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.

You Can’t Make This Stuff Up (by Trade Flight Plan)

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Imagine it’s 30 years ago.  Someone comes to you and offers you a crystal ball.  You gaze inside to see the future.  Instead of the Jetsons and Star Wars, you’re entertained, saddened, and surprised by what you see.  Each of these is in no particular order…

 Ball

What are the most shocking world wide events that rip through markets and plant the seeds of global unrest?

  • One of the greatest bull markets the world has ever known
  • The fall of communism in countries like the Soviet Union and East Germany
  • A modern day repeat of the great tulip bubble, only this time with virtual companies that have no income (dot com meltdown)
  • The destruction of the World Financial Center by a terrorist event (the US launches a multi-decade campaign to seek redemption)
  • A modern day repeat of the great tulip bubble, only this time with home ownership (the great recession)
  • One of the greatest bear markets the world has ever known
  • One of the greatest bull markets the world has ever known (if only they take out prior highs)
  • Everyone now carries little tiny magic boxes that allow them to communicate with anyone else in the world and answer virtually any question in a matter of seconds

And what companies endure the exhilirating and painful business cycles over these 30 years?
What products and services become the most powerful?

  • Computers and those little tiny magic boxes (AAPL)
  • Software that operates everyone else’s computers, but not the little tiny magic boxes (MSFT)
  • Silicon wafers that make everyone’s computers possible (INTC)
  • Searching for stuff (GOOG)
  • Classified Ads (EBAY)
  • Coupons (Groupon)
  • Keeping in touch with friends (Facebook)

Of course, 30 years later, you would also see in the crystal ball that the same ruler still presides over Libya, but you would not have known to pay attention to that.  Will be interesting to see how this one shakes out.

P.S.
In our prior post, we had some fun with math on calculating QE2 induced ES targets.  Springheel Jack’s been watching similar targets.  Our post was very timely in that the ES immediately sold off as soon as the article posted.  Where’s that Chocolate Rain video?  Nonetheless, 1310s remain as a key S/R level.  We broke below it, broke above, broke below it, broke above…  So, it shall remain our line in the sand as an ongoing reference point.  If ES stays above 1310s, then those longer-term QE2 targets remain intact.

Picking Tops, Fading the Fed, Algebra, Geometry

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(To be read while listening to the old classic Not Fade Away)

What are retail traders' favorite things?  Ok, maybe not algebra and geometry, but we'll save those for this post.  It's been awhile since our last post due to other projects – so a very belated, happy, healthy, and prosperous new year to all!

So what do prosperity, algebra, and geometry have in common?

Well, let's take a look at another old friend, the Emini S&P futures.  So many have written about how we're overbaked, the end is near, the top is in, some indicator is signaling a major selloff, you name it.  But, let's imagine the Fed will continue QE2 and will not letup until they start seeing signs of their intended effect, whatever that may be.

What are their objectives with stock prices?  If you were the Fed, what would you try to accomplish to really prove to the bears and the rest of the world that this rally and market recovery is for real?  Think about who's on the other side of your trades almost every afternoon (other than Market Sniper).

(click to expand)

ES

Let's just say, hypothetically speaking, that the Fed is roughly halfway through its 8-month QE2 program, with four more months left to go until the end of Q2.  Since 11/1/2010, ES has risen from ~1170 to ~1340, a nice 170-point move, pretty much in a gorgeous 45-degree line once non-believers got with the program.

If we're halfway there, if ES continues on pace for the next four months, what would the target be?  Yup, you guessed it: 1510.

Now, let's say just for kicks that the Fed starts running out of steam with the remaining half of QE2 going into Q2.  Let's say it's only 61.8% as effective with its remaining POMO activities, as a rough round number.  What would that target be?  Yup, out of pure coincidence 1445.

You can see we have marked the ES chart with prior S/R levels as very interesting reference points.

Ironically, those who engage in sensitivity analysis are often those who failed corporate sensitivity training.  So finally, let's say shorts really panic and actually start covering.  Since Jackson Hole, ES has risen from 1037 to 1340, a nice 303-point move, with one little non-believer interruption ironically right when the Fed was scheduled to begin its QE2 installments.  Assuming we're halfway there, what would that target be?

Nah, they wouldn't really be trying to break prior ES highs would they?  Nah, it could never happen…

Of course, we're not forecasting or saying ES will hit any of these targets.  It's too preposterous.  Everyone knows QE2 will never work and the ES is doomed.

However, we confess we do not plan on taking macro shorts seriously until we can at least break below the latest S/R level at 1310 for starters.  And, we'll need to see some red volume – especially since they just bought 1310s on a volume increase less than two weeks ago.

Isn't math fun?  We hope you enjoy this context model.  With QE2 and the debt ceiling allegedly scheduled for completion, Q2 will be interesting.

Originally published on www.tradeflight.com

Slicker Than Snake Oil (by Trade Flight Plan)

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Irish whiskey, inventory levels, currency wars, and FOMC – whoopee!

Other than that, crude oil has been light, sweet, and volatile.  As a quick followup to our prior post, we continue to watch the net positions of commercial entities on CL (now trading the CLF1 contract).  Imagine our surprise when we see the commercials are actually increasing their net short positions to record levels based on the latest weekly Commitment of Traders (COT) info.  These are airlines, producers, transportation companies, and other big hedgers.

Same rules apply as last time:
Red=commercial traders, yellow=small spec traders, blue=large non-commercial traders.
Green vertical lines show relatively high COT readings by the commercials.  Red vertical lines show relatively low COT readings for these slick oil hedgers.

Just for kicks, we highlight with nice blue circles what happened previously when commercial net short positions hit new lows.

2010-11-22_1622_CL

We cannot short at lows, and the snake oil salesmen haven't made it easy to get short, doing things like initiating the moves during Asian or European session hours at some crazy-o-clock in the middle of the night, blaming it on a supply disruption in Irish Whiskey as an excuse.  But boy, any micro bull intraday retracements sure look interesting, especially if we can get some confirmation on smaller intraday time periods.

Even if all else fails, oil bulls would have to believe that somehow, this time things will be different and nearly 200,000 oil contracts net short of the nastiest, slickest, smartest traders in this business are just kidding.  The best part is, an increase in the yellow line representing small speculators tells us that retail traders have been buying it.

Of course, in these markets anything is possible.  In October/early November they marked price up by nearly $5/barrel before selling off, just to prove they could.  The entire time, the commercials just kept establishing even larger net short positions.  Someone's either going to get taken to the cleaners or make a fortune.  Just stay alert if you're trading stuff based on oil, like USO, RIG, BP, XOM, etc.  If CL sells off, they stand to make a nice profit.  If not, end of year could get interesting.

Even Slicker Than ES (by Trade Flight Plan)

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As a quick followup to our ESpresso! post, we thought we would share a snapshot of oil, one of our favorite futures instruments. But first, a quick update on that rascal /ES…

– 1160s (prior S/R level): BROKEN
– 1175s (a highly regarded level):  HIT
– 1200s (are they serious?):  NEXT??
– 1230s (the end of the bearish condition):  SERIOUSLY??

Now back to CL… Last week, we circulated our latest CL analysis with a group of likeminded traders.  OPEC, French oil strikes, QE2, Chinese demand, and record inventory levels aside, here are the major levels we have been watching for a couple weeks.  Our states report on oil includes:
– 81.60 (support): HELD
– 83.10 (defended by buyers and sellers many times yesterday): HIT
– 83.80 (the next volume cluster): HIT and TESTED last night again during globex
– 84.60 (prior highs): HIT at 84.50, we're not sure we would want to short this level again if we retest
– 86.50: ARE THEY KIDDING?

These levels are not necessarily probabilities, but price discovery and value area possibilities.

CL-VP

Just for kicks, let's check out what the commercial entities are doing with their oil positions based on the latest weekly Commitment of Traders (COT) info.  These are airlines, producers, transportation companies, and other big hedgers.  Same rules apply as last time:

Red=commercial traders, yellow=small spec traders, blue=large non-commercial traders.
Green vertical lines show relatively high COT readings by the commercials.  Red vertical lines show relatively low COT readings for these slick oil hedgers.

CL-COT

Hmmm, someone's getting ready.  They might be early, it might not happen for awhile.  But it sure looks interesting.

ESpresso!

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We give traders and authors like Larry Williams, John Person, and Jim Dalton all the credit.  Yeah, we know some of this stuff is as old as the hills, but hey, history and human psychology have a funny way of repeating themselves.  Back in May, we posted our previous ES volume profile.  It's time for a refresher.

Williams likes to watch for extreme readings of the net positions of commercial traders.  He also likes to use a 52-week moving average as his trend guide.  Sorry for not submitting this earlier when our fabulous host was looking for sentiment indicators.

When the slope of the 52-week average is up, the trend is up, and the commercials show us extreme net long positions, Williams tends to favor longs on pullbacks.  DISCLAIMER: we have no idea what Messieurs Williams, Person, or Dalton are doing now, we are only watching the charts form with interest.

John Person likes to fade whatever retail traders (small speculators) are doing.

Jim Dalton watches volume-based value areas for clues and insights into the auction process at different price levels.  Resistance becomes support, vice versa, and so on an so forth as price discovery ranges around a mean until price breaks out and moves to the next value area.

Using these lenses simultaneously either makes us cross-eyed or reveals an interesting picture.  In the weekly chart below, we plot the weekly Commitment of Traders (COT) data.

Red=commercial traders, yellow=small spec traders, blue=large non-commercial traders.
Green vertical lines are extreme commercial net position readings in bullish trends
(positive 52-wk MA slope).
Red vertical lines are extreme commercial net position readings in bearish trends
(negative 52-wk MA slope).
Note where we are now.  Traders fading this market are trading against both the commercials and spec traders.  It will be very interesting to see who wins.

ES-COT
 
SO HOW MUCH FOAM CAN THIS ESpresso HAVE?

We have no idea, but a volume profile analysis reveals the following levels above us.  We have post-flash crash highs, a little 15 point caffeine shot from there, and then who knows.  Bulls will need to break above 1200 to show us they mean business (no, that is not a dare).  And, at this point, buying highs unless we can break above and hold 1160s makes us feel a little Latte to the party (sorry, couldn't resist).

ES-VP

Originally published on TradeFlight.com.