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.

Market Neutral : Short TRGL, Long IMO

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Hey fellow Slopers,

Below is a market neutral trade I e-mailed to members of the market neutral trade notification list Wednesday night. I plan to place this trade Thursday. First, a quick, final reminder about the Short Screen message boards contest: today is the last day to enter to win an iPad 2 for posting a comment about a stock. Details here. On to today's market neutral set-up.

Toreador Resources Corp. (TRGL) is an oil & gas E&P based in France. I shorted TRGL as part of a market neutral trade (paired with a different long position) last July, when it was trading below $6 per share. I got stopped out for a loss a week later, when the stock was just above $7. As you can see from the chart below, TRGL went on quite a run from there, though it has since pulled back from its high earlier this year.

As of its closing price Wednesday, TRGL was trading at 12.29x its trailing twelve month sales.

Short Screen shows an Altman Z"-Score of 1.03 for TRGL (recall that Z"-Scores below 1.1 indicate financial distress, according to the model).

Audit Integrity rates TRGL as having "aggressive" Accounting & Governance Risk (AGR®), placing it in the 15th percentile (i.e., it has higher accounting & governance risk than 85% of the 8,000 companies Audit Integrity rates).

I plan on using a trailing stop here, in the event TRGL shares again buck the company's seemingly weak fundamentals and go on another run.

Imperial Oil, Ltd (IMO), an Exxon Mobil subsidiary in Canada, isn't a pure-play E&P: like its parent company, in addition to its exploration & production ("upstream") operations, it has downstream and chemical operations as well. Still, as with its parent, the bulk of IMO's earnings come from its upstream operations: 71% of IMO's earnings came from upstream operations in 2010.

As of its closing price Wednesday, IMO was trading at 1.8x its trailing twelve month sales.

Short Screen shows an Altman Z-Score of 5.24 for IMO (recall that Z-Scores of 3 and above indicate financial strength). A quick note about why Short Screen shows a Z-Score for IMO, and not a Z"-Score, as it does for TRGL: Short Screen uses Standard Industrial Classification (SIC) codes to class to categorize a company as manufacturing or non-manufacturing. Companies in SIC codes 2000-3990 are considered manufacturing companies. Although only a minority of IMO's earnings come from its refining business (part of its "downstream" operations), the company's SIC code is 2911 (Petroleum Refining).

Audit Integrity rates IMO as having "average" Accounting & Governance Risk (AGR®), placing it in the 40th percentile (i.e., it has higher accounting & governance risk than 60% of the 8,000 companies Audit Integrity rates).

I plan on using a trailing stop on IMO as well.

Vix Buy Signal (by Springheel Jack)

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A Vix Buy Signal for equities triggered on Friday, after the Vix traded above the daily bollinger bands, then closed back inside, then fell the next day. We often see these at the start of big bull moves and they're fairly reliable bullish indicators, though as you can see from the chart below, they sometimes precede sharp dips, and the one triggered on the bounce just after the flash crash last year was not a buying opportunity:

My ES and NQ targets aren't any different really from the ones I gave in Friday's post, and you can see those here. One thing I noticed over the weekend was that an IHS has formed on the SPX 15min chart, as well as a rising wedge. I'm not wild about the quality of the IHS though and am expecting one to form, if one does form, at one of the potential necklines further up:

We've seen a strong rise overnight, but I have mixed feelings about it. We're seeing some negative divergence on the ES & NQ 15min charts, and copper has not confirmed the rise so far. I'm still watching the IHS on copper that I charted on Friday and it hasn't broken up yet:

Oil's likely to be interesting this week, with civil war in Libya and trouble elsewhere in the Middle East still. We've put in a decent looking right shoulder on the IHS I posted on Friday and if oil breaks 104 with confidence 'll be looking for a new high at 110:

I've got a declining channel on silver that I'm watching with interest today. So far it has failed perfectly at channel resistance with negative divergence on the hourly RSI. If it fails to break up I'll be looking for a downside target in the 33.2 area:

USD has broken support and I'm expecting more downside, and potentially a lot more downside. There is however one last declining resistance trendline that EURUSD must break through to reach my next target in the 1.47-8 area, and that is the main declining resistance trendline from the 2008 high. The trendline is unproven as it only has two touches so far, but a lot of people are watching this and resistance will be slightly over 1.42:

We're looking at a big gap up this morning, and obviously ES and NQ might just gap and go, though I'm not really seeing much evidence to support that so far. If ES and NQ break the overnight highs with confidence that will look bullish for today, and those are at 1291.25 and 2251.5 respectively. I'll also be watching the copper chart, but with copper at 431.5 at the time of writing, a break up before ES and NQ looks unlikely.

Gold & Silver Chart Analysis (by Mike Paulenoff)

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Although gold and silver have yet to show much, if any, upside volatility amidst the Japan crisis, the patterns carved out during the past several sessions strongly suggest corrections are ending and new uplegs about to emerge.

Given the uncertain and chaotic environment in the financial markets, this move could be powerfully higher — towards $1525 in gold and $40.00 in silver — against a backdrop of a rising euro/USD (falling US Dollar). 

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Originally published on MPTrader.com.