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.
My mind has been hung up on February 5th for a long time now, since that was the high-water mark of my portfolio. Since then, I've been just having a terrible time, and I keep visiting and re-visiting what I could have done better. (Hindsight tends to cause this kind of torment, since we don't have the benefit of such wisdom in real time).
This morning, I started going through the posts from that fateful day, and the post that Fujisan wrote on that weekend just about knocked me out of my seat. Keep in mind, this post was from a month ago - – in it, she suggested that we could be in a Gartley Bearish Pattern, and she laid out a possible path for the SPY based on this pattern. Below is the original image from a month ago:
At the time, my reaction to reading her post was disappointment. After all, the party was just getting started! I had covered many shorts, but I was still very short, and the notion of the market lurching higher for another month was disquieting. Upon reflection – particularly given Fujisan's many insightful posts before – I now know that such prognostications should be given great heed.
Let's see what the SPY actually did….
The rightmost arrow is, of course, a projection and not reality – – but it is the natural continuation of the pattern Fujisan laid out. Tomorrow morning's jobs report is clearly going to send the market one way or the other. If it provides a catalyst for a lurch down, that will simply add more credence to Fujisan's remarkable post.
I wanted to update you on the VIX and provide some recent examples of how sub-19 levels on the VIX have created opportunities. Clearly a low VIX indicates that there is complacency or a lack of volatility in the market. The recent move from February 5th till now has essentially lulled the average bull to sleep and why wouldn't it, the market just goes straight up?!
While the declining VIX could continue driving down, it becomes a much better trade set up to begin betting for a reversal in the market as the VIX goes below 20. Winning trading strategies to take advantage of a market fall could include shorting stocks and ETFs coming up against overhead resistance. Another very simple approach would be to buy the VXX which is a bet that the VIX will actually go higher.
Please click on the chart for clearer detail. I've tried to label areas on the at specific areas where the VIX dropped below 19. I have also labeled the trading level of the SPX with a white horizontal line to provide a reference of the market top for that time period when the VIX was driving to its lows.
The most recent instance on January 19th gave us a VIX reading around 17.20. The SPX did reverse and subsequently provided a drop of almost 100 points (which we've almost made back!).
Personally I will take action when I see an 18.50 intra-day print on the VIX. I have been paring my long positions with the move up and will attempt to reload on the EWZ short trade that I was stopped out of. I also like a purchase of the VXX as an easy way to attempt to catch the increase in "fear".
I've many books in my bookshelf that beg reading, none more compelling than
Brian Greene's, The Fabric of the Cosmos: Space. Time. And the Texture of Reality. Greene is a theoretical theorist–a mind that dwells in the stratosphere of
Greene is that wonderful composite of rocket scientist and gifted writer, making his work accessible to mere mortals. Rather than reading
equations, such as this. . . .
. . . I'm blessedly spared both the headache of trying to hum along with some
lip mumbling–even spurts of drooling –and the shame of having to admit that
I've not understood a thing. Rather, I simply need to read one of his
beautifully crafted books.
Gmak, made a terrific post on TA, and it engendered a very good discussion.
I was particularly happy to see it as I had become cross eyed looking at a
number of charts whose ultimate destination seemed unfathomable (like our
drawing above). "Now what does any of this have to do with trading?" you might ask
impatiently (is that your toe I hear tapping? ). I ran across two passages in this
book that I wanted to share with Slopers. The first, I shared already but will
The second I wanted to commit to a post, because I thought that is was
something worth reading. I quote from page 11.
But according to the quantum laws, even if you make the most perfect
measurements possible of how things are today, the best you can ever hope to do
is predict the probability that things will be one way or
another at some chosen time in the future, or that things were one way or
another at some chosen time in the past. The universe, according to quantum
mechanics, is not etched into the present; the universe,
according to quantum mechanics, participates in a game of chance.
. . . most physicists agree that probability is deeply woven in to the fabric
of quantum reality. Whereas human intuition, and its embodiment in classical
physics, envision a reality in which things are always definitely one way
or another, quantum mechanics describes a reality in which
things sometimes hover in a haze of being partly one way and
partly another. Things become definite only when a suitable observation forces
them to relinquish quantum possibilities and settle on a specific outcome. The
outcome that's realized, though, cannot be predicted–we can predict only the
odds that things will turn out one way or the other. (p.11)
Running across this passage so quick on the heels of our having a
conversation about TA and its 'predictive' abilities, made it resonate deeply. I
could not help but note that trading/TA is not so far from quantum mechanics.
When your capital is on the line, probabilities must be considered
carefully–and none more judiciously than the probability of your being
wrong in a trade. As our trading is fraught with our successfully managing (surviving) uncertainty, I thought the passage timely and insightful.
Our technical analysis, for all of its purported faults, is a construct that gives us understanding and cultivates insight. More importantly, our TA and our trading plan anchors those insights. It is not predictive, but it does reveal to us the promise of certain outcomes. To those promises we must overlay our trading discipline. We are not really trying to managed the outcome of a chart, rather we are managing the outcome of the relationship of our trading capital with the chart. Accordingly, our trading discipline is the construct of that universe of uncertainty. Most importantly, we are the final arbiter of those rules those rules dictate the outcomes. That is great power, is it not?
We really are masters of our own universe.