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.

Harmonic Convergence

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Howdy Late Night Slopers………

Actually, by the time I put up something new, it'll be well into the morning, so perhaps that salutation has a short shelf life.

I just finished a nighttime swim, and as afflicted as I am with blogger's guilt (that is, feeling bad about not posting more frequently today……..some blogs that shall not be named are not affected by this syndrome……cough cough) I wanted to put up something fresh.

I'm struck by the "convergence" of data swarming around the notion of a hard fall somewhere around August 1st. Namely:

+ The Arch Crawford "Cardinal Climax" that's been mentioned here a few times;

+ The very plausible prediction laid out this morning by Springheel Jack;

+ Most importantly to me, the final culmination of the WAG, which calls for a hearty fall down to around 875 on the S&P, which will be the best (and pretty much last) hurrah for the bears in 2010.

I like it when diverse perspectives line up like this. If we actually see a hard tumble anywhere around this date, I think it's time for some cheers (and deeper exploration).

For myself, I remain entirely short, and I've scared up a few dozen more opportunities that I'll short Thursday, if the conditions are right.

I'm going to get some sleep. I'll see you Thursday morning.

0721-TimSwim

Seasonal Trading (Market Sniper)

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Seasonality is a very major force in markets. It can be seen in the stock market. "Sell in May and go away" is one expression of that seasonality. Seasonal influence can also be seen across all commodity markets and commodity spreads as well.

What is seasonality? Simply put, it is a seasonal price trend. It is the propensity of a given market to move in a given direction at specific times of the year.

Seasonality is not limited to the agricultural commodities since seasonality is not just weather and planting cycle driven. Seasonality can also be caused by many other factors including demand and supply for raw materials, consumption trends and cycles.

There are those who claim that seasonality either does not exist or that it does not supply actionable data on which to trade. Only history can judge that argument. I maintain that there is a very large body of evidence that not only does it exist but seasonality is very much alive and well in markets and CAN give you a very large trading edge. I maintain that seasonal strength and weakness is so profound that any trader that does not use them in their work or is unaware of them is at a very distinct disadvantage in their trading. In fact, the reliability of seasonality is so strong that it puts other swing trading methods to  shame.

There are many excellent day traders on this site. Traders in oil, the broad market index futures as well as stock and options day and swing traders. There are also traders here who cannot or choose not to sit in front of the screen during trading hours and watch every tick of price movement. Seasonal trading MAY be the answer for you. For the day trader wishing to diversify his trades into multiple trading vehicles on a swing basis to the trader who chooses to swing trade in a longer time frame, free from watching daily price movement, seasonal trading could be the answer. For the pure day trader, consider seasonality as one of your filters as to which setups you trade. You may wish to put less emphasis on a long day trade in a vehicle with weak seasonal tendency and vis-a-versa, for example.

Some filters I use in choosing which seasonal trades to enter are: 1) At a seasonal turn "window", has the vehicle acted seasonally up to that point? If it has, consider the trade, if not, pass on the trade and 2) I ONLY consider seasonal trades with 80+% probability. In the last 15 years, has the trade worked in at least 12 of those years?

Some words of caution. Seasonality is NOT a holy grail trading method! It is as fallible as any other trading method! You MUST use stops. At what price level is it no longer working? Use prudent trade sizing based on those stops! In  other words, according to your trading plan, use normal risk control in your seasonal trades. That being said, trading with seasonal tendencies is a sensible and stable approach to swing trading. Nice to have history on your side with an excellent positive trade expectancy.

For those of you who cannot or will not trade futures contracts themselves, futures options (futures trading account required) is one alternative. Also, here is a list of commodity ETFs for those who wish to go with that option. http://etf.stock-encyclopedia.com/category/commodity-etfs.html

In my pantheon of good seasonal traders is Larry Williams. He puts out an annual paper at the first of the year with his top seasonal trades for the year. He also has a mid-year update. These trades tend to work rather nicely. Also, Jake Bernstein does excellent seasonal work. John Person, Mr.Pivot, is also excellent with seasonal work. he is co-author of Commodity Trader's Almanac 2011: For Active Traders of Futures, Forex, Stocks & ETFs (Almanac Investor Series) by Jeffrey A. Hirsch and John L. Person (Hardcover – Nov. 8, 2010). This book is a MUST for seasonal traders and those traders who wish to incorporate seasonal influences in their trading plan.

Put history on your side. If your not looking at seasonal influence now in your trading perhaps you should.

Yours in that constant search for the elusive trading edge,

Market Sniper

NYSE Composite: Historical View (by Leisa)

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Below is a chart of the of the NYSE Composite over a 20 year period. The chart type is Renko, and I've include the volume by price bars. I find Renko charts useful in looking at longer periods of time, as I believe such charts confer perspective.

As you can see, we are approaching a long price bar indicative of a consolidation  of transactions in this area for this time period.  

   
Nya_0521


Some of you may not be familiar with the NYSE Composite Index.  Here is an explanation.

Index Description
The NYSE Composite Index is designed to measure the performance of all common stocks listed on the NYSE, including ADRs, REITs and tracking stocks. In January 2003 the NYSE reintroduced the NYSE Composite Index under a new methodology that is fully transparent and rule-based. Under the new methodology, all closed-end funds, ETFs, limited partnerships and derivatives are excluded from the index. As of year-end 2004, the NYSE Composite consists of over 2,000 U.S. and non-U.S. stocks. It is a measure of the changes in aggregate market value of all NYSE-listed common stocks, adjusted to eliminate the effects of capitalization changes, new listings and delistings. The index is weighted using free-float market capitalization and calculated on both price and total return basis.

Here's the same chart using the $COMPQ 

Compq

What is actionable from these charts?  I see not action from these charts, but rather, understanding.  These price and volume profiles, to my mind anyway, suggest important inflection points that may not be readily discernible from traditionally derived pivot points constructed on shorter term data.  If anything these views are a larger terrain map.

Below is a chart (09/06/09) that I presented in the comments section here and on my blog.  This chart kept me from getting short when many were vociferously calling for THE top in the bear market rally.  This chart was met dismissively by some who had other, supposedly superior methods of analyzing the market.  I don't have fancy charts nor fancy methods. I hope I never do.   But I do know the power of price vacuums in the fossil record of charts, and I do understand the powerful motivation of under performing money managers–it is a brand of fear that moves markets upwards.  I credit Rev Shark (James DePorre) with cultivating that understanding of that uniquely powerful fear and its robust effect on market movements.

$NYA_090609

As I present this chart, I acknowledge that I could have easily been wrong. So don't believe for a minute that I'm crowing or ascribing that this chart has any prescience beyond the two weights of evidence (vacuum/fear) that I believed improved the probabilities of upward price movement back in September 2009.  The current dynamic, both in price and emotion is likely the obverse of September 2009, though it is likely that the market will come to that realization violently.

There is no exclusivity in gaining entrance to Club Wrong–just make sure that your ticket fee is not exorbitant.

So What’s Different?

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There are five main kinds of posts I put up on this blog:

+ A "one-off" idea – usually a simple chart with its symbol and a declaration that I'm going either long or short the position;

+ A group of symbols, collectively presented as long or short ideas;

+ A goofy or musical video;

+ A video I've made discussing market direction;

+ An essay about something that's on my mind

This posting will be the "essay" kind, since I'd like to talk about my recent success with trading and what it's meant to me. More importantly, I'd like to go over how it informs my own trading.

Most of you know that I started managing money professionally late last year. The response to my new career was enthusiastic, and a large number of clients joined me in my new venture. I obviously want to do very well for them as well as myself.

In retrospect, it was a challenging time to start a fund for someone with a bearish tilt, since there was a huge stretch of time – November through April – that was, on the whole, wildly bullish. Through a combination of judicious risk management and an only partial deployment of my buying power, I was able to contain losses. But, let's face it, a loss is a loss, and dealing with a string of losing months stunk. It was more emotionally draining that I can describe with words.

Over the past few weeks, I have been trading extremely effectively. In the span of just a dozen days, I've undone a half a year of self-inflicted damage. Being able to perform at my best, virtually on a daily basis over the past few weeks, has been enormously encouraging. It has also been marvelously healing for the portfolio I manage.

So what's different? What changed? How is it that I've put together an almost uninterrupted string of days whose profits were so strong? This is something I've thought a lot about, because I really, really like this feeling, and obviously I'd like it to continue – – well – – forever.

Although it's no explanation, one thing I can say is that I've been very in synch with the market lately. Do you remember biorhythms? Those were the goofy graphs that were really popular back in the 1970s. They supposedly helped you understand how, based on time, you were going to get along with the rest of the universe. I've never put much stock in such things, but I was reminded of the subject when thinking about my own relationship to the market.

For a long time, particularly during February and March, I found the market agonizing. I felt utterly out of synch with it. Charts didn't make sense. The market's behavior didn't make sense. I started to wonder if technical analysis even worked at all. I scoffed at techniques, such as Elliott Wave and cycle analysis, which I felt had held such promise. I couldn't seem to make trading work for me anymore. I felt confused, inept, and – at times – helpless. And all through this time, I was really, really trying my best to be a good technician and a good trader.

In April, things started to slowly come back together for me. Keep in mind, the market kept climbing through April 26th, but even before then, things seemed to start to 'behave' better for me than they had in a while. As April turned into May, things kept getting better. I started having days whose profits were larger than I had ever had. I mentioned having a "record day" more than once, since I kept beating my old record. Even trading things like precious metals and natural gas – – and even FAZ and SRS! – – started going my way more often than not. I was on a roll again.

What's the reason for the change? Since Goldman has felt the heat of government inquiry and public scorn, have they pulled back their interference with the market? Maybe. I've got to say, starting with the (glorious) day that the government announced its civil suit against Goldman, the market has been working much more like I'm accustomed. Charts work again. Trendlines work again. Perhaps the market is being permitted to act like itself.

Another big aspect of this is trend. We're actually getting up-and-down patterns that make a certain amount of sense. Indeed, on that fateful day when I stood back from my Macintosh, stared at the screen, and made my prediction about what was going to happen, I felt uncomfortable, since so many of my predictions had a monkey wrench thrown in them. The fact that, move for move, everything went as I believed, was both gratifying and confidence-building.

The key right now, of course, is not to blow it. Indeed, I hesitated putting a check in the "Victory" box when choosing categories for this post, since the superstitious side of me is terrified of jinxing something. I've even considered dumping Victory as a category altogether, since I figured I'd never, ever want to use it again. It seems too much like tempting fate. But I run an honest blog, and I feel victorious, so I'm going to mark this post as such.

There's a difference between victory and hubris, however. As I made clear earlier today, I took my heavy foot off the pedal. I have no "ultra" funds at all. I have no large short positions on. I've got a series of large long positions to balance things out. And my portfolio commitment is smaller than it was.

I think one lesson I have firmly embraced through this entire ordeal is that it's good to be "light" in one's portfolio when things aren't clear as a bell. I was confident during the past few weeks about my point of view, so I could actually put on large positions, including double- and triple-ETFs, and still sleep reasonably well at night. I also had to be aggressive in order to claw out of the hole I was in. I'm glad that I was daring, but now that I've made so much progress, I am adopting a more conservative position until we're back to "clear as a bell" on the charts again.

As I said, I have felt very in-synch with the market, and as long as I continue to feel this way, I'm going to continue shaping my portfolio – either bullish or bearish – in the way the charts tell me. As I fall out of synch, as inevitably I will, I will back off – – way off – – and get very light. Your understanding of emotions and the market is vital to trading success. Likewise, your understanding of how aligned you are with the market's machinations is, I believe, a vital guide to how aggressive you should be (up to and including being purely in cash).

We are living in historic financial times. I see politics, business, and history through the lens of charts, and because of all that, it is a fascinating daily exercise. One's personal experience with the markets demands psychological self-awareness, and, from what I've experienced, I believe it is a lifelong journey. These have been my own thoughts about what this journey has been like for me lately, both on a long and hard road, as well as the recent weeks that I've had the profound pleasure of creating and living.

The Latest SLIX

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The SLIX indicator (whose definition is contained here) is sure looking bearish for the market, because this blog's popularity is on the wane big-time. The peak popularity – February 5th (tinted in green) coincided exactly with the bottom of the market. Current traffic, highlighted in magenta, is the pits – – the lowest non-holiday weekday traffic for as long as I have data (all those very low data points are Saturdays and Sundays, with a few holidays too).

0331-slix