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.

Floating on Ichimoku Clouds (by nummy)

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Firstly, I want to say thanks to Tim for letting guests post.  I think it is a wonderful idea and will bring a myriad of viewpoints from around the globe (literally).

So, about a week ago, I read some chatter in the comments from thunda72 (the guy with the sweet avatar) and wycfitz about Ichimoku clouds.

At first they look confusing … just a bunch of seemingly random lines.  However, when used properly, Ichimoku clouds can help confirm or deny an ongoing trend.  Keep in mind, it would not be a good idea to use this indicator/strategy alone in your trading decisions.  This indicator is not the best for signaling tops and bottoms.  What it is good for, is finding resistance/support zones and trend information.  In this post, I will discuss how the Ichimoku cloud can be used, and show how a simple indicator can be designed to rate long/short signals with strength.

2009-10-28-TOS_CHARTS_ICHI1 

Here is the Ichimoku cloud on the daily SPX chart (Ichimoku comes as a study with TOS).  The default input values are 9 for the Tenkan period and 26 for the Kijun period (Ichimoku(9, 26)).  The Ichimoku cloud can be used on any time frame.  The Tenkan line is the cyan line and the Kijun line is the fuchsia line.  These are the lines we want to watch for a signal.  We consider a bullish crossover when the Tenkan line crosses above the Kijun line, and a bearish crossover when the Kijun line crosses above the Tenkan line (referred to as the K/T cross).

The cloud is composed of the two orange and red span lines which are pushed forward in time.  This cloud can act as a zone of resistance or support.  Instead of normally treating resistance/support as a single price level or line, the cloud gives resistance/support a thickness which reduces the risk of a false breakout.  The general theory is, price action above the cloud indicates we are in a bullish trend while price action below the cloud indicates a bearish trend.  The Chikou is the gray line which is basically the current bar's close moved back 26 periods ago.  Note that the colors in your TOS setup may be different, but I chose these to help distinguish which line is which.  For a complete definition of how each line is defined, check http://www.fxwords.com/u/ichimoku-cloud.html.

Ichi_flow 

After reading the literature that is out there on Ichimoku clouds, there is a general method of determining signal and strength from this indicator as follows:

  1. The signal is 0 (neutral) at all times unless a K/T crossover occurs.
  2. First, determine whether the K/T crossover is bullish or bearish.  Do this by determining whether the Kijun crossed above the Tenkan, or vice-versa.  Positive points will be given in the bullish scenario while negative points will be given in a bearish scenario (+1 for a bullish K/T cross, -1 for a bearish K/T cross).
  3. Determine where the K/T cross occurred with respect to the cloud.
    -In a bullish scenario, a strong signal is achieved when the K/T cross occurs above the cloud (medium signal within the cloud, and weak signal below the cloud).
    -In a bearish scenario, a strong signal is achieved when the K/T cross occurs below the cloud (medium signal within the cloud, and weak signal above the cloud).
  4. Where is the price action with respect to the cloud?
    -In a bullish scenario, price action above the cloud will strengthen the bullish signal.
    -In a bearish scenario, price action below the cloud will strengthen the bearish signal.
  5. Where is the Chikou with respect to the cloud?
    -In a bullish scenario, the Chikou above the cloud will strengthen the bullish signal.
    -In a bearish scenario, the Chikou below the cloud will strengthen the bearish signal.

Following the flow chart above, you can see that a signal starts out as either a +1 or -1.  The signal becomes strengthened by further criteria: where the K/T cross occurred, where the price action is, and where the Chikou is.  What you end up with is a bullish signal ranging in strength from +1 to +5 (-1 to -5 for a bearish signal).  I whipped up a little TOS script which basically uses the source code from the Ichimoku indicator and builds a signal strength indicator.  To spare some of you a lot of explanation, I won't go through the details of how to write the thinkscript code to do so, but I'd like to in a future post.  You can import this into TOS as a study and it will be called IchimokuStrength. Download IchimokuStrengthSTUDY.

2009-10-28-TOS_CHARTS_ICHI2 

Remember, don't use this signal as a signal to initiate long/short positions.  Use it as a supplemental indicator that helps confirm an ongoing trend.

A Heavy Post

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One of my favorite Slopers is Leisa. Besides being a nice person all around, she also doubles as my conscience; if I ever get a little out of hand, I get a kind but firmly-worded email, and that sets me straight.

She sent me something to post on the blog which she originally wrote a couple of years ago. I offer it to you and I thank Leisa for sharing this. – – Tim

This post is very pertinent to investing, but it is also deeply personal.
For whatever reason, I was moved to post this story. I may regret it. But I'll
resolve not to delete it because I think it is important. I would also like you
to share it with someone that you think might benefit. And let me be clear,
this post is not meant to be dramatic. I'm not trying to draw attention to
myself. I'm trying to draw your attention to you. It is meant to be honest and
coldly objective. If you ever find yourself in this position, I hope that you
remember reading this post. It's tragically true, and one of the most deeply
moving experiences of my life.

Nearly 17 years ago my brother committed suicide. He was 32. In February of
1990, my father, sister and I went out to Colorado Springs (my mother had died
of lung cancer the previous November) to await the why's and wherefore's of my
brother's death. It's a horrible space to find one's self in. He had a wife and
two young daughters: 2 years old and 5 months. It was heartbreaking to see my 2
year old niece cry Daddy, Daddy, Daddy to every headlight that beamed down the
road. She didn't understand that her Daddy would not be coming home.

He had put all of his things in order–to include his income tax preparation. I
will not go into all of the underlying reasons why I thought my brother
(estranged) chose suicide, but the catalyst was that he lost everything in the
stock market. Everything. There was $300 in his bank account. They were arrears
in their rent. His wife had no idea. He had sold his home in CA with a
significant gain. Moved to CO and was renting a beautiful, expensive home. The
sizable gain on home? Evaporated. Nada. Zippo. He had the one thing that was of
financial value: a sizable insurance policy (he sold insurance).

He did the penultimate financial fuck up–he lost EVERYTHING in the stock
market. The real pathos of the story is not that he lost his money, but that he
thought that the insurance policy was more valuable to his family than his
life. Amaranth and Mother Rock are titillating stories. But, there are real
people behind those stories. Why am I posting this? BECAUSE
I DON'T WANT ANY OF YOU TO EVER CONFUSE THE VALUE OF YOUR BANK ACCOUNT WITH THE
VALUE OF YOUR LIFE.

I have little to offer people who stop by to read this modest blog. But I
assure you that today's message is the most powerful and incisive that I could
ever offer–one that you will NOT get from any paid subscription. Sure,
investing is a provocative subject: it's sexy, it's intellectual and it's
instant, provocative conversation. But in the end, it is your financial health.
But I want to tell you, bluntly, that if you fuck up, it is not your life. It is
never your life. You start over. You dial back to being in your 20's
again–poor but idealistic. However, never, ever is it your life. (Of course
the underlying message is NOT to screw up (no more than 2 f-words in a
post!).

I don't know what 2007 will bring. I don't know a damn thing but this: You are
not your bank account. You are not your annual return. You are not your annual
salary. You are a spouse, a mother, a father, a friend, a son or a daughter,
but you are never a dollar.

So whatever decisions that you choose to make about your life–whether it's a
stock purchase, business venture, financial investment, love interest or
employment decision–you do so with conviction that should it blow up in your
face, you can face the next day with the stain of embarrassment on your cheeks
or a "how could I be so stupid" slap to the forehead, but you
continue to be a part of the lives of the people who know and love you. And all
of these things I feel well qualified to tell you.

Microbrew? (by Fayssoux)

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Microcap stocks (sub $500 million in market capitalization)
have started to
underperform the big cap indices, just as they did last fall
and in February.  They may be a
weathervane
relative to Tim’s point “It’s happening again.” 

More domestically focused, more credit dependent, and more harnessed to
the
US
consumer than large multinationals, they get less benefit from a weaker
dollar.   Individually illiquid on any given day, they can go down
fast if selling happens in earnest (
ZQK and AAPL were both Q2 Galleon holdings; one
went down much faster than the other recently, as an example, maybe a
coincidence, maybe not).  Chart below
shows
IWC (microcap ETF) versus SPY (S&P 500).  IWC led the way up since March and turned
this month.  It is down 2% today.

Sc

Solvency and Sovereignty

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Hello Slopers. I am cccactii  a new and very occasional poster here and I was quite surprised that Tim gave me a chance to post, and I imagine you will be astonished that he did so. He may have had a momentary lapse in judgement if you are reading this or he is giving you all some fresh meat to fade.

I am a 47 year old airline pilot that became aware of the futility and danger in leaving my money with mutual fund managers and similar CFP types near the end of the tech bubble. I believed then that I had to learn this myself or I would be fleeced. I am a native of Minnesota and will never be looking at charts on my laptop while flying. Most of you slopers likely spend more in commissions than my net worth so this post may be for those of us who are trying to get to your realm. As such I am a Slo – Ho, or a Slop – Hopper, but I will get there!

In order to manage my own money I read a great deal including Jimmy Rogers, Reminiscences of a Stock Operator, Prechter's Tidal Wave, and even Edwards and Magee's Technical Analysis of Stock Trends to name a few. I have rarely been using charts and it certainly would have been helpful. In 2001-2002 I was convinced Greenspan would destroy the dollar and bail out any and everything he could.

I began to look at alternative investments as I perceived Wall Street to be toxic. I realized that gold and silver had been in a 20 year bear market while paper (stocks and bonds) had the opposite results during this period. I pulled up a chart of silver and Jimmy Rogers quote "I just
wait until there is money lying in the corner, and all I have to do is
go over there and pick it up. I do nothing in the meantime.
"hit me like a 100oz silver bar. It was the first time in my life where I believed I could have little to no downside risk as the zero rate policy was in full force.

Silver had been forgotten and it was laying there waiting to be picked up. We sold our house in Phoenix as I perceived a housing and credit bubble in 2002, and I put all of the money in physical silver and some gold. This 10-15 year base between roughly $4.50 -$5.50 had me believing the upside from such a long base would be spectacular, and my downside nil, except time value of money at less than 1%. It was to me a very bearish expression of my views, and in my mind allowed me to opt out the madness that was going on at the time.

!cid_sc

Soon after my large purchase silver moved up from $4.50 and I kept buying until the $8 area, and gold up to $480 before I decided I had enough and would just sit tight. I began reading Bill Fleckenstein daily and that only added to the confidence of my metal position. The crash in precious metals last winter was rough on me at the time, as I am heavily exposed. Instead of brooding about my metal positions tanking I thought long and hard about my thesis of the Fed printing until they cant, and gold being a very good place to be. I decided it had to be forced liquidation as all of my reasons for owning gold were completely intact. I surmised the best course of action would be to buy more. I bought more physical and some miners.I like the idea of being my own central bank and having individual sovereignty through metal. A sovereign piggy bank to you slopers.

I am trying to emulate the old man in Reminiscences of a Stock Operator who said very little except "you know it's a bull market" when asked his opinion. This dovetails Jesse in my mind when he talks about his sitting that made him the most money, not his thinking. Until I can trade like you Slopers I need to sit on the only bull market I have been fully invested in.

This bull market to me is cash. Gold is the highest form of cash and it fit perfectly in my still ongoing 10 year bearish thesis. Gold pays no dividend so in my mind I need an appreciation commensurate with interest bearing instruments. Roughly I need more than .5%/yr, .9% for 2 year according to yesterdays auction and 3.5% for 10 years. Lets compare this stealth gold bull market that a certified bear has embraced, yet the public seemingly has yet to discover. I was surprised that most slopers seemed to want to short gold, rather than own it. That may prove to be prescient and my posting this view may mark the top.

This looks like a 10 year bull market to me. Major precious metal crash like pullback to retest the 700 area last fall. I am guessing we will challenge the $1000 level soon and possibly a $950 flush. It is not out of the realm of probabilities that we retest $700 area once more, but I am not expecting it.

Gold

Gold vs SPX on a ten year view we can see the stock market rally was largely a falling dollar phenomenon and gold traded up with the market but diverged with the plunge. Gold has made a new high and SPX – Not so Much!

Goldspx 

Gold is technically a commodity but perhaps is starting to be seen as money, which is ultimately what I would expect in this environment. Gold vs CRB index. below.

Goldcrb

Finally a ten year view of the dollar with price performance of Silver,Gold, and a miner of each, as well as our beloved GS. I was surprised to see GS with all the intellectual firepower and unlimited access to funding has underperformed. Is this a bullish picture?

Perf 

I believe that everyone needs to think hard about the dollar and what that ten year chart is telling us. We know that the economic activity since March is all government induced. It is failing now and I believe they will stimulate much more. Last night it appears that the home buyer tax credit will be extended and moved up the income strata as that is where the new supply lurks. More job losses this week including the airlines which are a very good indicator of the economy along with the shipping stocks.

I read a great deal, and you may find this gal useful for macro data. Plus I think this Fleck article is mandatory.

I currently own puts on many stocks and indices and I feel that this will help mitigate any damage my large gold position may incur. I do not believe gold will go down without the stock market going with it. I believe that gold may go up even if the stock market tanks. Others before me have done a much better job on gold than I have done, but I hope it makes you think and you find something useful in the post. Good Luck to us all! 

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