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.

A Good Labor Day Read

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As I've mentioned in the past, most folks tend to move from liberal to conservative as they get older. Contrarian that I am, I'm doing this all backwards, because I would make the most avid libertarian embarrassed with my reactionary politics from my teenage years, whereas the bailout from the financial crisis has caused the inner lefty within me to start creeping out.

Anyway, I read this terrific piece yesterday, and I urge you to do the same. Here's a tidbit:

Instead, we are talking about people who are already fantastically rich.  And who, despite this, are absolutely hell-bent on getting richer, even if that means depriving hundreds of millions of people in the American middle class of their middle classness, and in many cases, ultimately of their lives.  How do we explain people like this?  Are they not essentially sociopathic?  Are they not made of essentially the same stuff as those who can kill without guilt or remorse?  Especially when you consider that even the greediest among us reach a limit beyond which one can effectively make use of the next dollar and the one beyond that, so that pushing others into poverty is no longer even for purposes of your own benefit, but instead for some kind of sick sport?  Aren't these the characters whose essential sickness preachers and philosophers and shrinks have been trying to sort out for millennia? 

The Goodwin Omen (by Nathaniel Goodwin)

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I have seen many great posts on indicators and techniques recently, so I thought I would share one of my own. I call it the “Goodwin Omen”, and it was triggered about two weeks ago.
 
The Goodwin Omen has been triggered before every powerful rally for the past 4 1/2 years. A specific criteria or set of events need to take place within a one month time frame for the Goodwin Omen to be triggered. When it is triggered, it is time for the bears to go back into hibernation or have their faces ripped off.

The first criteria for the Goodwin Omen to come to fruition is for the daily 10 and 20 day moving averages to be headed south.

The second criteria/event of the Goodwin Omen involves my cat, Joe Bangles. Joe Bangles needs to suffer from diarrhea for 3 days out of 5 with at least one day of normal solid scat in between bouts of diarrhea. This omen signal was validated Aug 19-23.

The third criteria involves my grandmother falling off the wagon and verbally abusing the television while watching The Young and the Restless. I’ve found it critical that she is arguing with the cast of Young and the Restless, any other show seems to weaken the omen. This omen signal was validated by my Mother Aug 11th.

The final criteria/event involves a nasty acne or contact dermatitis breakout which was validated Aug 27th, and is still haunting me as I type this. (Shoutout to Justin Bieber and his Proactive commercial, it's working better than Tim Knight's shipment of Oxy10)

If the Zweig Breadth Thrust is also triggered this Tuesday or Wednesday by rising from 40 to 61.5 within a 10 day period (which many will consider very bullish for the next year and a half), I will celebrate another successful Goodwin Omen prophecy to have taken place. If we instead drop like a stone; that’s okay also since the market has already successfully accomplished the 3.45% gain which is required to validate the Goodwin Omen. Best of luck to all of you.


ZweigBreadth

Market Jazz (by Market Sniper)

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This Labor Day weekend we have been treated to some very remarkable posts. Our illustrious host, Tim Knight, kicked it off with an after the Friday Bar post. In that post was a heart felt appeal to the Slope for some help. Tim, you;re a remarkable man. Such public openness and baring of the soul is extremely rare in a public trader. It rivals Don Miller http://donmillereducation.com/journal/  in this aspect. The community response was also telling. It is a very remarkable community that has coalesced here on The Slope. Following that, we were treated to a very insightful post by our Slope den mother and resident muse, Leisa. Market Shamans taking us to the primeval roots/aspects of trading..remarkable.

As traders, we are faced with an absolute fact. NOBODY knows what happens next. How then are we to deal with an unknown and unknowable future? How do we keep our sanity, retain our trading capital and add to that capital? We learn to think in probabilities. The market is constantly speaking to us, giving us information. In fact it often sings. The market's notes are prices. If we are tone deaf, the market will find us out and trading equity will suffer, eventually, driving us from market participation.

To me, most often, the music of the market is American jazz. It is both spontaneous and extemporaneous but within a certain form. The jazz musician plays a note or a short series of notes. From that, various combinations of those notes create a theme or "riff." From that riff comes additional new combinations with a final addition of a note or more at the end of the previous and a new riff develops. There other types of music, however! What happens when the type music changes? There we are, right in the middle of a superb composition by the great John Coltrane http://www.youtube.com/watch?v=S1GrP6thz-k and in the middle of a riff, we hear the beginning of a Brahms lullaby! We are not only disconcerted, we are confused which, if we are trading the music, we might even freeze with a loss of trading capital if we have not accounted for that probability which just happened!

In listening to the music the market is playing through price, we are fortunate that the notes the market is playing, price, has a memory. This is why we look at charts. The trader must know what kind of market he is in. It is either trending (up or down) or going sideways in a channel. When in a trend, it plays like jazz. When it hits support/resistance it continues to play jazz or we begin to hear the Brahms lullaby start as price channels sideways. Probabilities are in play at resistance/support. Does the market start a new riff and retrace or does the riff continue? These areas I have found to be very good places to do business. Regardless of your outlook, your in a price area that allows cheap stops. Relative minor price change will tell you whether correct or incorrect in following the riff. Gains, potentially great, if correct in your assessment. Listen to the notes. They will tell you very quickly to either exit the position with a relatively small loss or steadily garner gains as the notes you hear are the ones you thought you might hear. Always stay aware of probabilities as price unfolds.

In conclusion I would make the following observations. I am absolutely convinced that 98% of trading success is done by the creation of The Holy Grail between your own two ears. All the indicators, TA, sentiment, astrophysics, numerology, etc. is merely 2% of what makes a trader a success at this business. The construction of that Holy Grail is self mastery and discipline. The Holy Grail does not exist extraneous to self. If you undertake to search for The Holy Grail outside of yourself (99.98% of all traders attempt the search) you will be frustrated, disappointed, lose money and eventual fail. No trader has looked around and found it because, outside of yourself, it does not exist. That 98% is the hard work. Do your work there and you will find the trading business to be almost stress free and simple. The other 2% can be taught to and learned by any reasonably intelligent 12 year old. I find it telling that almost all traders spend 98% of their time on the 2% that can be learned competently and quickly and only 2% of their time and effort is devoted to what creates successful traders (defined as an individual that can extract constant profits from markets at will). Could it be that this is the root cause of the failure of 95% of the people who attempt to succeed at this business?

Yours in the eternal quest for the elusive trading edge, Market Sniper

 

 

 

Postcards from the Edge: Market Shamanism (by Leisa)

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(Editor's Note: I just want to thank everyone for all the emails the hundreds of comments from my last post; I have some serious reading and studying to do this long weekend! – Tim)

Shaman
This post is a re-tread from my blog. I posted this originally in April, 2008. This represents a generic piece that I wrote to ground my thinking. With some much editing, I thought that it might be a nice piece to share particularly in light of Tim's recent post, though I've been trying to re-edit this thing for a while. I apologize for the length. The genesis of this post was from a reader's comment about what to follow to divine stock market movement–on what basis are we to judge the direction of the market?

As market participants and technicians, we are shaman-like in our quest for determining stock market direction. Our technician's tools are our talismans: we shake, rattle and roll the various chicken bones we lovingly call our indicators; we raise our moistened finger to see which way the wind blows; and we gaze wistfully to the horizon to see whether the clouds are fair or foul. To supplement our efforts, we look thoughtfully upon the past and what the ancients said and thought. Market Shamans… a strange, but apt, metaphor I think for our attempts at market divination.

Carlos Castaneda went on a peyote-inspired walk through the desert with his eyes crossed to find "truth" somewhere in the field of his overlapping vision. Technicians employ a number of means to do the same. The complexity of the layering of divination tools (a/k/a indicators) combined with sentiment, insider buying/selling, cycles, eclipses, and Mercury retrogrades! has the capacity to produce conflicting signals leaving one standing in the desert of indecision with one's eyes permanently crossed (just as our mothers warned). Perhaps there is a chicken bone or two poking a hole in one's pocket or in a tender area (or two!). I'm not arguing against these technical talismans, but rather cautioning that at some point one saturates oneself with so much information that it is an overload and may not produce clear signals for action. Esoterica, while pleasingly seductive, can occlude our vision.

Nevertheless, that desert is one that every technician/trader must wander. And while 40 days is significant in religious texts, aspiring market technicians will need more than 40 days of quality desert time to cultivate their skills and develop their insights. Insight. Think about that word for a moment (courtesy of Dictionary.com), and I'll get back to it upon the close.

  Insight

There are many systems, simple and complex, that a technician can avail her/himself to.  Oftentimes, there is a sense that the more complex and esoteric a system is, the more accurate it must be.  We expect our prophets of market direction to have access to a powerful knowledge that is not in the hands of us mere mortals.   The only esoterica worth understanding is that markets follow not so much reality but the perceptions of reality by market participants evidenced by the each day's volume and price prints. We know that there is a large disconnect between the two. If our technical tools are applied to fickle perceptions, how can we expect, much less demand, precision–both of which are voiced frequently?  Our modern tools developed for MEASURING historical market data, do not have any power for FORECASTING market direction.  It is for us to have an understanding of what the probabilities are of one direction over another.  And while there may be a 75% probability of x happening over y, there is a 100% probability that only one of them will happen.

I believe that money, like water, seeks its own level though there may be wide swaths of disparity for uncertain durations.  I believe that the following things matter a great deal:  macro economics, an understanding of intrinsic and extrinsic value in stocks, business/debt cycles, and market participant psychology as well as our own psychology. The market, as with ourselves, is trying to divine the future. It uses its own talismans, technical, fundamental, sentiment all cobbled together to form some sort of roadmap. It does not have all that great a record at forecasting or pricing accurately, but it is constantly seeking price discovery.  It is voracious in gorging on a steady diet of news–some of which gets digested easily, and some of which results in a smelly gastronomical event that defines our significant bear markets.

Our market participants are all manner of smart, experienced and successful folks: inflationistas, deflationistas, bond vigilantes, gold bugs, bulls, bears, value investors and contrarians, each believing that they have some special understanding that others simply don't get.  Realistically, they cannot all be right at the same time. Ultimately as technicians, in the purist sense, we are merely spotting the consequences of their money actions v. their espoused opinion by noting three things on which we can incontrovertibly rely: quantity and allocation over time.

Strong trends get weak and weak trends get strong depending on a number of quantitative and qualitative factors–none of which we have control over. Nevertheless, some still demand that our charts forecast the future.  When the future 'promised' by a chart set up evaporates, there is a broad lament (by those who are caught wrong-footed),  "Technical analysis has failed." It is not that technical analysis, but rather that we have failed in our understanding of its limits. But even though limited, technical analysis has a great power.  I believe that power lies in giving us a means to cultivate our market insight.

Technical analysis is the language (or music if you are more romantically inclined) of the stock market.  Justin Mamis tells us that the market is always talking to us, we merely have to understand what it is saying.  Our technical indicators–our understanding and application of them–help us tune into the market.  For any of you who have built a complex worksheet model, you understand that having to reduce something to complex to a mathematical model requires you to really understand your subject and the underlying interrelationships among the parts.  An artist 'sees' what many of us do not see.  Try to draw (or photograph) your cat or dog.  I guarantee you that you will 'see' your subject differently.  Therefore, our indicators are not predictive tools, but our venue for gaining insight.  It's through the application of our tools that we 'see' what the market or our stock are doing.  It is through our experience with this careful application, our missteps, mismanagement, and success that we build insight. While the tools (mechanics) are the same for everyone (just as a camera, hammer/chisel, paintbrush are the same for all artists), the results of their application will vary.  In other words, it is what WE bring to those tools that determines our level of success.

I used the shaman metaphor because of its ancient tradition of knowledge and insight.  A shaman is very much in tune with the world in which s/he operates and understands well the journey through the desert. That journey confers knowledge and insight (wisdom). There are no shortcuts. Ultimately we need to ensure that our own eyes are not too crossed or our talismans too many and too contradictory that we cannot see the perils in the desert.  And in most traditions, to truly see, one must first look within.

We are generally the impediment to whatever we are trying to accomplish in our lives (work, relationships, school) . Selecting our tools, understanding their use and limitations, practicing Closeup 1our techniques (disciplines) in applying those tools and evaluating our results are the foundation of building success in whatever venue we choose (artists, surgeons, market technicians, welders, brick masons).  We must remain open to possibilities that others cannot see. We must understand that our tools are what give us access to discovery.  Through discovery we build insight.  Through insight, we build mastery.  

 

The One Number I Want

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I have been thinking a lot this week about what I can do to help preserve profits/prevent losses better, and I now have my wish list: it’s one item long.

What I want may seem naive, although I hope not. But all I’m after is a number, ranging from -1 to +1, indicating the target amount of bearishness/bullishness for my portfolio.

For example, if such a number was 0.5, it would mean that I should have 1 bearish position for 3 bullish ones (assuming they are all equal). A number of 0 would mean 1 for 1. A figure of -1 would mean totally bearish. And so forth.

I already have the resulting number in my spreadsheet, which is based on all my positions, but what I need is something to drive that number. That is – – a target. Because bullish and bearish charts I have no trouble finding. It’s targeting the right “mix” day to day where I am having issues.

Now, I’m not that knowledgeable when it comes to indicators, but I went through every single indicator in ProphetCharts today, using the S&P 500 index as my price data, and I didn’t come up with any answers. There were some oscillators that were somewhat intriguing, like the Slow Stochastic, but there were two big problems I had with even the best of them:

(1) They were all lagging – – sometimes severely – – which pretty much neuters their usefulness.

(2) Even if they didn’t lag, it seems to me these are only useful during the range–bound market like we’ve had the past year. Using them, for example, during the meltdown of late 2008 would have been a total disaster, because most of them kept signaling the market had bottomed way, way too soon.

There may be no answer to this, given the complexities of the market, but there are a lot of smart people here, and I plan to leave this post up a good 18 hours or so to see what kind of comments it gets. Please “Like” any suggestions that you, umm, like, so they can bubble to the top.

Oh, and please, I’m after something not very complicated. Whenever I throw a question about indicators like this out there, it seems the answer is really, really complex. I’m a simple soul, and like I say, I’m just after one simple number. I would pay tens of thousands of dollars per year to the provider of such a number, if I knew it was reliable.