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.

Fans Lines of the Ages

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This weekend has still been very much in "Mind-Whirling" mode. I have also been in constant contact – in person, on the phone, and via email – with a variety of folks from the trading world – – all of them whip-smart, and all of them as bewildered at the market as me. It's comforting to know that I'm not the only one scratching a valley into my scalp.

Since 90% of my invited guest writers seemed to have skipped town, and the only 10% contribute every now and again (which I appreciate, believe me), I am sometimes feeling a bit short on material: particularly on a Sunday morning, when I emptied my modestly-sized noggin out the prior day..But I landed on one interesting item I've noticed, which is the extremely long-term Fibonacci Fan lines on the S&P 500.

I've drawn a couple of them, both of them starting July 8, 1932 (yep, nearly 80 years ago) and ending on March 24, 2000 (for one) and October 11, 2007 (for the other). The lines, over the decades, have been amazing guideposts for market action. For instance, during the 70s:

0110-70s
 

……..in the late 80s and early 90s……..

0110-80s
 

So what does it tell us today? Well, the S&P seems to be facing off with two of these levels. As you can see in the chart below (and take note how, last March, it bounced beautifully off the 61.8% line) we are just about precisely at one of the fan lines (suggesting a resistance level) and about 75 points away from another fan line (from the other series).

0110-current

So what this tells me is that, unless we get some weakness almost immediately, we're in for about another 75 S&P points on the upside, coinciding with very late March/very early April (which kind of plays well into the "people will start selling for tax reasons in March" scenario).

Time and the Late 30s Analog

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Having gone through my old Trading Tomes (and tossing off items I felt of low value – cough cough – Spiral Calender – cough cough), I thought I would take a fresh look at my 1937-1942 analog, which I still like very much. I made a pretty fascinating find. First off, here's the scan of the page for posterity (for better or worse).

So here's what I find interesting:

(a) I scaled the drop from 1937 to 1938 onto the 2007-2009 drop

(b) I computed the 63% rise from March 1938 to November 1938 took 224 days

(c) I then calculated, if the analog holds, what the date and time of our current contra-trend peak would be. My result was 10,544 on December 27, 2009.

Now………..I realize we're a little past December 27th, and I also realize we are a big three-one-hundredths of a percent above this "target." But what I find fascinating is that on the 28th (since the 27th was a Sunday), we did indeed print 10,544 on the Dow.

So let's just suppose that we give this analog the tiny bit of "wiggle room" with respect to time (we're ten trading days past the target) and price (virtually nil). What would the ensuing drop mean?

It would call for a drop to 7,960 on the Dow by…….if the time analog holds……….July 17, 2010.

Of course, if we just keep chugging higher, this entire exercise is moot. But for the moment, it's close enough to merit my attention. Although, I've got to say, on a day like this, which should have been a godsend for the bears – – – it's hard to stay "optimistic".

Seven Hundred Points To Go?

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Regular readers may have a sense of deja vu, but yes, I did a similarly-titled post just a couple of weeks ago. Anyway……

I've seen more than a few pieces of evidence pointing toward the market continuing to push higher through early March. I'm not sure I could stomach that, but having survived the past ten months, I feel that I can steel myself for anything at this point.

More importantly, I've been examining the 1937-1942 analog from a Fibonacci perspective. Here's the Dow 30 from 1937/1938, with retracements drawn between the extremes. Take note of the magenta-tinted area, at 61.8, since that's where the rally pooped out.

0106-induOLD
 Now here's the interesting thing:

(1) On a percentage basis, we have already matched the rally;

(2) But on a Fibonacci retracement basis, we've still got some higher prices to go.

Below is the current Dow 30 chart, drawn with the same retracement levels. The yellow tint shows the 700 Dow points that are left before we're at 61.8% (and I emphasize again, we've already had a sufficient rally in percentage terms, but there's still 700 points of potential upside).

0106-induNEW

So what's it going to be? A top around here, or a top at 11,250? I think the reaction to Friday's jobs number is going to be a very big indicator as to which of these potentials will unfold.

Pessimistic on Optimism

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In spite of today's bull-love-fest………..I read an interesting article today on ten reasons not to be optimistic about 2010. Here they are:

1. Global bank balance sheets remain loaded with toxic assets. The real banking crisis has not started. Government bailouts have delayed the day of reckoning, not eliminated it.

2. Stock markets rebounded ‘too far, too fast’ in 2009 and are overdue for a big correction, see the Bradley forecast.

3. Chinese exports fell around 20 per cent in 2009, and have not recovered. Global trade continues to reel from the worst crash since the 1930s.

4. US consumer and commercial lending is sharply down. The banks still are not lending for spending.

5. Property values continue to deteriorate around the world putting new financial pressure on owners and banks. US mortgage resets are the sub-prime crisis part two.

6. A double-dip recession like 1980-82 is the most likely scenario with a further leg down in the second half of 2010. The 2009 downturn was too short following a major financial crisis.

7. Emerging markets like India and China are faking their growth – Chinese exports for example are in a deep depression. These markets are anyway too small to lead global recovery.

8. Oil prices are too high, and generally depress economic activity.

9. The record gold price indicates that smart investors are expecting the worst.

10. In past major global financial crises a bond market crash has always been the final phase, and we have not seen that yet. This will bring much higher interest rates, and a boom in the gold price.

1-1-10

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Twenty-Ten has arrived, and of course I wish all Slopers a Happy New Year. I had a pleasant – although typically quite tame – celebration, and I'm going to spend the day packing up and taking the long drive home.

If there's one graph that, in a nutshell, captures the essence of 2009 for me, it is the one below. It's nothing fancy – just the UCPIX mutual fund, based on the double-inverse of the Russell 2000. It nicely expresses how 2009 was a fantastic, virtually uninterrupted, bull run.

0101-realucpix

But there's another graph with meaning for me. Yesterday, when I was involved with something else, I glanced across the room and happened to glance on my big screen a graph of DIA (the Dow 30 ETF). It was almost like a cheesy romantic moment ("across the room, their eyes met…….") because I was absolutely struck at what a marvelous graph it was. More on this in a moment.

0101-ucpix
 

OK, the moment has passed, so I'll continue: if I had been simply dropped into January 1, 2010, having missed 2009 altogether, I would look at a graph like the above and start doing handsprings. I'm a chartist. I rely on them for my decisions. And a chart like the one above is a slam-dunk, jumping up-and-down, scream it from the rooftops short.

Now, since I did not in fact give 2009 a miss, it's a little awkward expressing these sentiments, because just about every bearish notion and postulate in 2009 led to little more than looking and feeling foolish. But, even with all the ruckus last year, I am trying to see things clearly. And I really, really like what I see.

Added to which, it agrees quite nicely with my long-term chicken-scratch about the market, which has been spot-on since I scribbled it together 20 months ago (newer readers, please note the date axis is meaningless). I am entering the new year with 50'% of my capital committed, virtually all of it to bearish positions. I intend to augment the positions that do well as time goes on.

Now, I don't get real hung up on any kind of magical meaning to the new year. Those people that pledge to lose weight? Most of them will stay fat. Those folks who want to kick smoking? Most of them will keep puffing away. Personalities, habits, and dispositions are difficult to change, and human nature isn't known for its strength and determination in the face of inertia.

Likewise, just because 2009 was brutal for the bears doesn't mean that 2010 is destined to be great for them. But I'm cautiously optimistic, and if I may offer my own attempt at a resolution – in spite of my cynicism about the tenacity of such things in general – it is to more fully accept responsibility for my trading successes and failures. I think I've been pretty good about this, but I could definitely do better, and I think such a frame of mind is healthy for a trader.

So with that, I will commence a long day of packing and driving. Enjoy the long weekend, and I'll be back on the blog first thing Saturday morning.