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.
Why I Think CF Is A Good Short (by Jack Damn)
section of Tim's post CF's
Weakness Is Strong and a further extrapolation of why I think CF Industries (CF) is a good short pick by Tim.
To Tim's post I replied: "Now THAT is a
nice looking short. Putting that on my watch list. Thanks Tim!".
Two replies to my own piqued my interest and prompted me to check my premises.
The first was DMA Trader:
why would you short something in a secular BULL market?
you are playing with fire
put it on your long list… 85 is support (chart here)
So here are the two points they brought up:
1. The broader market is in a strong
up trend. (A rising tide raises all boats.)
2. CF is
approaching a potential support level at 85. (Never short at support.)
greenbuckeye's chart at the link in his quote. 85 is a potential support area and could hang up any short initiated
above it. Give that point to the Bulls
and draw it on your chart as an area to watch if you're considering it a short.
Let's take on the first point.
broader market. In this case, I'm using the SPY as a proxy for the S&P 500
in the top chart and in the pane below the volume, I have a Relative Strength
ratio comparing the performance of CF to the SPX (S&P 500 Index).
As you can clearly see, something is not right with CF.
It has made a major departure from the rest of the market. It's performance
seriously lags the S&P 500's latest move. If you look at the price
performance over the past year, CF has been moving right along with the S&P
500 until March when it's personality charge.
Let's drill down further and compare CF to it's sector,
Basic Materials:
its sector, but again beginning in March, CF dove as the rest of Basic
Materials sector continued higher.
Relative Strength or the practice of comparing a stock
versus its market/sector/industry is extremely important when trying to trade
against the prevailing trend (in this case, shorting into a massive Fed induced
bear market bounce). If you're going to short, pick on the weaklings (i.e.,
laggards) and forget about shorting stuff that looks overbought.
CF fits the criteria of a market weakling and therefore
nullifies the first point in the bullish case. Bear market bounce or secular
bull market, it doesn't matter. CF is weak. Something is up, and I think CF's
poor performance relative to the market is the strong reason to consider it a
short.
When To Short it?
That's up to you and your trading style. My style is to
wait for a pullback, short underneath if it follows through to the downside and
trail it with a volatility stop. If you follow a system like Alexander
Elder's "Impulse" system, then it's a short at Monday's
open.
Good luck and good trading.
Jack Damn
=^.^=
NEW POST AT 2:AM. EDT…CLICK HERE.
VIX OEX Comparison (by Cnairn)
This will be the first in the series of sentiment
studies. Here we are looking at the VIX compared to the OEX. Typically,
you would see it compared to the SPX but I didn't want to delete my
drawings on the SPX chart. The correlation is close enough that this
should not matter. Although the old VIX, which is now the VXO is for the
OEX, I used the VIX.
The VIX itself is not plotted, rather two moving averages, the
10 day and the 20 day are. What we are looking for is general direction
and turns. Also, there is a 14 day RSI plotted for the VIX.
In
the chart comparison, what we find is that the trend of the moving
averages is down. No surprise, the market is up. The blue one is the 20
day MA and is less sensitive to turns. So, we will assume that until it
really turns, the trend is down for the VIX and thus the trend for the
market is still up. The 10 day MA, in red, is obviously more sensitive
to changes. We can get a heads up in potential change in direction here.
Also, with it, we can hedge, lighten up longs or for the gunslingers,
get short on it's upturns.
Let's look at some recent history
with it and then see what it might be telling us now.
On
November 6, 2009, there was an upturn on the 10 day while the 20 day
remained rather flat. This upturn did catch some of the pullback and
might have gotten our hopes up for a more serious decline in the
averages when it crossed above the 20 day. It was not to be. The turn
down should have dashed our hopes and the close back below the 20 day a
few days later confirming that the bears would have to wait to come out
of their caves.
On January 21 things started getting interesting again.
There was not only an upturn in the 10 day but it closed just above the
20 day. The 20 day started rising in concert with the 10 day and the
market went down as we might expect. There was a fly in the ointment
though. When we look at the RSI, we see that there was a bearish
divergence. Sure enough, both MAs were soon to turn down and the market
was off to the races, yet again. In the months since, we have seen the
VIX in decline and the SPX rising. However, at this time we do see that
the 20 day is rounding off and there is a clear bearish convergence on
the RSI.
