Forgive me, readers, for I have sinned.

In my three rules, the very first one I state – which I consider the most important – is to never lack a stop price. I had a position on OIH. I had a stop at $195. And as it, to my amazement, approached that level, I simply cancelled the stop.

That was really, really dumb. My "three rules" were crafted over many years of hard experience. I say "no exceptions" for a reason. Telling myself I'd ride out the tide and see how it goes was the kind of mistake an amateur makes.

Well, you know how this story ends. OIH kept grinding higher and higher, and once it reached $208, I couldn't take the pain anymore, so I sold my puts at a far greater loss than if I had simply let the stop do its work.

Now, at this point, there is a possibility OIH could temporarily top out and weaken. But – – again – – simply hanging onto a position and hoping for the best is idiocy. Shame on me.

OK, enough self-flagellation for the moment. The market continues to be far stronger than I'd like to see. Yeah, the Dow fell a little today, but I still think we're in "retracement-land". I am watching, for example, the $MSH. I am OK with it so long as it stays beneath that horizontal line.

One key component, of course, is Apple, which reports after the close on Wednesday. Errr, needless to say, everyone is going to be watching this like a hawk after-hours, particularly given GOOG's incredible blow-out last week.

As for oil – in spite of my debacle with OIH, I still have a lot of oil-related shorts. Chart-wise, there is a lot of interesting activity here. BHI has fully retraced to what I consider a face shorting zone.

And CVX – even on a day when oil hit yet another record – is showing weakness. I'm thinking "quadruple top" when I look at this.

My martyr complex is on full-blast right now, so I'd say the video below represents my vision of what a Slope Convention in Vegas would be like in August. A few of the dramatis personae…...

• Jesus H. Christ – Tim (who else?)
• Mary Magdalene – Jana (understudy: Avalon)
• Judas Iscariot – JakeGint
• Simon Zealotes – Peachin
• King Herod – Ned
• Caiaphas– Abby Joseph Cohen
• Pontius Pilate – Beanie

When I was in the 9th grade, one of the classes I took was called Introduction to Business. I clearly remember one day they wheeled in the TV and played a National Geographic special called "Gold!", which was a breathless documentary about gold and its import to the world. The teacher also handed around a Krugerrand he had brought into the class. As it was being passed from student to student, he told us how "gooooooood" it felt to hold. The fact I remember it after all these years speaks to the experience. This is what gold looked like at the time of this little event in my life………..

What I didn't realize at the time is that when gold mania reaches so far down that 9th graders are talking about it, the mania is probably pretty near the end. I daresay the red circle, drawn below, is roughly where this little talk took place in my class.

As you can see from the graph above, gold spent the next two decades doing absolutely nothing (there were gyrations along the way, but gold bugs spent all the 80s and 90s being disappointed).

And it isn't that gold was the only commodity in history to experience a bubble. Even something as pedestrian as sugar made the late 70s run in gold look like nothing. Just take a look at this:

…….but yet again………..

Does this mean that everything that goes up goes right back down? No. But, unlike stocks, commodities do tend to be relatively cyclic and price-bound. In other words, a stock like AAPL which goes from $5 to $200 isn't necessarily doomed to returned to $5. But something like Gold isn't going to go to $1,000 and stay there forever.

Now, just to be clear, I look at futures simply as an interested chartist. I've never traded a futures contract in my life. I'm more interested than usual in commodities these days simply because of the huge bull run in commodities that we've seen the past few years. But I think it would be instructive, especially for those that don't typically follow futures, to take a look at a few of these charts. Please keep in mind that these charts span decades.

First, here is Corn, which is near highs never seen before, and even pierced that multi-decade upper trendline.

Of course, there's crude oil, which in 1999 was approaching $10 per barrel (seems like science fiction today, doesn't it?) People used to think about triple-digit crude prices as something unfathomable, but it seems we've all become accustomed to them very quickly. But in this entire graph, there has never been a market like this for energy (the Gulf War in 1990-1991 was just a blip in the grand scheme of things).

And our old friend gold, which has exceeded the (admittedly not-adjusted-for-inflation highs) levels set nearly 30 years ago.

And, the highest flier of them all – – of all things – – wheat:

When is this all going to end? No one knows. After all, gold went up eight-fold during its last madness in the late 70s, so an eight-fold run this time would push it to $2,000 per ounce. And some very smart people – like Jim Soros – believe the "big top" in commodities is still years away. But I can't help but be skeptical of how much more these markets can run.

I'm always pleased to hear from Slope readers, but some really stand out. One gentleman wrote me a few days ago – he's an energy analyst based in Boston – and he had some interesting insights on the energy markets. His email was so good, I asked (and received) his permission to publish it here. If any of you want to contact this gentleman directly, drop me a line, and I'll pass your email on to him. Here is his post…………..

I trade energy stocks for a living after having covered the sector for 20 years on the buy and sell-side.

Oil and OIH now reside in an uncharted world. Specifically, SLB actually misses 1q08 EPS by 5% and the y/y was a paltry 10% (versus 63% y/y in 1q07, 82% in 1q06, 38% in 1q05 and 81% in 1q04); yet, the stock explodes higher yesterday propelling the move in OIH.

My fear in looking at your chart on BHI is that this stock is going back to $100.

Consider oil over the past five years. First driven by low inventories, myth now debunked; then lack of spare OPEC capacity, now debunked; then hurricane issues, debunked; then the Iranian issue, now debunked; then it was all about the dollar ? Now debunked. Dollar rallies sharply on Friday, gold goes down, but oil soars to new highs. Oil is on its own mission. The move higher sows the seed of its own destruction, but who knows where the point of pain exists.

Aside from housing, the single biggest reason to remain bearish is oil. The commodity may continue to explode higher until it crushes the economy and US, European and Japanese stock markets. WTI oil averaged $72 per barrel last year. This year could/will be $40 per barrel higher ? that?s $300 billion in higher oil costs alone to the US consumer, or almost 3x the so-called stimulus package.

The problem with shorting energy stocks is that fundamentals do favor the pure producers (not so the refiners or big oil).

I am glad we are able to make the connection as I have truly enjoyed your comments, which often exactly capture the mood of the markets.

The next several days are critical for oil and energy stocks. The May futures contract expires on Tuesday April 22. Crude needs a rest, but if it does not pull back at expiration, certain producing stocks are going to break-out to even higher highs. The reason is that the operating leverage for some of these companies is HUGE. The key is to focus on companies with high quality production assets, long reserve lives, AND low marginal tax rates. APA, CHK and OXY are three of the best examples. You have posted on APA, and the chart does look extended, but at $116 oil and $10 gas, the earnings and cash flow is there to back it up. I am not long APA at $140. I am quite long OXY and CHK. The former is perhaps the single best equity play on oil and the latter = one of the best plays on natural gas. I will explain more on these two names in a later missive.

The huge difference between energy, housing and tech ?bubbles? is that the energy companies actually have real EPS, cash flows and improvements in net asset value. The numbers at $100 + oil are staggering. For the industry, it is not about the % change in commodity price, it is about the absolute number.

I have been out of the OIH for the last year, after catching big runs in 2004 and 2005. The reason is that despite a great oil price, revenue and EPS growth RATE is slowing for the service sector, which I consider to be a key driver. I admit that I don?t understand the move in SLB on Friday, unless it was option expiration.

On the short side, the higher crude goes the worse it is for the refiners (VLO, SUN, MRO, TSO etc). Product demand in the US is negative, which has killed margins. Also, big oil is quite vulnerable at these levels. As a pair-trade to the producers, it looks worthwhile to be short XOM, with smaller shorts in BP, COP and CVX. The market does not yet know how bad refining earnings will be for the big boys until 1q08 EPS reports next week. Also, if crude going higher cracks the stock market, I project it will take down the big index names like XOM and CVX. The risk for me is that the reverse is also true. Lastly, if oil goes much higher, government is going to be forced to get involved. The window for me is that the so-called market pundits have not started picking up on how devastating the financial flows are for the global consumer at $120 oil.

The math is pretty easy because the US consumes 7.5 billion barrels of oil and oil products each year.

In sum, I have been involved in stocks for almost 30 years and this is the most dynamic, intellectually challenging period I have ever experienced. I will be back with more details on certain names, but in the mean-time, please take a look at the charts on OXY, CHK, XOM, COP and CVX. I value your insights on this sector. 

When the markets are very strong (and two 250 point gains on the Dow last week constitute strength, in my book), the naysayers re-appear on this forum to "kick 'em when they're down." But there was a real gem posted in Friday's comment section which I'll reprint here in its entirety; I've put in boldface some items I'd like to address:

Let me say I enjoy your daily rants and boasts. The site is a good read.

But I just urge you to come clean with your readers, and admit that you have lost a lot of money over time, and will likely continue to do so.

Study after study has shown that people OVERPAY for puts. Add in your HUGE trading costs because of so many small positions. Then add in the asked/bid spread retail investors pay.

When you're right, and the market is heading down, the put premiums are so huge you don't get anywhere.

And when the market turns up, premiums shrink so fast you get crushed by the falling VIX.

EVEN IN a serious bear market, every counter-trend rally will eat up any gains. You never see those coming, or believe them when they come.

It just doesn't work.

And all those LINES! If you draw enough of them, markets will HAVE to stop at one occasionally. And it's funny how you draw horizontal lines that the market moves smoothly thru a dozen times, and stops NEAR once or twice, and you call it a victory for Fib! If the market NEVER stopped near a fib, THAT would be spooky.

But your claims show a glaring lack of understanding of statistic and probability. Your charts are just Rorschach ink blots. You see what you want to see.

Your history of trades only comprises 6 months of BIG market declines. Every perma-bear would expect to make some money during the last 6 months. Yet if you added in your transaction costs, you likely haven't made much of anything even in this crash!

And you're drinking the cool-aid if you believe for a moment your approach can work in any other kind of market! Which is most of the time.

I had the Guru checker at CXOAdvisory check you out, and he concurred. http://www.cxoadvisory.com/gurus/ He debunks all you guys who CLAIM you make money and good market calls.

So keep posting your thoughts and trades. I acknowledge reading them seriously. When our views on a stock differ, I think twice about proceeding.

But you must know that it's the people SELLING you the puts that are actually making money. I personally sell so many puts that I've probably had the pleasure of taking one of your trades. If so, thanks.

There as a reply to this post, which I'd also like to address, from WorkDog that says:

I don't mean to pile on here, but this post has opened a window to throw out some of the thoughts I've had about Tim's trading. The first being, and I'll ask this to Tim directly, why do you short what seem to be the strongest stocks? To me, odds for success are much greater when I short weaker stocks. The second, what is your exit strategy when a position moves in your favor? I haven't sensed a concrete trading plan for maximizing profits.

The simplest thing for me to do would be delete the post, block the commenter, and pretend it didn't happen. But I hope I have built a reputation for transparency and honesty in this blog, and I'd rather address this head-on than hide from it. So let me address the points in order:

• "daily rants and boasts" – I truly hope my writing can't be divided into those two simple categories. But for rare occasions, I try not to be boastful; perhaps my marveling at some of the cool things technical analysis provides comes off as a boast, but it's nothing personal. I'm simply impressed by what's happening.
• "lost a lot of money over time" – my interest and activity in trading has afforded me a comfortable lifestyle. I don't see why anyone would engage in a money-losing exercise and spend each day talking about it.
• "the put premiums are so huge you don't get anywhere" – hopefully, I am buying positions when the premium is small and selling it when it is big. For insane stocks, like ISRG or BIDU, yes, the premiums are big, so even when the stock collapses, the gain isn't as great as you might think. But still, I make money.
• "all those lines!" – I think this is what I take the most umbrage with. I pride myself on clean, simple charts. 90% of the charts I see out there on the web are completely crammed with studies. It's nauseating. I have a zen-like simplicity to my charts, and the notion that I've thrown pick-up sticks on the charts so that something is bound to "touch" is baseless.
• "comprises 6 months of BIG market declines" – are you kidding? The Dow is only 10% from its highest point in human history. I would hardly say we're at the very bottom of some monster bear market. A huge number of stocks I follow have never been higher. So, sure, if you look at Bear Sterns, it is way down, but the market – especially at these levels – is plenty strong.
• "I had the Guru checker at CXOAdvisory check you out" – err, no you didn't. I am not prominent or famous enough to merit a space on their list. If you are claiming that everyone who makes market predictions is wrong, well, I think that's incorrect. What were you expecting to see – 95% success rates? I frankly think 55% correct is damned impressive. As you can see from my own performance table, I'm only about 50% right, 50% wrong, but the right ways move more than the wrong ones, so I come out ahead.
• "why do you short what seems to be the strong stocks" – it's like the answer that the bank robber gave when a reporter asked why he robbed banks: "That's where the money is." I'm not interested in placing trades on, say, Sun Microsystems. I'd rather take a chance on a $200 stock that I think could go to $150. My trade on ISRG is a perfect example of that. I did great on that trade, and God knows it was a strong stock. Frankly, GOOG was one of the "weaker stocks" that you suggest would have been a better candidate, and we all know what happened to that one.
• "what is your exit strategy when a position moves in your favor" – it totally depends on the chart. I don't have a simple answer. ISRG, again, is a good example – – it fell to a medium-term trendline, so I got out. It could fall farther – much, much farther – but I'd rather exit at what I think is a decent support level.

I hate to give so much attention to a single post, and even though it was kind of obnoxious, it was written with enough intelligence that I felt it warranted a reply.

As for my position on the market right now, I can only say when I look at the major indexes (shown below with, ahem, clean, simple lines), I cannot help but think the likelihood of a continuation of the downturn is more likely than the resumption of a secular bull market which sweeps to new highs.

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness,
it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season
of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we
had nothing before us, we were all going direct to Heaven, we were all going direct the other way–in
short, the period was so far like the present period, that some of its noisiest authorities insisted on its
being received, for good or for evil, in the superlative degree of comparison only.

I think this sums up the current state of affairs. On one hand, the economic news is terrible, people are losing their jobs and their homes, and the cost of living is exploding higher. On the other hand, you've got hedge fund managers with annual take-home pay in the billions of dollars, gigantic 300 foot personal yachts, mile-high skyscrapers, and all the other madness of showy wealth. One wonders when the increasing wealth gap is going to plunge the world back into socialism. What's happening now is not good.

The indexes today shot higher, ignited by Google's earnings the Citicorp's not-so-awful report. Commodities – and oil in particular – were simply nuts today. Here's a snapshot of key indexes and what I view as some important lines:

I mentioned oil – – the OIH is stark, raving mad. I don't tend to use "rubber trendlines", but I've had to with this one. That upper bound keeps getting pushed higher. And it's at the tippy-top of its Bollinger Band.

I'm pressed for time now, so no time for commentary. I'm just going to throw charts your way. Here are some stocks from my current holdings on which I own puts and feel pretty good about (tip of the hat to ISRG today; you took away all the pain and more from my GOOG put).

That's it from me. In contrast to last Friday (when GE got torpedoed), this week was suck-o-roony. I truly hope next week is better. Until then, I bid you farewell!