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.

Chart Analysis on SMH (by Mike Paulenoff)

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The Semiconductor HOLDRs (SMH) is acting "very technical" today, as the price structure gapped up, thrusting out of a near-term, base-like pattern. My near-term work argues that the SMH ended a significant correction at the March 16 low of 32.32, and has started a potent recovery rally at the very least and perhaps a new upleg in its larger bull trend from the August 2010 low at 24.14. The price thrust projects a next target of 35.25/75. As long as 33.25 is not violated on any weakness, the pattern looks very compelling near-term.

Originally published on

Three Observations

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I'm not going to pretend to not be disappointed by the strength of the surge since last Wednesday. I expected a bounce, yes, but not to this degree. First, I will point out that the broken wedge is still very much in place, and we haven't violated anything to invalidate the pattern:


Second, the topping pattern for technology is more superb than ever. The bifurcation of the market continues this evening, with RIMM getting crushed and ORCL somewhat higher, so it'll be interesting to see how this all shakes out on Friday.


Third, complacency has come sweeping back into the market with breathtaking speed. A week ago, the world was aghast at the deluge of bad news. Now, only days later, it's as if everything is just peaches 'n' cream, and nothing nasty has happened for years.


Over the past week, I have become increasingly defensive. My portfolio is 60% committed to positions, 21% of which are long and 79% of which are short. At this point, the market's really going to have to turn over soon if this wedge is going to sustain any meaning or purpose.

Charlie Sheen, Gasoline, and Other Things (by Goatmug)

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We've had a few headlines over the last few weeks that have moved markets.  We've seen a tremendous drop in assets after the earthquakes in Japan and the following nuclear drama that continues to unfold.  Since the initial drop we have seen a swing back to the upside which has bears in knots again and dip buyers loving life.


As I've taken a few days to review the coming end of the first quarter, I can only shake my head and affirm that something other worldly is going on.  A few days ago I postulated that perhaps it was an increase in solar flare activity that has the world going nuts.  I mention this in jest, but there is a lot of study that has been conducted that does find a correlation between solar activity and human unrest, natural disasters, and even serious market corrections.  Think about it, we have absolutely no idea what affects the masses or provokes them to take action at a specific date and time.  The seeds for all of the things that have been going on have all been there, it just happens to all be going nutty at once.  Here is a partial list of the maniac behavior being exhibited on the earth currently;

A)  Charlie Sheen is absolutely freaking bonkers.  It may have been a media hype job, but there is some piece of absolute wackoness in that guy and the switch just got tripped.

B)  Riots in just about every country on earth with the exception of nations filled with fat sheep (USA comes to mind – but of course I forgot about the non-sheep unionites in Madison that are rioting because their ability to rip off the taxpayer is being removed).

C)  Union riots in Madison

D)  Japanese earthquake

E)  President Obama is more of a war-monger than the Bushes.  How about attacking Libya and their tyrant and then getting cold feet?  Ooops!  How many civil wars will we start through Fed policy and foreign policy blunders?

F)  Irish interest rates push through 10% and people still own the stuff?  I'm sure they are good for it just like Portugal, right?


I wanted to do a quick post that would highlight several of the areas I've been in and also positions that I'm watching.  As I highlighted back at the beginning of the year, energy and commodities would be themes I felt would benefit from the continued use of QEII.  All the way back on January 17th, I identified that one of my favorite trades for the year would be UGA. to the end in the TRADING UPDATE section).

We all know the reasons for this trade;

A)  Weak dollar

B)  Emerging country use of cars is growing exponentially

C)  US Summer price fundamentals (seasonal increase) through the first half of the year and $4.50 gas is reachable.

D)  Technical chart strength at the time as price action went through the $40 level.

What has occurred since that time has been exactly what I highlighted but the trade has also benefited from the Middle East unrest.  This really isn't a post about how great the call was, especially since I did not anticipate the riots and think that we are way ahead of where I thought we'd be after just two months.  At this point we see oil at $105 and gasoline is trading at $3.05.  I've included a link here from Yahoo News that shows that US gasoline inventories have actually declined for several weeks.


The risks to the trade are that we continue to see rising oil reserves and that translates into larger stockpiles of gas.  Other risks include that idea that uncertainty and unrest go away, all rioters are placated with billions of petro-dollars, and also that the US dollar catches a bid. Given that I actually see a case for an announcement that QEII will be extended to late August (not more money, but more time), I think that the dollar bid catching is not a worry, and if anything our foreign policy actions will create more unrest in the Middle East in the coming weeks and months.  Even the collapse of Ireland or Portugal may have the impact of driving up the dollar, but I don't think it does much to stifle the move up in gas during the next few months. 


Previously I had indicated that $40.00 was our support and the initial price target for UGA was $52.00.  Please examine the chart below and find that the upper range of the trade is $67.00.  I personally won't be around to see $67.00 in the trade, because I will have a forced time stop here where as we reach the middle part of August I will begin selling.  No matter what, I do believe now that $60.00 is in the cards for this trade.  Levels to watch include the minor overhead resistance at $50.00 and also at $52.00.  I have a stop set for $45 on this trade.




Meanwhile, we have seen new home sales continue to go lower as the competing inventory of existing homes and tough credit standards impairs the ability of the new construction market to improve.


I've included a chart for the homebuilders (XHB). These guys have rallied strongly since the summer of last year (what didn't?) but have stalled over the last month.  The bulls really need to push this to $19 and even through $20 to make this chart workable for me on the bullish side.  From a longer term perspective I like that the 14 EMA is way above the 40 day EMA (in the weekly chart below).  On the other hand, if $17 were to be penetrated here, $14 is a meaningful target.   

From a fundamental perspective this trade may be one where investors are betting that the homebuilders just can't do worse, so you might as well buy them…. that worked well back in 2009, I guess it could still hold true.  My concern for homebuilders though is that the inventory of existing homes continue to get cheaper and there is going to be a point where buyers just don't or can't justify building when there are perfectly good used homes with all the window hangings and landscaping done already.

I think the really wealthy are still building their dream homes, but poor folk and middle class folks are just doing perfectly fine with better priced alternatives.  If commodities continue to sky-rocket, construction costs for homes will make the choice a no-brainer (not to build…. I think we are pretty close to being there already – welcome to the new normal right?).   I have a few more posts about to be published, please check out the blog at

Hedging the Bursting of Internet Bubble 2.0

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Hey fellow Slopers,

A conversation I had earlier this week with an NYC-based Internet entrepreneur prompted me to think about the current Internet bubble and how one might hedge against it with protective puts. More about that below, but first a quick reminder: if you want to enter the contest I mentioned in a post earlier this month to win an iPad 2 for posting a comment about a stock, there's one week left to do that. More details at that link. On to today's post.

The entrepreneur I alluded to above was Jesse Middleton, co-founder of GetMinders1 and WeWork Labs. Prior to founding GetMinders, Jesse was the director of IT at LivePerson, Inc. (LPSN). When we met for dinner Tuesday night, Jesse brought up South by Southwest, which he attended. That reminded me of this tweet of his from the conference last week:

Our conversation about that tweet, in turn, got me thinking about ways one could hedge against a bursting of the New Internet Bubble using protective puts. Consider a business owner whose revenues were closely tied to the fortunes of privately-held, venture-backed start-ups in the sector: he couldn’t hedge against a collapse in those companies directly, but he could buy put protection against a big correction in some publicly traded securities in the Internet sector, as an indirect hedge. A couple of ideas came to mind:

1) Buying puts on Internet ETFs.

Judging by their top 10 holdings, the First Trust Dow Jones Internet Index ETF (FDN), is more diversified than the Merrill Lynch Internet HOLDRs ETF (HHH), which has nearly 40% of its assets in (AMZN). Below are the put option contracts Portfolio Armor presented as the optimal ones to hedge against greater-than-25% declines in these ETFs, but first a quick reminder about what “optimal” means in this context: The optimal put option contracts are the ones that will give you the precise level of protection you want at the lowest possible cost. Portfolio Armor uses a proprietary algorith developed by a finance Ph.D. candidate to find the optimal contracts to hedge stocks and ETFs.



One note about the wide difference between the “initial cost” and “current value” Portfolio Armor shows for the optimal put option contract for FDN: to be conservative, Portfolio Armor uses the “ask” to calculate initial cost (“current value” is based on the “last” price). In practice, an investor might be able to buy the contracts for less than the ask price (i.e., some price between the bid and ask). Going by the ask price though, the cost of hedging against a greater-than-25% drop in FDN is pretty high: 6.72% of the position value. The cost of a similar hedge on HHH is 2.25% of position value.

2) Buying puts on a basket of Internet stocks.

The first candidate I thought for this basket was Open Table (OPEN), based partly on something Howard Lindzon wrote about the company on his blog last fall:

Nobody liked when they went public in 2009. It has only tripled in 2010. has the distribution with the restaurateurs and the brand name with the consumer. It took 10 plus years to get there. With $80 million in sales and $1.5 billion in market cap most smart people I know think it’s overvalued. That was 30 points ago. will buy any talent and feature it needs. It is a much smarter way to own these fancy new start-ups and that is what the big money is doing. These momentum spurts can last much longer than you think. They are not that complicated. It helps to understand what’s happening in the start-up world at any given time and that’s why I love the intersection where I sit.

The “intersection” Lindzon referred to to there is between his roles as an investor in publicly-traded companies, and as an entrepreneur and angel investor in start-ups. Other candidates I thought of were (AMZN), Netflix (NFLX), (CRM), and Internet infrastructure plays Akamai Technologies (AKAM) and Juniper Networks (JNPR). Of those, AMZN, OPEN, and CRM had the highest valuations on a PEG basis, ranging from 2.01 for AMZN to 3.08 for CRM. Portfolio Armor presented these as the optimal put option contracts to hedge against greater-than-25% declines in these stocks:



The cost of hedging against greater-than-25% drops in these stocks is, respectively, 3.17% of position value for AMZN, 4.79% for CRM, and a lofty 11.56% for OPEN — an average cost of 6.5% of position value for the basket.

Hedging in this manner with the stocks or ETFs above isn't cheap right now. All else equal though, it would of course, be cheaper to hedge with the same stocks and ETFs if you used a higher threshold for declines, e.g., hedging against a greater-than-30% decline instead of a greater-than-25% decline.

1Getminders sends automated health-related reminders via phone or text. I mentioned to Jesse that the web version of Portfolio Armor sends out automated notifications as well, via e-mail (the lower priced iPhone app version does not). I received this one today:

Dear Dave Pinsen:

Your puts on the position(s) below are going to expire within a week. You may want to buy new puts on the security before the current puts expire. Please log into Portfolio Armor to determine the optimal puts to buy based on the level of protection you specify.

SPY110319P00094000 – 2011-03-30

QQQQ110319P00039000 – 2011-03-30

If you wish to turn off email notifications, please sign in to Portfolio Armor and click manage account.