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.

Gold Bears Out of the Woodwork and Into Your Head?

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You know what I mean… the rising tide of gold bearish articles now
flooding the blogosphere.  Smart writers far and wide schooling gold
bugs about how gold is going to 1400 or even 1200 as the economy
strengthens and the disaster premium is removed or as a deflationary
spiral takes hold.  Talk about opposite ends of a spectrum from which to
bear talk the monetary metal.

Yes guys, gold became sponsored by the dumbest, most knee jerky money on the planet… 1.5 years ago
at the height of the euro crisis!  Now you pile on and try to school
the masses on contrarian theory?  It really looks a lot like trend
following and wanna be heroism to me.  But whatever.

So where were these contrarians in summer, 2011 when when people
should legitimately have been concerned about gold’s dangerous sentiment
structure due to the big knee jerk into the metal?  Where were the
know-it-alls just after the recent QE3 when this was inserted into our
newsletter?…


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AAII Bull-Bear Extremes

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This chart took quite some time to put together so hopefully some
find it useful and might understand why I have been very reluctant to
add new long-side trade ideas despite the all the bullish rhetoric and
price action since the start of the new year.  I've often stated how I
find the various sentiment surveys to be "noise" and only useful (and
actually one of the most useful tools in trading IMO), when at rare
extremes.

To take it a bit further, I don't
even care much about extreme bullish or extreme bearish readings by
themselves but what does get my attention is when the bull to bear
spread is at extremes, such as it currently is.  The reason for this is
that we could have a high number of bulls one week but that might not
necessarily be accompanied by a very low reading of bears or vice
versa.  However, when the bull-bear spread on the IIAA weekly sentiment
survey reaches the extreme readings of 18% or higher or -18% or lower, I
find these to be some of the most reliable and timely buy or sell
indicators out there.  Of course, nothing has a 100% success rate in
trading…not even close.  With that being said, I'll let the chart
below do the talking.

AAII bull-bear extremes

I started with the cluster of extreme bearish readings that marked the
end of bear market in March 2009. Each green arrow marks the exact date
(weekly reporting date) of bull-bear spreads of -18% or lower.  Those
reading come only when we have an unusually high percentage of bears vs.
an unusually low percentage of bulls (i.e.- a contrarian buy signal). 

The red arrows marks weekly bull-bear spreads of 18% or higher, a
contrarian sell signal from extreme bullishness.  Note: When I come
across a cluster of consecutive or nearly consecutive extreme readings, I
place the arrow on the last extreme reading.  Although every extreme
reading did not mark a major inflection point in the market, every major
inflection point WAS marked (+/-) by one of the readings and those that
didn't, typically marked at least a tradable counter-trend correction.

You can click here to view the chart above in full-size as well as the supporting data (all weekly AAII sentiment data from Feb 2009 to present).

Risk vs. Reward Post Turns Into a Ramble on Bernanke

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The general operating plan has been toward a market that can drag on
into spring with a bullish bias.  But in the short-term, over bought
markets can continue to correct.  I have taken profits on some
overbought global positions and would like to watch for re-entry.

sector sentiment

Interestingly though, the various ‘Gold Bugs’ data compiled by Sentimentrader.com
show an embattled sector that has scrunched even further to the left on
the graph above and is the lone item sitting in a good risk vs. reward
stance.

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Complacency Everywhere You Look

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Here is a brief commentary from Panzner Insights, which I posted on Thursday:

When trying to get a handle on investor sentiment, the benchmark of choice for many market-watchers is the CBOE S&P 500 Volatility Index, or VIX. However, this popular “fear gauge” only offers a snapshot of implied volatility, or relative pricing levels, for equity index options, which might not necessarily tell us all we need to know about the mood on The Street.

In theory, stock traders could be overreacting to equity-specific developments that are not relevant to other markets.

Impliedvolatilitylow

That said, there is data that suggests the high levels of complacency in the stock market are also being seen elsewhere. As the chart shows, gauges of implied volatility levels for equity, bond, currency, gold, and oil markets are at or near multi-month lows, suggesting that “the crowd” is unanimous in its belief that nothing untoward is going to happen in the immediate future.

Should we be worried?