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.

Dummies Guide to the OPEX Play (by JesterX)

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Hi Jesterx Here, there is a lot of talk on the blogosphere about the opex week that is here. Many
people are scared and dont know what to do so I thought I would shed some light
as to how I normally play this.

I am very cautious of expiration strategies: options and futures have an
expiration date, and I've noticed that the market will often have a severe
drop into the Thursday or Friday the week before expiration, only to then turn
up and rally into the following week's option expiration.

If I see this
pattern set up, I'm leery of getting caught on the short side because I've
seen this pattern before. Many times during option expiration, buy and sell
programs will hit and shake you out of your position and fool you into
leaning the wrong way. I see it time and time again.

Something else that I've observed is that program traders oftentimes will
close the market very strongly in the last half hour, and I've noticed they
go the opposite way the last hour of the following day. I find expiration day
very hard to trade and try to stay out because there are many fake-out moves
due to the unwinding of options positions.

I THINK I CAN…. I THINK I CAN…..

 

In a volative situation like opex, sometimes the market creates nontrending
days where the market is trading back and forth in a range, I found out a long
time ago that the big boys in the futures pits will make money trying to take
out the stops, which no doubt sit right near the highs and the lows of the day.

 

In a non trending day, since these guys know where the stops are, they will
try their guts out and try and blow out all the stops and it usually works. But
BEWARE! No sooner will they do that then you will see that it was just a fake
out and the price action will swing the other way again. I see this time and
time again.


They dont want you to know this, but its how the game is played. The
way to counteract this is to put bids in below the low and offers above the
highs to participate with the big boys. Hey If you want to play with the BIG
BOYS, you have to atleast try to trade similar to them right? OK Great!


Here is the most important tip I can give : ALWAYS REMEMBER TO USE STOPS.
Write it out 100 times, 1000 times if you have to. I cant STRESS this enough. I
have seen too many traders with VERY large accounts blow them up because they
think they are invincible and simply dont use them. No matter how many wins in a
row you have or how long you have been trading, you will never beat the market.
So Don't fall into this trap, or the market will teach you an expensive lesson
you won't forget in a hurry. 

STOP LOSSES are a must, and will save you if you
are wrong, you are stopped out, then you live to fight another day.

No matter what you hear on the news, or that idiot on the subway with the
next hot stock tip, Repeat this over and over when you get up in the morning, as
I do. "The Market Is Never Wrong, And my charts never lie" Because that is the
truth, whether you like it or not. The charts are your crystal ball to show you the way and to indicate what could be coming.

 

Here is one of my favorite quotes from Louis Binstock β€œVery often
we are our own worst enemy as we foolishly build stumbling blocks on the path
that leads to success and happiness"

The Trend is Your Friend ….. Until it Isn’t (by Lashio)

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(In case anyone ever thinks the only posts on Slope are fawning ones, here is proof of quite the opposite – – Tim)

I did very well in the resource run-up of early 2000s and over time became fully invested in mostly jr. resource and emerging market/international plays. This ultimately proved disastrous when the meltdown commenced in 2007 or so. 

Having been through downdrafts before the best strategy had always proved itself to be just wait it out and come out stronger given the strong underlying fundamentals. That is the way I decided to play it and as a result watched many of my faves — which had risen 10x or more — tumble over time and in at least in one case the residual remainder of the position went back below original purchase. 

Figuring I needed to do something to prevent more profit erosion — as for some reason could not seem to hold shorts for longer than two minutes — I decided to broaden my horizons and sought out new views such as SOH here.  While I was largely too late to take advantage of that magnificent Bear party, it has made me a better trade and investor and given me a broader perspective than what I had before.

At the same time now that I have again become all wise and knowing πŸ™‚ have to say that continuing to follow this place has cost me money.  I am a big boy and recognize it is how I deal with the info. Also do believe we will have another rip-roaring bear party at some point — but the key point is that time is not today and to keep staring in disbelief and piling on the shorts at the slightest sign of weakness in the hopes of calling the top has at least over the last few months been a very costly strategy. 

One of the smarter investor's I know came out with a statement a few months ago which I found very intriguing and helpful.  Basically he noted people tend to trade and invest the way they wish they had traded, or which brought them success during the last cycle.  

His point was there were an awful lot of people who had been trained to just grin and bear it and hold on to positions given belief "stocks always outperform in long term" who would now cry out "never again" and start throwing things overboard wholesale at the slightest sign of weakness.  In his view that was justification the real correction would not come for some time to come.

That has not been an easy strategy to follow — particularly if one is a regular SOH reader πŸ™‚ but it has at least since March been the correct one. 

What's the point? Basically as the headline says, the Trend if your Friend …. Until it Isn't. While one can and should hedge a bit as Grandma said "a watched pot never boils" and "all good things will come with time" so there is no reason to rush in until the reversal becomes clearer.

Another professional money manager I know who makes many here look like optimists turned positive awhile ago given his belief "the market wants to turn higher" and believes it will not turn back until we start seeing the same blow-off moves to the upside that we saw to the downside last year.  

Incidentally that same person has not really benefited from this call.  He also has become a periodic SOH reader and a few weeks ago after reading a Tim "there is more to the upside post" remarked "That guy is as screwed up as me.  He knows as I do we are going up but can't act on it or at least get out of the way and let this phase pass".

It is really easy to get overwhelmed by volatility in both directions and to extrapolate trends on one or two or three days action and then be tempted to put on and take off positions and always be "doing something" based on what is essentially noise. Guess in a way that is what day- or short-term trading is all about. I am as guilty of that as anyone else and suppose it is a matter of style.  While I do enjoy watching the story when I look at the accounts I trade every day against the ones I rarely look at — not sure which is the correct strategy especially given the time I spend on the active ones — but anyone here probably has to at least question whether they are a bit too close to ground zero at times and take a step away.

Before wrapping up this meandering have to admit to having prepared a similar post when Tim started with these guest posts. This was just as we seemed to be reversing and even the two people noted above had begun to question the sustainability of the move  – and I decided not to go with it as I again began to engage in self-doubt and thought it would appear foolish.  Of course while I understand the futility of too much coulda shoulda — as I was letting myself get stopped out of positions and again focusing on which inverse ETF would serve as the best hedge and profit generator during the tsunami down that was sure to come — and which did in fact turn out to be profitable trades — it turns out I was missing the chance to position for the next rise.

Oh well, at least I was not mega-short.  Nothing stated above is any guarantee that today is the day markets to not become in the words of Mr. TK "finally become rational" (though what rational is god only knows).  Life and the market are not easy.  That is probably the only thing we can say for certain.

Why I Didn’t Buy UNG

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I was looking at UNG yesterday (the natural gas ETF), and it seemed a bit tempting as a long. As we all know, natural gas is never going to go to $0, and other energy/commodity items had been doing well. It would be easy to rationalize such a purchase, since UNG was a relative "bargain."

But then I asked myself: In this environment, where energy has had every benefit imaginable, why would you choose something which has, on the whole, been such a rotten performer? Because I figured, at the first sign of even any weakness, UNG would be the first to tumble. So I didn't do anything. I just left it alone.

Good thing, too. UNG is down nearly 4% today alone, near a lifetime low. And this is in the context of a market in which almost all assets are up huge. Just something to keep in mind when you are looking at a chart that looks "cheap."

You might even want to use ProphetCharts' expansion feature on items that are near their lows to create some white space beneath the chart. Because seeing a price near the "bottom" of a chart might create a false sense of security. It's not a floor, my friends. It's simply the minimum of the y-axis range.

0118-UNG

Generous Sachs

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I imagine you've seen Goldman Sachs congratulating itself very loudly on its Half-Billion dollar "gift" to small businesses. Maybe that sounds like a lot. Let's throw some cold water on this cynical announcement:

  1. The money is spread out over a period of five years;
  2. A big chunk of it comes from a 'foundation' already in-place, so it's not all new money
  3. It represents, on an annualized basis, one typical day of their trading profits (and I think we can all agree that these profits seem to be, shall we say, virtually guaranteed; as with Madoff, the performance reported is statistically impossible, but they're running the show).
  4. An unstated portion of this "gift" is in the form of loans. Loans that have to be paid back.
  5. In relative terms, the gift (shown relative to just the bonus pool, below, and represented by that razor-thin blue slice) is similar to you or I giving a few dollars to a homeless person (actually, our act would be more generous, since we wouldn't demand the money back later).

1118-pie 

Unless you are utterly naive, you know that the culture of GS isn't exactly known for its generosity. This is just a ploy to try to scrub away some of their sin. It will be interesting to see if the public is blinkered enough to actually accept this devilish ruse.

1118-chosen

Longs (by Jeff Paterson)

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Thought I would throw out some charts for your perusal on the long side. I like to buy leaders in the market and think these can be bought at decent support levels. I will refrain from any analysis and keep it simple. One I did not show was CL and I must thank TK for pointing that one out, so I thought I would reciprocate and post some charts that may be appealing to others looking for ideas.

First is a weekly chart of LFC.Snapshot-46

KO daily

Snapshot-47

IAG weekly

Snapshot-48

BUCY monthly

Snapshot-49

CRM weekly

Snapshot-50

FLS weekly

Snapshot-51

AMT weekly

Snapshot-52

SYT weekly

Snapshot-53

CREE weekly

Snapshot-54

Cultural Touchpoints Worth Noting

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It's been a pretty good day so far. I got stopped out of my Bank of America short (thanks, Paulson……) but otherwise I've been doing OK (these things are relative, of course; "OK" means a profit, as opposed to getting mauled).

Since this blog is its own day-by-day history of the market as it reveals itself, and since we may look back on these troubled times in the months to come, I like to lay down cultural markers along the way.

First is the following email which I received this morning. This isn't what I would call hate mail at all (I don't bother showing you that; it would depress you too much); it simply indicates an exasperation with anyone who would use methods which, for most of this year, have been worthless. The multitudinous syntactical and grammatical errors make it a tough read, but you'll get the idea:

i gotta say – each to their own but are you really going to keep this pursuit of 'technical analysis' going – it is just the biggest load of shit i have ever seen in my life. i check in on your site to get a guage on sentiment of traders and from that perspective it is fairly useful to get a handle on how the little rats are chasing their tail……particularly this year as you have been trying to short it all year and been a bit wrong. don't get me wrong, i am sure your IQ is higher than mine…but seriously making decisions based on this little line did this and then taht so now it should do this…..you just can't live your life like this. i book i read once called the MONEY gAME, AM SURE YOU HAVE READ IT BUT THE CHAPTER ON TECHNICAL ANALYSIS SUMS IT UP. if the little line reaches this level and then retraces …it will have been a successful test of that level…if it goes through that level it will have been a breach…….gee …what a revelation !!! and what about that old question – put 5 technical traders, elliott wave, fibonnachies in a room with a chart in 5 different cubicles and watch them all come out with ompletely different lines from each other based on what….??? IT'S A RANDOM WALK………………you are wasting your life. kind reagrds Dom. ps: the little line will continue to go higher as the world is seeing the largest restocking of inventories since 1974 and don't fight the fed and margin expansion (due to massive cost out) is providing for continued upward revisions in earnings and hence what looks expensive is actually cheap.

The other is this item from last month's Business Week. I'll submit this to you without comment.

1118-business

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