from emotional problems. He has struggled to stay out of
bankruptcy. Although he is still a broker – he certainly can’t afford
to retire – he long ago lost his job with Morgan Stanley, where he had
spent several decades without so much as a hint of impropriety.
Needless to say, his business is a small fraction of what it once was.

The article is well worth reading in its entirety, so I urge you to do so. The main point of the article is that the SEC gets its jollies out of pursuing little people on pretended charges, because little guys can't really defend themselves and make easy prey for the career bureaucrats at the SEC. Whereas firms like JP Morgan, Goldman Sachs, and good people like Bernie Madoff go utterly ignored, because (a) that's where better careers than the SEC are housed, and (b) big fish can afford to fight the SEC.

Yesterday, a Sloper wrote to me and encouraged me to provide a link to Zero Hedge's post called the SEC Needs Your Feedback. Tyler Durden, the author, seems appropriately ticked off at our good friends in Washington. So, here again, I urge you to make this part of your reading today.

Long-time readers know that my libertarian roots run pretty deep, and I'm not fan of government. But the SEC brings the lousiness of government to a new low. I'm sure the day will come when they take advantage of us bears as well, attacking those who are going to profit from the coming collapse of the equity markets, so I usually don't make a point of saying anything – – but this morning, even in the beautiful paradise of Fallen Leaf Lake, I felt the need to write something about it.

The Razor’s Edge

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We've only got two trading days left this quarter, and believe me, this quarter is a huge sigh of relief to money managers around the world. They are going to preserve every possible cent of profit they can log for this quarter, since it's the first good one they've had in a while. So the bulls are going to have that tailwind helping them for a short while longer. Come July 1st, that disappears.

The volatility of the market has been in a slow grind down for eight months now. The VIX is less than one-third of its peak in October, which makes puts a great deal again, to my way of thinking. I've been buying up puts on high-priced stocks that expire anywhere between September 2009 and January 2010. As you can see from the trendline, all the hot air from the bear market has been let out of the VIX.

0628-vix

I try not to consider every trading day "a critical juncture", but honestly, this upcoming week is really important. Simply stated, if we can stay below June 11 highs, and we can crack last week's lows, the bears are going to take the upper hand. However, if the end of the quarter doesn't really mean anything in this tug-of-war, and we do push above June 11 highs, the bulls could be off and running to 1,000+ on the S&P in very short order.

Below, for example, is the OIH. It's actually a very nice basing pattern. If OIH slips under last week's lows, that will represent a cataclysmic failure of this otherwise strong pattern and would easily push the OIH back fifteen points or more. Persistent strength this upcoming week would give this a good chance of pushing much higher. I've got my money on the short side, with shorts in both OIH and USO.

0628-oih

It's much the same story with the MidCap 400. That bold horizontal line is a major retracement level. It did a fine job repelling the market earlier this month. I am of the opinion that, during this go-around, we won't even re-approach that level.

0628-mid

Relatively speaking, the NASDAQ has held up stronger than the listed markets. The head and shoulders you see elsewhere simply isn't present here. Should a breakout occur, I think this relative strength will carry over into the NASDAQ, accelerating it faster than its breathren. But, I say again, my money is almost exclusively on the short side. It was somewhat telling to me how mediocre my lottery plays behaved on Friday.

0628-compq

Considering I was on vacation all last week, I think Slope held up pretty well (in fact, had I not said anything, I don't think you would have even noticed). Please note than I am, today, pulling up the stakes from the beautiful house we're at (with its wireless high-speed Internet) and moving to, shall we say, simpler quarters. My ability to access the Internet truly will be more limited, so posts will be less frequent (considering it's a holiday week, with the market closed on Friday, it probably won't matter as much).

Oh, and as for water-skiing: the spring and summer have been so ridiculously mild in Northern California, I don't think there's any chance I'm even going near that lake. Mrs. Bear and I keep our own pool at 88 degrees since we're both cold water wimps. The idea of me plunging into low- to mid-60s water is almost out of the question.