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.

Lost Opportunity Cost (by David Kern)

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I received an interesting piece of mail this week.  If you invest/trade the markets long enough, you’ll get these sort of mailings fairly regularly.

It was an invitation to participate in a class action lawsuit over something Apple did between 2001 and 2005.  I don’t really know or care what they were sued over, but Apple settled – and the cash is now available to be claimed.  Essentially, if you bought shares of Apple during that time you might be entitled to some portion of a settlement.  I did a search of my trading records, and sure enough – there it was.  I’d bought AAPL on 11 Oct 2005 and sold on 18 Oct 2005: a quick 4% gain.  However, as I reviewed more of the legal mumbo-jumbo, it became clear that my take on the lawsuit settlement would amount to $0.07 (estimated) per share.  Bottom line – not worth my time to even fill out the class action paperwork.  The 4% I made on the trade four years ago far exceeded any reimbursement that I would receive from this settlement.

The interesting thing was realizing that the price I paid for AAPL at that time was $50.59 per share.  Wow, wouldn’t it be nice to have kept those shares?  My unrealized gain today would be 646%!  That’s not really” go-crazy-retire-to-Fiji money”, but it’s well over 100% gain annualized…  Why did I sell at that time?  Probably a stop, could have been an itchy trigger finger with a desire to book gains – really I don’t remember.  When I look at the chart from 2005, it’s really a facepalm moment.

This has been an introspective moment over the weekend, as it’s caused me to question some of my approach to trading the markets.  I assess that I do above average at picking what to buy, and I’m usually pretty good on when to buy also – but my timing on when to sell has had some sucktastic moments.  I’ve experimented with putting trailing stops on everything – only to be whipsawed out of stocks that continued up-up-and-away.  I’ve bought uptrending stocks that then paused and/or retraced just after I buy  – so I sold (locking in a loss) only to find them explode upward the next week.  I’m starting to think that I need to slow down my timeline a little; step back from every wiggle of the chart and let my trading positions work for me.

I’ve believed for a long time that “buy and hold” is a steaming load of crap.  There are a plethora of market indicators that clearly show market trend, and it’s foolish to go long in a bear market or short in a bull market.  My favorite indicators for trend are the market breadth and bullish percents (which as of this writing still show a bull market).  These work well and consistently.  My issue seems to be finding my rhythm for when to take profits or cut losses, and I’m open to ideas on how to improve my game.  I don’t care to hear the Warren Buffet answer (who has said his time horizon is to never sell), but I feel there’s gotta be a better system for when to sell.

By the way – going back to the question of buy and hold AAPL from Oct 2005 – I don’t think that would have been a good idea at all.  There were a couple of clearly defined downtrends the first half of 2006 and most of 2008.  I think any reasonable trader wouldn’t sit on his hands through that bleeding.  Certainly I couldn’t have, considering the market breadth and bullish percents clearly showed defensive situations during that timeframe.  What do you think?

Screencast: Apple Earnings Preview

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Hello, this is David Kern from AbjectAvarice.com with a guest post regarding Apple stock and Steve Jobs leave of absence.  That would be news enough, but this week should be even more interesting with earnings from AAPL after the bell on Tuesday.

I’ve decided to try something new with a “screencast” instead of the usual blog post.  I’m hopeful this format will help communicate better some of the cross reference sources and web tools I use – and especially my technical analysis observations.  I welcome your feedback!

Rumblings of a Correction (by David Kern)

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I've been quiet on my blog for a good week or so now, just watching the markets. I don't feel the need to post every day if the action doesn't warrant extended commentary. To be quite honest, I've been preparing to write a big "Repent Bulls, for the end is nigh" post… but it's not time for that yet. Not to say that we're not getting closer. There's been a couple fast moving signals that have caught my attention – most notably the McClellan oscillators for a number of the sectors and indexes have shown sell signals. I put a lot of confidence in sector and market breadth indicators, which the McClellan oscillator certainly is. The thing is, Mr. McClellan can say "SELL" when the result is just that the market goes sideways for a while and then explodes up again. I think you have to balance that out against the direction of the overall market's bullish percents – "see the forest for the trees."


Currently, the overall market bullish percents are continuing upward. More and more stocks are being overcome by buying pressure outvoting sellers. That's a situation that can actually last for an extended period of time, and can be a frustrating one to fight. Doubly frustrating if you're trying to call a top. Reference this next chart, showing the relative S&P 500 bullish percentage compared to the underlying index's performance. As you can see, the bullish percent remained "on offense" (that is, above about 30% and increasing – or anything above about 70%) for about a year with only one defensive period at the beginning of 2010. That whole time, the S&P 500 moved up strongly.

Don't you think you would have liked to stay invested the whole time that bullish percent was "on offense"? Me too.

So, for the time being I remain fully invested. I'm watching closely to see whether more breadth indicators will tumble, and especially how the bullish percents will fare.

My investment portfolio has rotated a bit, so if you haven't checked on my pick's performance lately give it a look.

David Kern (@AbjectAvarice on Twitter)

Rumors and the Chart – A Quick Look at BP

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The UK rag The Daily Mail broke a story yesterday that Royal Dutch Shell may be quite serious about a buyout of British Petroleum.  This rumor has been quite profitable for my position in BP (follow that and the rest of my portfolio here) – but I think the chart says that more strength is ahead.

My chart notes (click the image for a better view) show that today’s price action topped multi-year resistance going back to 2008.  Remember how bearish 2008 was for stocks?  Nobody was willing to pay more than about $45 for BP from about Sept 2008 through until May 2009.  Then the oil spill knocked BP back down to the 20′s.

But now, the chart says “all that is behind BP.”  The rumors were a nice catalyst this week, but the real reason for higher prices is increased demand for the stock since July!  The chart tells "WHAT" is happening, the headlines may or may not give some explanation as to "WHY".

Thanks for reading, I blog at AbjectAvarice.com where you can watch my stock portfolio in real time.

David Kern (@AbjectAvarice)

Macroeconomics and the US Dollar (by David Kern)

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I have two charts for your perusal, dear readers – focused on the broader indexes.  Tonight my thoughts go to my TSP allocation, specifically: my over weighting of the international index (the EFA).  This international index will tend to have a bit more volatility than the S&P 500, similar to the Wilshire 4500 (EMW) – but decorrelated at times.  Lately, the EFA and EMW have been rather decorrelated.  Much of this is due to the economic worries in Europe, as the PIIGS national economies (Portugal, Ireland, Italy, Greece, and Spain) have really shown how shaky this debt/leverage house of cards can be.

Exchange rates also have much to do with the relative performance of the EFA and US indexes.  As the value of US currency goes down (and o-how-it-has since 2000), the EFA will get a corresponding tail wind due to the greater currency valuations it represents.  Now lest you think this whole post is just a bunch of hand waving and pie in the sky economic mumbo-jumbo, I offer my first chart: hard core technical analysis of the EFA point and figure chart.  What I’m showing here is an equity clearly being owned by increasing demand that overpowers supply.  Prices can not increase without more buying interest than selling interest – and this chart demonstrates that in spades.  Fair enough, we should expect higher prices on the EFA and I’m happy to hold my investment there.

The natural follow up question is, “will the EFA outperform domestic indexes?”  That question I hope to answer by means of my second chart, showing the value of the US dollar on a weekly candlestick chart.  This proves by observation my earlier premise – that declining value in US currency boosts the performance of the EFA vs the EMW or SPX.  Notice especially the blue outlined timespans: when the US greenback falls, the EFA was killing versus the domestics. Now granted, my chart note about a possible top forming is speculative – but it does fall in line with a descending channel.

I think the more compelling argument for decreasing value in the US dollar is in the headlines.  You may have heard of quantitative easing, which is how my government has chosen to try to stimulate the economy (it really just means printing more money that didn’t exist before – I wish I could do that).  Contrast that with the austerity measures being imposed overseas, and I think it’s a safe bet that there is room for the value of the dollar to fall further.  Bottom line – although the EFA has underperformed the domestic indexes lately, I expect that those roles will reverse.

Thanks for reading, I blog at AbjectAvarice.com where you can watch my stock portfolio in real time.

David Kern (@AbjectAvarice)