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.

Fib Fans & Football Fans (By Nathaniel Goodwin)

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Growing up in Pittsburgh is rough if you're not a sports fan. Everyone there must pledge allegiance to the Pittsburgh Steelers or face serious consequences. I'm not much of a sportsman or athlete, but I would always say that they were my favorite team to avoid beatings. I would also always try to keep track of Hines Ward's batting average so I looked like I knew what I was talking about when someone asked me about football; because if you were not a Steelers fan and didn't know that stuff, you would be run out of town or possibly worse.

Besides selling your soul to the Steelers, you are also trained to hate the towns of Dallas, Cleveland, Baltimore and Boston. For those are the towns/teams that create havoc during the season, and the hatred is mutual. If you show any type of support towards these towns during the playoffs; becoming the recipient of a "Cleveland Steamer" by a gang of masked drunks in the woods is not unheard of.

I'm glad I'm in NYC right now and none of my Pittsburgh friends knew I went long BSX last week. In their eyes, going long BSX would have justified a minor ass beating.

I've been watching the BSX chart for a while, it is really respecting the fib fans. I bought it when it hit that red fib fan last week, and sold it at $7.17. I would love to see it drop from here and go long again if it hit around the $6.00 price.

BSX 

Fear is Being Rewarded

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There is one and only one reason that I, who entered this morning loaded with shorts, am still showing a profit this morning: fear. And that's a sad situation.

One would have thought with a new trillion-dollar boondoggle passed (think of it as another – but very large – nail being banged into the country's coffin) that the market would be falling. Well it did……..briefly……..during nighttime trading. But the moment the market opened, it's been shooting straight up. As I'm typing this, the Dow is up, the S&P is up, the NASDAQ is up, banks are up; you get the idea.

My feeling this morning was that I'd better get out of my big short positions, and thank goodness I did. But I don't like that one little bit. Why? I want to be rewarded for discipline and patience – – not fear. I want to be paid for calm reason – – not paranoia. I don't like seeing green on my screen in exchange for selling out to timidity.

To be clear, the vast, vast majority of my positions – on a quantity basis – are in place. I am much more willing to flow in and out of large ETF positions, whereas my little positions simply have their stops updated. But I don't like how the bears remaining on the planet (that would be me, and some guy in East Brunswick named Sully) are being trained to regard fear as a virtue.

Good news & Bad News (by Springheel Jack)

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Well the ES rising channel was broken on Friday, and the chances are that we will see some kind of retracement this week:

100321_ESM0_60min_Channel
USD has bounced on the bottom of the rising channel and looks likely to have started the next wave up:

100321 USD Daily Rising Channel
Other indicators are encouraging too. $BPNYA is at a likely turning point, even if the declining channel now looks more like a broadening descending wedge:

100321 BPNYA Daily BD Wedge

$NYMO looks likely to turn here having reached a good level to turn, with an H&S pattern and negative divergence on RSI and the ultimate oscillator. The larger patterns are hit and miss on $NYMO, but the smaller patterns generally play out for a significant interim top.

100321 NYMO Daily HS and divergence
CPCE has also reached a significant trough level and then turned back up, which it generally does before retracement begins in earnest:

100321 CPCE Daily Trough
The real question is how significant an interim top this is likely to be though, and for that I would turn to the GS chart, which I think might well be a good proxy for the broader market.

The GS monthly chart has some encouraging features to it, and GS has been closing on a monthly basis within this long term declining channel since the peak in 2007. It is trading above it for the moment but as long as it closes within the channel by the end of the month that channel is holding. If that channel holds this would be a natural point for the rally to end, and a break on a monthly closing basis of the rising trendline just below might give us the signal that the rally was over. :

100321 GS Monthly Channel and Trendline
Unfortunately though, there is much more to the GS chart than the declining channel. On the weekly chart I have marked up the huge potential IHS on the chart together with the second IHS building in what would be the RS for the larger pattern.

100321 GS Weekly Channels and IHS Patterns
Now the good news is that this also backs up the thesis that there is a
short-term retracement that has just started. If the smaller IHS
continues to build then GS should pull back to the main support
trendline just over $160, which makes it a good short in the short term.

The bad news is that unless GS breaks that rising trendline, that is one very bullish chart. The smaller IHS indicates to $210, which would confirm the larger IHS indicating to $335. If GS were to get to the smaller target, that would be fairly bullish for the general market over the next two or three months. If the larger pattern were to play out, and we have seen a lot of huge IHS patterns play out over the last year, then it is difficult to see that not being enormously bullish indeed for the equities market generally.

It could well happen. We are already in a valuations bubble inflated by huge government borrowing and stimulus. Bubbles can inflate for quite a while and I can't see much sign at the moment that the supply of either mindless optimism or government credit is becoming too strained to continue.

I'll be taking a spec long on GS at $162,50 with a stop just below the year's low, because that is where the IHS would be invalidated.

Hope for the best, but plan for the worst!

Weekly Sector Report: 03/19/10 (by Leisa)

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The total stock market index went up .65%. Below are the sectors, sorted based on their weekly change.

I've prepared a full report of all of the DJ US Sectors that you can find here.  Of the 164 sectors

  • 73.8% were positive v. 76.2% last week
  • Average increase was .6% v. 1.10% last week.

I wanted to append to this post a small blurb about why it is even important to look at sectors. I've limited my posting to just delivering the facts.  However, today I wanted to give a little more of the "why" to the "what".

Many people only trade one index or another.  If the S&P is your weapon of choice, then it is important for you to understand its composition. In fact, that understanding should also extend to any ETF as there are a handful of stocks that make up a large part of the weighting. Standard and Poor's has a very good website.  You can find the daily composition of the S&P 500 here.  Their website used to allow you to pick any single day in history and get the composition.  Unfortunately they ceased providing that. 

Nevertheless, I had some old data that I captured.  I want to share with you a "Then v. Now" look.  Below is a table of the S&P as of October 2008 by the market capitalization of its sectors.  I've included a comparison as of EOD 03/19/10. 

You can see clearly that the change in composition among sectors is material.  Money flows in/out of stocks, stocks exist in sector, and the broader indexes are a composite of that underlying movement. The dynamic does not exist in the reverse.  Accordingly, dull index action may belie exciting dynamics of underlying sector rotation. 

While the above breakdown is for the S&P 500 to be illustrative of the material movements underneath the index, the sector information that I provide is for ALL US Stocks using the Dow Jones classification methodology/system (there are different classification systems). Different indices will select these based on market capitalization.

If these sector looks have created an interest on your part, I want to provide you with some resources:

  • WSJ Industry Group Tracker: This source lists the daily performance in addition to other periodicities (e. g. weekly, 1 month, etc).  I'm unsure if this is available to non-subscribers.
  • FINVIZ:  This site (FREE!!!)  provides one of the best way to quickly see charts and other information on stocks in sectors. Unfortunately they do not have broad sector roll ups. You can use their tickers to easily upload sector charts into your software of choice for chart reviews.  The information can also be downloaded into a spreadsheet.
  • Yahoo Finance:  Yahoo has broad sector roll ups, but some of the market capitalizations are incorrect (e.g. the foreign money center banks). 

Your eyes might be crossed at this point, and you may well be wondering why any of this is important. It may not be important to you.  But I believe that the sectors offer a dimension of information that informs whatever work you do on the S&P.  And where opportunities are flat on the index because of underlying sector rotation, opportunities abound (long and short) among the sectors. 

The presentation of my work here is to give you a divining rod for finding the flow of money beneath the surface.  I tend to analyze from the top (broad sector) down (sub-sector, then individual charts).  That is my style.  It may not be yours. There are many ways to skin this cat, and however you do it you need a sharp knife and skill in which to wield it.

Tea Leafs

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This is what the tea leafs are whispering this weekend:

2010-03-21_NYMO 

Distinct divergence in the medium term NYMO (McClellan oscillator). Word has it those divergence are less reliable in an uptrend. My orange marker begs to differ.

2010-03-21_CPCE
 

This is a chart I used to peddle every once in a while on a blog that is now long forgotten. Doesn't mean that it has no predictive value. What I find interesting (in a purely academic way) is how stubborn the MA stayed glued to the top of this down channel in the first half of the recent ramp up. Seems to me retail traders were a bit skittish at first but are now chasing the tape that 'must invariably make a b-line to SPX 1,200'. Or maybe not – I just work here 😉

I know – I know – being bearish these days is as popular as passing a fart in a stuck elevator. I suggest you hold your nose and do what the charts are telling you – I for one expect a correction is in order. Either that or TA is dead and in that case I might as well start shining shoes at LAX whilst giving out stock tips to hapless strangers.

UPDATE: Someone asked me about my BAA-TYX chart and I don't see anything salient on that one yet. However, hat tip to ultrabear for sharing the following chart with me a few days ago:

2010-03-21_jnk_tlt

Notice the bullish divergence that played out in March of 2009 – we are now seeing a bearish divergence and in the context of the two charts above caution should be heeded if you're heavily exposed to the long side. Of course all these charts are medium to long term – so we might see a bit more upside before this thing breaks – but break it will. 

Enjoy your Sunday – next week should be fun 🙂

Mole