Slope of Hope Blog Posts
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I started today relatively "light" with 90% commitment and 144 shorts. I have added positions and am now 118% committed with 157 shorts, 3 ultra-shorts, and 10 longs. The longs, and their stops, are:
Allow me to calmly and succinctly explain myself.
National governments going ever-deeper into debt to assure their citizens that the economy is going to be fine 'n' dandy isn't a cure.
It is, instead, a confession. A confession that the economies of the world are in bad shape and that politicians require the appearance of action in order to seem involved and concerned.
Printing trillions of yen and trillions of dollars isn't the path to a healthy economy. It isn't natural. It's a fake. And fake really bothers your host.
Even as a child, I intuitively knew that the Soviet Union would eventually fail. And even as a childish adult, I intuitively know the same fate awaits Bernanke. What is needed to return to a healthy economy is ingenuity, industry, and – above else – time. Time to heal.
What's happening now is an abomination, which is why I get repulsed when people embrace it as redemption. This charade isn't going to last.
George Carlin, the patron saint of the Slope of Hope, began one comedy bit by saying, "I like people." The audience burst out laughing, because anyone familiar with George's work knew that he was fairly misanthropic. But he was serious, because his point was that he liked people on a one-on-one basis, and not for particularly long periods of time (90 seconds was just about right for him).
I know how he feels, because my attitude is largely the same. So, likewise, when I say "I like longs", there's no reason to guffaw at this purported permabear, because there are some charts I really like on the long side.
Having gone through my charts early (on Friday evening, as opposed to the weekend), I marked 25 potential longs and 100 prospective new shorts. I wanted to share a handful of them today.
One of them, I've mentioned before, but it's so fantastic it's worth mentioning again. Boring, staid, snoozer Pacific Gas & Electric is just a sensational chart. In addition, I did something I don't think I've ever done in my life…..I found out its dividend, which is about 4%! I don't know why everyone in the country doesn't own this stock. I mean – 4% in this 0% environment is just spectacular, and the chart is one of the prettiest I think I've seen.
Not all the longs are in classic breakout patterns. Some of them are simply so battered that I think they're due for a meaty bounce, and even if they don't bounce, their risk is relatively small (assuming they don't gap down pre-market on some ungodly horrible announcement). Here's a beauty of an example:
Another "bouncer" which looks somewhat healthier is Blackstone, which has a good double bottom. A 10% climb on this in very short order seems reasonable, and perhaps much more.
If I believed the market was by and large healthy and poised for gains, I would be 100% long with stocks like this. God knows my life would be infinitely easier, because trying to make a buck over the past year has been the triple-diamond-black slope of trading history. It's been just miserable. I pray for the day when the market is filled with patterns like those above, because gobbling up great looking charts and profiting from the upside sounds like a slice of heaven to me.
In the meantime, these are nothing more than hedges. They're stunning hedges, nonetheless, and I've got 21 more I like as well.
In my video from just a couple of days ago, I made a couple of points:
+ There were a lot of interesting set-ups, but they were too battered in price to make the risk worthwhile;
+ I had covered a variety of positions at a profit simply because it wouldn't take much buying to wipe out their profits
Well, both of the above points were absolutely right. Take a look, for instance, at DLLR. Today alone, it climbed almost 27% (and it wasn't from a buyout; they simply had good earnings). Looking at the chart now, it is a gorgeous short. But imagine stomaching a rise like today's with a position like that!
I'm getting a leg up on my chart reading, and I've done A, B, C, and D already. From that list, I've got 45 short candidates and 9 long candidates. I suspect this ratio will be roughly the same once I'm done with the whole alphabet. Certainly there are a lot more delicious-looking shorts now than there were yesterday.
But the longer the S&P bangs against 1040 and lifts higher, the harder that support is going to become. That's a two-edged sword, however. At the moment, this level is a bull's best buddy. It is the line that "guarantees" a safe buy point.
But if…….and I emphasize if……..that line is plainly violated, 1040 will be as formidable a resistance level as it is now a support level. If we get into the magenta level, shown below, there's still a chance 1040 could be beaten, just as it was early in July. If we get down into the yellow, the bulls are going to be freaking out, because no one is riding to the rescue. And if we get into that green tint – – as God is my witness – – I am covering all my positions, as this is my long-intended target.
As I've mentioned, there are some calling for a drop between 875 and 900 (including no other than Goldman Sachs). Perhaps. But I've set a very specific goal for myself, and I have no intention of getting greedy.
Anyway, this was a good week until today, and I felt the need for one more post. I'm done now. See you Saturday sometime.
What might Bernanke's speech have said or implied that triggered the market response that we have witnessed so far today? How about: Don't fight the Fed…The economy is anemic, and the outlook might be uncertain-to-poor, but the Fed will pump, buy, and do whatever it takes to turn it around. The Fed will keep short rates at ZERO for a long time, and force companies and investors to take risk….
If anything expressed above proves reasonable and accurate, the risk trade is where investors have to be make any return at all! Cash will continue to be trash and treated as such indefinitely. It is as if Bernanke held up a big sign that says: "Buy stocks, buy gold, buy commodities, buy houses, and, perhaps as a corollary, SELL BONDS — and take the money and put it into riskier markets…
With the foregoing in mind, let's have another look at my updated comparison chart of Bonds and Gold, two markets that could provide the most insightful reaction to the GDP data and to Bernanke's speech, are gold and 10-year bonds. Purely from a price perspective, the bond market is showing signs of exhaustion since its mid-Aug peak, while gold prices appear poised to continue higher towards a retest of the June highs at $1263/65. If my perceptions about the technical set up reflect "reality," then my sense is that Bernanke is "desperate" to create inflation, which argues for higher gold, and lower bond prices ahead.
I don't know exactly "why" bonds are weak and gold is firm, but I do know that the technical set-up coming into today's session suggested that such a scenario was increasingly likely. Right now, bonds appear to be heading for a test of the rising 50 DMA at 124-15, which amounts to another 0.50% on the downside. If the equity indices strengthen into today's close, we could see the bonds at 124-15 before the end of the day.
Originally published on MPTrader.com.