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On June 20th the Federal Open Market Committee is going conclude a two-day meeting and release a summary of their view of the economy, most likely including an ‘unwelcome’ decline in inflation. That of course would signal a dreaded deflation, which are the windmill ‘giants’ to our Dear (monetary) Leader’s Don Quixote…
"What giants?" asked Sancho Panza.
"Those you see over there," replied his master, "with their long arms. Some of them have arms well nightwo leagues in length."
"Take care, sir," cried Sancho. "Those over there are not giants but windmills. Those things that seem to be their arms are sails which, when they are whirled around by the wind, turn the millstone."
This is just a heads up that there is significant risk to bearish positions at the moment. There is a positive divergence on the average NYSE 14 day RSI now which is a big red flag for bearish breadth. Add to that the fact that 10% down (considered healthy in a bull market) from the SPX top of 1422.38 is 1280.14pts. We broke that on Friday (along with the 200MA) with a huge exhaustive-looking candle followed by a large hammer-like candle Monday and the market seems to be having trouble gaining any downside momentum today (Tuesday). Additionally, the index charts appear to be in falling wedge formations now calling for upside breaks.
The sellers have already sold in my opinion and I think we have to be highly trusting of downtrend line breaks at this point. The odds are increasingly bullish even if just from a mean regression standpoint. Most of the indices also made marginal new lows during the exhaustive flush. If we can close the week positive, it will be a good sign. Declining resistance is currently at 1315.
The soonest indication should be a higher intraday high above 1320 for the conservative. After all, we are still making lower lows and lower highs, we just need to be aware that the upside risk is now elevated. I closed my IYT puts for 78% this morning and half of my SPY puts for 36%. Still exposed short, but I only have 32% of my previous positional exposure at this point. Good luck carefully calculated probabilities to all.
There were two possible signals that a bottom of some kind is close. Keep in mind, searching for top and bottom is the most expensive hobby. However some signs are hard to miss. First, CNBC ran special program (http://video.cnbc.com/gallery/?video=3000093787 ) “Markets in turmoil” where Cramer tries to scare the hell out of retail. If you have seen this man in action and have compared his recommendation for the last five years, you should know to do just the opposite of what he says. Secondly, GS comes with potential for return of bear market. ( http://www.bloomberg.com/news/2012-06-04/goldman-sachs-sees-potential-for-s-p-500-bear-market-on-europe.html ) I know GS loves the Muppets and have the welfare of all Muppets in its heart. Therefore, Muppets, beware. Most likely they want to buy your stocks cheap when they know that QE is around the corner.
Since I announced the launch of SocialTrade a few days ago, people have been signing up left and right. As pleased as I am with the popularity of the site, keep in mind this is definitely version 0.1 of what I'm doing. In a few weeks, you won't even recognize it as the same site. Major navigational changes and feature improvements are forthcoming.
First thing's first, though; let's get a terific logo selected. I want your help. Look at the 17 choices below. Click on any of them which interest you, and it will show you a large version for closer examination. Put a checkmark next to the ones you like the most (choose as many as three, but it's OK if you just want to choose one or two).