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.

The Latest Transfer of Cash to the Rich

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In the Sunday New York Times, I read Gretchen Morgenson's article in the business section providing details of Obama's latest farcical "help" to the middle class. Prepare to have your stomach turned.

According to the article, Obama on November 6th signed the Homeownership and Business Assistance Act of 2009 (sounds nice, doesn't it?) It provides for:

  • Extending unemployment benefits yet again by 20 weeks;
  • Providing first-time home buyers a tax credit

So, in each of the above, we have taxpayers handing over dollars to either those not working, or those who are buying a hope and getting a free multi-thousand dollar gift that you and I never enjoyed. (I imagine most everyone here who owns a house actually paid for it and didn't get any special gimmicks and giveaways in doing so).

But much worse is the following: it provides for homebuilders to use losses in 2008 and 2009 to offset profits booked as far back as 2004, creating a $33 billion windfall for these organizations.

The Obama administration piously spoke of how this bill would help "struggling businesses". Here are some examples of these poor, beleaguered organizations:

  • Pulte Homes, which will receive refunds of $450 million, has $1.5 billion of cash in the bank
  • Hovnanian Enterprises is getting back $275 million and has $550,000,000 in the bank
  • Stanford Pacific will get a $80 million check to deposit into its account that already has $523,000,000

How did the companies pull this off? Lobbying, of course. And what a return on their investment!

How much did Pulte's $450,000,000 refund cost? $210,000 in lobbying. That's about $2,100 returned for every $1 invested in lobbying! The entire industry spent $8.2 million lobbying which yielded the $33 billion extraction of cash from the Treasury (that would be you and me) to the homebuilders. So the overall return is even better – over $4,000 in tax refunds for every $1 of lobbying expense.

So as you gaze at your paycheck, with about 50% of the money extracted by various government organizations, at least you know where it's going. It'll make you feel extra warm and fuzzy next April 15.

OPX Survival Guide (by Fujisan)

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OPX (OPtions eXpiration)  is here once again – bulls' dream, bears' nightmare – OPX week typically has an upside bias and I will go through them in details together with the option strategies. 

DIA & INDU

Not much change from last week.  DIA & INDU are taking the exact route as projected and forming a perfect symmetrical pattern both in time and price.  This is almost a textbook like and too good to be true.  I am expecting the market to make an intermediate peak during the OPX week, and possibly make a turn shortly after OPX.

DIA

If INDU busts higher than my target price next week, then the next target would be 10,495 where a = c pattern completes from March low.

INDU 
  
SPY Three Drives Pattern

SPY started to look a lot like M pattern (i.e., double top) than three drives pattern, but we could only confirm this pattern in a retrospect.  a=c target from March for SPY is 116.01.

SPY
 

IWM M&A or H&S??

IWM could be either M~A pattern or H&S pattern.  It's your pick.

IWM

On an hourly chart, I see a possible Gartley pattern formation in IWM.

Gartley

QQQQ and QLD

Here is the Qs Weekly chart.  Qs was able to close above the previous week's high and above 61.8% fib line.  It also closed above the previous swing point of 43.83.  This week's close is bullish and being set up to retest the next swing point of 48.57 (i.e., 78.6% fib).  With GOOG and AMZN breaking out of the consolidation, I could see Qs leading a rally going into the next year.

 Qs_weekly

Here is the QLD daily.  As it closed above the previous high, this is the confirmation of the third wave up and another three drives pattern with a target price of 67.77.

QLD

GOOG

As I have discussed this possibility last week, GOOG started breaking out of the consolidation.  I have an immediate target of 580 (next swing point) and then possibly 607.

GOOG

EUR/USD – Three Drives or H&S?

EUR/USD seems to be forming a H&S.  The recent high did not really test the previous high, and therefore, it's not really a "double top".  I'm waiting for a confirmation at this point.

EUR 

VIX Daily Chart 

VIX 

If this pattern holds, VIX will come to test the recent low, and snap right back after that.  It would be a pretty safe place to load up some speculative VIX long positions when getting close to 20 area. 

VIX_TOS

OPX Historical Data

OPX typically is a bullish week and here are some statistics of OPX week.  Typical consensus of OPX week is the followings:

1. Monday is the most bearish day.
2. Tuesday is the most volatile day.
3. Wednesday is the most bullish day.
4. Monday after OPX is a down day.

Opx_return 
 Source: SeekingAlpha.con

Here is the statistics about day after OPX.

After_OPX
 
 Source: MarketSci Blog.com

After_OPX_down
 
Source: MarketSci Blog.com

If we just limit the statistics to this particular rally (from March low), there were only 2 down OPX weeks (as we all know, that was a part of the world famous H&S failed pattern back in June) out of a total of 8 OPX.  This of course doesn't guarantee anything for this coming OPX, but after all, we are all in the probability business, and we should know our odds going into OPX.  

The average price movement of the week is 46 point, which is pretty huge compared with the regular weeks' price movement.  You will also notice that, when the OPX is an up week, it tends to finish the high of the week.

Also, it's worth mentioning that, when OPX Friday is a down day, there is a high probability that the following Monday will be a down day.

OPX_Stat 

OPX Credit Spread

As the OPX is getting closer, the front month option's time premium is getting smaller, and you will see as little as $0.25~$0.50 time premium in OTM options whereas ITM options still have the intrinsic value.  This will give an option seller (like me) a great opportunity to sell ITM options with very cheap OTM options as a protection – called a "credit spread".

Here is an example of SPY credit spread (put call spread) and this is not quite 1 to 3 risk/reward ratio as of yet, but as the OPX week progresses, you will find a pretty good deal if you know how to pick the direction.  As this is a highly speculative position, please expect to lose the entire premium if the trade goes against you (no stop loss). 

As illustrated above, if you are able to catch the exact bottom and the top of the week, you can enjoy just as much as 4~5% price movement, but that probably won't happen.  However, in this strategy, if you could catch 1% of the move, you could easily double your position.

SPY_TOS
SPY Bear Put Spread

As the holiday season and the year end is approaching, it's hard to imagine why the fund managers would possibly initiate a major sell off at this point, as many bears speculate.  As this is typically a bullish time of the year, I don't expect anything other than a "routine" sell off as seen in the past 8 months.

I'm not planning to get overly aggressive on the short side UNLESS the neckline is being taken out.  In the mean time, here is one of the examples of SPY bear put spread.

SPY_DEC 

I will be a buyer upon the pullback if the neckline holds.  The tech will lead the rally and most likely the rest will follow.

I hope you enjoyed my weekly update.  See you next week, everyone!

The One-Decision Stock

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I was thumbing through a bunch of stocks this weekend (which seems to be a habit), and one of them instantly convinced me that the past thirty years of investment services have been a total waste. All the analysts; all the technicians; all the IPOs; all the investment banks – – totally unnecessary.

Because one stock – and a most unlikely one at that – has been on the most incredible, almost unbroken streak I've ever witnessed. Behold: Colgate-Palmolive (CL):

1115-colgate

Even over just the past 18 years, this sucker is up something like 6,200% (it isn't obvious, but this is a percentage chart, not a price chart). It puts Apple, Baidu, Intuitive Surgical, Google, and anything else you want to name to shame.

There really is something to be said about growth stocks. I stand in awe of this company. Obviously someone at senior management has really got their act together.

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