Slope of Hope Blog Posts

This is the heart and soul of the web site. Here we have literally tens of thousands of posts dating back over a decade. These are listed in reverse chronological order. You can also click on any category icon to see posts tagged with that particular category.

The Final Throes of (…no, no, not wave 2….) the Comment System

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Good evening, hard-core Slopers and Slopettes!

The official Tim Knight comment system is nearing its birth, but we need your help as midwives. There have been a number of improvements, including:

+ Elimination of some nasty-ass bugs;

+ Ability to crop your profile picture;

+ Most important, the ability to choose from three styles of updating:

Show in Place – which is the smart kind that keeps that hierarchy intact and apparently drives people crazy

Show Separately – which blithely tacks on new comments to the end

Disabled – which doesn't update automatically at all

There will, in the weeks and months to come, be many improvements to the system, so don't ask for heaven and earth right now. Just help me make sure it doesn't erase your hard drive or anything. Go to the test page here, and leave remarks/bug reports in the comments section of that page.

Thanks every so!

The Death Cross: Is It Credible? (By Ryan Mallory)

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Much has been made of the recent 50-day moving average that crossed
below the 200-day moving average on the S&P. Among individual
stocks, when the 50/200 cross occurs to the downside, many traders take
it as a sign to get out of the stock immediately, or to start a new
short position. With that being said, and the failed attempt, to-date by
the bears to drive this market lower in the wake of a the 50/200 death
cross, I asked myself, is this even a legitimate phenomenon that we
should be paying attention to? Is there a legitimate play that we can
take advantage of when this death cross comes about? So I decided to run
some tests on my own and here is what I found. 

For my testing I looked at all the stocks in the S&P 500 over the
past five years – let me just say that if there hasn't been a
correlation in the past five years, is it really worth trading? So let's
begin.

Here are the results for when any stock in the S&P 500
experienced the death cross and the subsequent results over the next
month brought as a result (had you shorted the stock when the death
cross occurred). As you can see not all that exciting at all.

So maybe there is the slightest edge there, but not enough, in my
opinion, to warrant any statistical significance. By the time you are
done with commissions and SEC fees and such, there's probably nothing
but a nasty loss staring you in the face.

But perhaps I wasn't giving the death cross enough of an opportunity
to do something with these stocks, and maybe I should expand my time
horizon to 3 months instead – so that is what I did, and here are the
results had I shorted the stocks during the 3 month time period.

Once again not all that impressive. In fact, the results are pretty
much the same, except there are a few open positions still out there,
that haven't been accounted for since they are still in the 3-month
window, which is the reason for the difference in total trades (but none
of those trades would alter the findings).

So Then I took the inverse of the trades, and looked at what it was
when you BOUGHT the stock on the 50/200 death cross and SURPRISE! The
results were the inverse of shorting the stock, but clearly
unprofitable, just like short trade was. But what obviously stuck out to
me is the fact that 54% of the trades were correct. Same goes goes for
the 3-month Buy Signal. 

Hold for 3 Months

And this time you have an even better winning percentage (55%) and a
slightly better gain/loss ratio. Which made me ask myself, "What if I
put a little risk management in the equation and simply added a trailing
stop-loss of 10% – what would my results be?" (assuming I could prevent
some of those big 50% and 60% losers).

And here are the results…

And LOOK AT WHAT YOU HAVE HERE! A profitable trading system (on
paper). The winning percentage falls quite a bit, (from a best case of
55% on a 3 month hold to 44% with a trailing-stop), but for every dollar
lost, you earn $1.90. Not bad at all! – And that is with BUYING any
stock on the S&P 500 that has a 50/200 death cross, but also putting
on a 10% trailing stop-loss on every trade.

Finally, what happens when you SHORT any stock on the S&P 500
when the 50/200 death cross occurs to the downside? Your results are not
much different had you just held it for one month or three months. But
your winning percentage drops dramatically (down to 35%).

So what can we conclude from this? That the death cross that has
become a "Sell-Sign" for many traders is nothing more than statistically
insignificant, if not downright dangerous to trade off of. You will do
yourself a lot of good, if you just ignore the death cross when it
happens in individual stocks, as there is no merit to it at all.

Check Out Ryan's Blog at SharePlanner.com

Bang! Margin Weighted DATR (by Trade Flight Plan)

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A couple months ago, we posted our last analysis of the dollarized
daily average true range (DATR) across the most popular futures
instruments.  With the incredible moves in the markets lately, it's time
for another update.

At the suggestion of another sloper (excellent suggestion by the
way), we revised our analysis to reflect margin weighted
dollarized average true range (mwDATR).

We show the mwDATR as a percentage.  This is the return on investment
percent (ROI) possible in a trading day, based on the dollarized
average daily moves of each futures instrument relative to the initial
margin/performance bond requirements set by the exchanges.  Brokers can
differ in their margin requirements, but we use the exchange margin
requirements for a common baseline.

As an additional nifty feature, we now use Google docs to share this
analysis, so you can further slice and dice to your heart's content. 
Liquid futures instruments favored by retail traders are highlighted in
yellow.

The margin weighted results are interesting, with the most popular
big indexes ranking toward the bottom.  The Euro, oil, gold, and the
Russell are at the top of the list.  For example, oil has been moving an average of more than $2,000 per contract each trading day.

We firmly believe that in putting our capital at risk every day, the
instruments we trade must be worth the effort, must be liquid, and must
respect repeatable trading strategies.  The opportunity exists for
astute traders to make a small fortune each day.  Of course, this
extreme bang for your buck can work both ways.  We cannot stress enough
the discipline, focus, and diligent trading rules required to trade
these instruments.

Click on the image to access the Google docs electronic spreadsheet.

Originally published on Tradeflight.com

Gold – The Battle is Already Won

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Warning Slopers… GOLD BUG ALERT!!  😉

This morning's email from gold general Jim Sinclair – under siege yet
again from the troops in the "community" – prompts this morning's post.

Mr. Sinclair often writes with a war mentality pitting the gold
community against the evil bullion banks – and a good chunk of the rest
of the financial world.  Don't get me wrong, I think there is plenty of
evil out there (it seems that on Mondays following a meeting or
conspiracy of the assembled dignitaries in the G20 my investment
accounts take the hit) but apparently a good chunk of the "community"
gets its panties all in a bunch every time gold takes the hard hit.

 That is because nearly 10 years into the secular bull market in the
rebellion against dishonest monetary systems a casino mentality – so
well formed through the previous 20 year secular bull market in paper
assets (stock certificates, bonds, derivatives, etc.) – remains intact. 
This includes a great number of self-described gold bugs in my
opinion.  In other words, the "community" does not tend to believe its
own bullshit on balance.  If they did, they would see opportunity or at
least sit tight during these phases that have been all too common all
the way up since 2001.

There is an opportunity to own value shaping up and I suspect the usual
casino players will fail to capitalize while the minority capitalize
once again.  Missed the last buying opportunity this space identified in euros?  Well, another opportunity is on the way
Who will capitalize and who will be immobilized by fear?  Gold in USD
is also presenting an opportunity.  In fact, name me a major developed
society that is not tramping out its currency for the purpose of
manufacturing politically expedient economic growth and I will show you a
society of relative value from an investment standpoint.  There are
those in ascension and it is no coincidence that those are targets for
my investment dollars in the big picture.

For now, gold is a monetary value anchor and in a world of eroding
confidence in politicians and policy makers who use official paper and
digital money, gold represents value; nothing more, nothing less. 
Still, it is always great to exchange confidence paper for value when
value goes on sale.  You do not buy gold when everybody loves
it.  You understand who you are and if you perceive that your personal
situation is in need of this value anchor you buy gold when the public
hates it, when the speculators (ultimate casino patrons) are dumping and
you-know-who is buying or buying to cover.

The battle was won in 2008 when an uber-opportunity presented, most
failed to capitalize (thank you deflation proponents) and then snapped
back faster and better than most other assets and asset classes.  Is a
drop to 950 (on radar for many months in NFTRH) out of the question? 
No, nor is the long term battle line at around 870 for that matter.  Do
you think anyone who has understood what is and is not monetary value
since 2001 is pained by these numbers?  They are just numbers and they
are 150-200% above cost basis in many cases.  And by no means are these
downside targets shoe-ins in my opinion.

So whatever you do, sit tight and realize that what is happening now is
all part of the game and for some it is a time of opportunity as value
goes on sale.  It is really no more complicated than that.

Gold

The Value of Thin Bets

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Each morning, before the market opens, I fire up my trading platform to see what's happening. Invariably, I'll see some positions with gigantic "losses", because the bid/ask data is just plain silly (e.g. for a $15 stock, it might show a $10 bid and a $20 ask, until such time as the market is actually open). So most of these are false scares.

One of them this morning – APL – was not. This was a short of mine, and it was getting bought for a 35% premium. Not a great way to start the day!

However, this position represented 0.34% of my portfolio, so it was hardly devastating news. Was it good news? Of course not. Would it wreck my portfolio? No. I spread my positions thin. Of course, if the stock dropped 35%, it would also mean that my short wouldn't make a meaningful positive difference either, but everything is a two-edged sword, isn't it?

0728-apl

Mexican Disappointments (by Nathaniel Goodwin)

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I’m back from my journey to Mexico and successfully brought Ted’s new car back safely. I’ve never been arrested in my life here in the USA, but down there they seem to have a much stricter penal code. My ignorance of Mexican laws did get me in a bit of trouble, and I was arrested over 14 times. A couple of my crimes included walking down the wrong way of a one way street, speaking English outside of a church during mass, wearing shorts on a Tuesday and riding a bike without knee and elbow pads.

The funny thing was that each time I was arrested by the policiales, my fine was the exact amount I had in my wallet at the time. One other odd thing in Mexico is that the used car salesmen carry AK-47’s.

A real bummer for me was coming home and watching “Master Chef” on Fox. I have been pitching the most awesome reality cooking show ever created to all of the major networks, and I see that Fox has picked it up…. Unfortunately, they took my idea and I don’t seem to be included in the production. They did get Gordon Ramsey though which is pretty cool though.

Well I’m glad I shorted Fox broadcasting via NWS on Tuesday, which makes me feel a little better. I hope it crashes and burns; however, some of my breadth indicators are still looking bullish and the show is awesome which could propel NWS to new highs. Still good risk reward in my eyes though.

NWS