Slope of Hope Blog Posts

Slope initially began as a blog, so this is where most of the website’s content resides. Here we have tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. Click on any category icon below to see posts tagged with that particular subject, or click on a word in the category cloud on the right side of the screen for more specific choices.

Heretics of Finance

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I am reading The Heretics of Finance: Conversations with the Leading Practitioners of Technical Analysis, a new book made up entirely of interviews with technical analysts. I'm about halfway through, and it's pretty good, although it must have been a pretty easy book to write since it seems the authors merely mailed out the same questionnaire to about 20 folks and printed their replies.

Some of the quotes are pretty interesting; here are some favorites I've found so far:

"When you're practicing technical analysis, you have to be totally electic, because there will be a time when the approach you're using doesn't work. If you're not flexible, you'll self-destruct" – Ralph Acampora

"The biggest mistake people make is to overburden themselves with indicators. The simpler you keep it, the better it is." – Ralph Acampora

"Technical analysts also go wrong in making dramatic predictions. The best you can do in the market is to give some very strong tendencies and some direction." – Laszlo Birinyi Jr.

"Whenever you think you've got a key to Wall Street, somebody comes along and changes the lock." – Walter Deemer

"Technical analysis is nothing more than a form of measuring supply and demand." – Paul Desmond

"[T]echnical analysis excels at tops and bottoms. It's excellent at defining turning points…fundamental analysis works best in the middle of an economic cycle or in the middle of a bull market." – Gail Dudack

"You have to be comfortable being in the minority. If you're right about the market most of the time, you're going to be in the minority, because the majority is usually wrong." – John Murphy

"When you are a member of a group, the natural tendency is to abdicate responsibility. The best analyst is one who abdicates nothing. He blames or credits only himself." – Robert Prechter

Right and Wrong

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Hello from my snowy base of operations (well, not particularly, but it will be once the storm blows in tonight) at Northstar.

During the long drive up here, I was talking with Mrs. Bear about how this blog has put me into a constant state of self-examination with respect to my trading. I think that's healthy, and here are some of the takeaways for me from the prior trading week:

Right Moves

  • Being Hedged – I don't have a hedge fund (although I occasionally toy with the idea), but from what I understand, the vast majority of "hedge" funds aren't that at all – – in other words, instead of being long and short, most funds are simply long, which is why their performance stinks just as bad (or worse) than the market in general. I have a wide variety of carefully-chosen longs and shorts (although good longs are pretty sparse these days). The upswing earlier in the week wasn't nearly as bad as if I was entirely short.
  • Not Quitting on a Symbol – in this case, our old friend FAZ. I had been hurt by FAZ earlier in the week, and late Wednesday night, I swore off it for a while. But after examining the financial stocks, and seeing how they were basically completely hosed, I figured FAZ was my best way to profit. A 40%+ gain in just two trading sessions proved it was right to be forgiving.
  • Recognizing the Strength was Unsustainable – Wednesday evening was a very important period of examination for me, because I really wanted to see, on a bottom-to-top basis, what the market was doing. I was convinced that there was no real basis for all the strength we had been seeing besides the printing-money-from-thin-air lunacy that is eventually going to ruin this nation. I was able to be boldly bearish the rest of the week, which believe me, took some fortitude.

Wrong Moves

  • Overweighting – My portfolio allocation model, if you can call it that, can be written on the back of a business card with a crayon. I typically buy $5,000 of an option, $10,000 of an individual equity, $100,000 of an ETF, and anywhere from 10 to 20 /ES contracts. I got way too enthusiastsic with some of my shorts, and that was a big mistake. General Electric, for instance, was something I felt was really going to tumble, so I shorted hundreds of thousands of dollars of it. When it (briefly) pushed higher, I got stopped out with really ugly losses (and, just to add salt to the wound, GE has indeed resumed its weakness). No matter how great a chart looks, there is no reason to go insane with the size of the position. I still think GE is heading to $4.xx before this bear market is completely finished, but an overly-large position (and an overly-tight stop to protect that position) was a deadly combination.
  • Letting Fear Lead to Overly Tight Stops – This really only applies to the /ES, since I was pretty disciplined about my stops, but after the Wednesday nastiness, I was too antsy about my /ES trading, which left a pretty decent amount of profits on the table. In retrospect, shorting the market on either Thursday or Friday mornings was pretty much a technical no-brainer, but I only enjoyed a portion of the potential profits from such a trade.

My main conclusion about the market these days is this – – – the mere fact that I am able to find 10 great short setups for every 1 long setup tells me this market needs to soften up some more before it really rallies. I am having a devil of a time finding any good longs, and I think the reason is that we don't have a base. Those are five really important words, so I'll type them again: We. Don't. Have. A. Base. Look at what the S&P did in 2002. That, my friends, is a base. You have repeated attempts to crack lower, each failing, and you have an important higher low. There is truly a floor from which stocks were able to leap higher.

Now take a look at the recent activity on the S&P and tell me, with a straight face, we have a base.

All we've got is a steady plunge down from 800 and a steady fight right back to the same level. The most "comfortable" outcome for me is continued weakness to somewhere at or just above the 666 low and then a move higher. Hopefully once we're down in the devil's territory again, we can find some stocks worth buying. As it is now, I've got shorts up the yin-yang, and I think next week is going to be really good for the bears.