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.

Waiting for the Cloud to Break (by Consistently_Incredulous)

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First, thanks to the wonders of having a day-job, I am not
always able to monitor positions (or SoH for that matter); so trading intraday
is generally too risky for me.  I have
therefore focused my technical efforts toward short/intermediate positions with
pre-defined limit orders to execute. 

Secondly, I am a firm believer in the mostly-obvious fact
that no one technical analysis is the “never-fail holy grail” system; each has
their strengths and weaknesses.  When
taken together, a Bollinger bound candle chart with volume, MACD and
stochastics can be quite valuable.

A few years ago, I came across one type of chart that meets
both of my requirements: the Ichimoku Cloud chart (a.k.a. Ichimoku Kinko Hyo).  Based on my initial reading, this chart was
developed by a Japanese journalist to track rice trading (don’t quote me on
this, I read the article a few years and many bottles of vodka ago), showing
equilibrium, support and resistance.  In
the last few years, the Ichimoku Cloud chart has gained some popularity with
Forex, commodity and equity traders.

I will skip
the official “how-to” read an Ichimoku Cloud chart – you can find that
online.  I am not affiliated with any of
the following, but they appear to be decent Ichimoku references:

http://www.investopedia.com/articles/forex/06/ichimoku.asp

http://www.fxwords.com/u/ichimoku-cloud.html

http://www.ichimokutrader.com/  – this site popped-up last summer (so the
data is limited), but it looks like a good app that highlights the key signals

The following is an Ichimoku Cloud chart (with volume) of
the NYSE going back 3 years:

NYSE_051510
 

In the possible event that chart initiated a seizure, please
accept my apologies – I did not want to reproduce any copyrighted material, so
I built my own.  With that said, the kumo
(cloud) is the area between the green and gray areas (i.e. the blue or yellow
areas).  We are in a bullish trend when
the close is above the cloud (in the gray) and bearish below the cloud (in the green).  My personal observations correlate with the
official signals: essentially, I have found the cloud to be similar in some
ways to Moving Average signals (golden/black cross, etc.).

Here is a zoom of 2010 through May 15th:


NYSE_2010
 

As you can see, with last week’s dump and this week’s ramp,
we were back “in the cloud” until Friday’s drop, which as of the close, cracked
below the support at the bottom of the cloud (7124) to close at 7077.  It doesn't guarantee we plummet from here or
anything, but I think it is a good datapoint to support Tim’s recent post.  Looking at the first chart, you can see the
market oscillated through the cloud during 07 & 08, until that summer- when
it authoritatively broke (see Aug-Sept 08 failure at resistance) and all hell busted
loose.

These charts have helped keep me from suffering recency
effects.  In the summer of 09, I did not
respect the resistance the cloud indicated and was very short (damn you SRS).  It was tough telling the kids they needed to
start working in a coalmine after kindergarten. 
About then I also came across a quote I’ve posted a couple of times:

“You don't try.  That's very important: not to try, either for
Cadillacs, creation or immortality.  You
wait, and if nothing happens, you wait some more.  It's like a bug high on the wall.  You wait for it to come to you.  When it gets close enough you reach out, slap
out and kill it.”

         
Charles Bukowski

I hate making the same mistake twice and am now using these
charts as an additional “big picture” of the market environment.  So while I might trade a little from time to
time using other technical analysis indicators, the bulk of my resources are
waiting for the cloud to break: the bug is coming closer (much closer as of Friday), but it isn’t here
yet.

Thanks to Tim for giving me an opportunity to post.

Could It Be This Easy?

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I'll start by saying that guest content has been very sparse lately, so this might be the only post for most of the day. That's fine, because after a week like we've had, you should probably rest up!

There are a couple of bromides that get tossed around in the world of trading that I've never liked. The first is something along the lines of: "The market wants to prove as many people wrong as possible." The second is: "If it's obvious, it's obviously wrong."

The first one is silly because it anthropomorphizes the market into this weird, sadistic beast that gets its jollies out of embarrassing people. That's just plain dumb. The market is made up of people (and, errr, lots of computers) all out to make a buck. Sometimes – – like most of the 1990s – – the market just climbs higher and higher, and the market is certainly not proving most people wrong. On the contrary, it's making most people really happy. I think this notion also sets one up psychologically for an adversarial attitude toward the market, which is often deleterious to one's trading.

The second one is one that bothers me as a technician, because in my lengthy experience as a chartist and a trader, I've often seen "obvious" patterns that did precisely what they were supposed to do. For me, even though on rare occasions I am faced with "losing my religion", I always come around to the same conclusion, which is that technical analysis works. Prayers delayed are not prayers denied, and although sometimes a pattern may fiddle around longer than you'd like, it will ultimately either work out of demonstrate, within a reasonable loss, that your premise is no longer valid.

Over the past several weeks, I made two very specific conjectures as to where the market would go, and both of them have been correct. The first one, back on April 26th, was very detailed and much more speculative, but it painted out, pretty much move for move, what was going to happen.

The second one, made after the "flash crash" on Thursday, May 6th, was much simpler and – there's that word again – obvious. I mean, anyone with even the most elementary experience with charts would recognizing a topping pattern, a retracement, and a subsequent fall. Too good to be true, right? Too easy? Well, that's what has happened so far.

0516-hs
Now I will be the first to say that, at current levels, it's higher-risk to be short than it was a day ago. When one has a horizontal line like the one above, it's the lowest risk/highest opportunity place to be, which is why I loaded up on shorts. I remain loaded up on shorts, even though the /ES could very well decide to push 40 points higher while still remaining under that important line. 40 points would be very painful, but on a chart by chart basis, I am comfortable with my positions. So I stay put.

At the moment, I have a large quantity of mostly small positions. I have 192 shorts, 7 ultrashorts, and 1 long. That long is GLD, and it's a big position. I am ambivalent about this one, to be honest, since gold's behavior (and its public saturation) is getting to be worrisome. However, in the event of an equity panic, experience has shown that gold has represented a flight to quality. In addition, in the face of triple-digit drops in the Dow, precious metals are just about the only things holding up.

I'll close by saying that many individual charts are being as "obvious" as indexes. Take Visa, for instance. The chart below is simply magnificent. V broke a major trendline, and then it gapped down after a nice topping pattern. When it pushed back higher, it closed the gap with one cent (!) to spare, and the very next day, it plunged nearly 10%. That is poetry in motion!

0515-v

My big picture is calling for a fall of nearly 25% from peak levels by the end of July. I'm really going out on a limb by even suggesting this, because a fall of 25% from the peak would obviously be earth-shaking. But the fact is that my big picture is still quite intact, and that's the next stage.

Have a good weekend.