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.

EUR/USD – A Technical View (by Alex)

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A lot a people believe that EUR/USD in the key to US stock market right now. So lets see where we stand-from big picture -down to our current distribution (last 7-8 days).We definitely are at a key resistance area now. 

Bigpicture_3

Now let's go down to the current distribution and compare it to August 2008 distribution (that was last time the market traded at these prices) to get some clues. 

History3d

The chart says it all. Looks like a mirror image. Please note how the market quickly rejected prices highlighted in green in august 2008. But this time we also need to consider that we have a lot of support (volume traded) below.

Hope you find this interesting, and thank you Tim for letting me to post this.

Three Peaks and Domed House

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1018-1

Fujisan here.

Oct OPX is finally over with fanfare of GOOG earnings.  I'm happy that I nailed it once again.  Anyone who decided to join me on GOOG earnings play, congratulations to you all. 

What I wanted to demonstrate with GOOG earnings is that, the options are such a versatile financial product, and you don't need to go either long or short to make money (in fact, if you have gone long or short with single options before the earnings, you would have lost your money regardless of the direction of your trade due to IV rush – I'm hoping that I could cover this topic sometime in the future). 

If you come up with a very precise time and price projection (needless to say, the more accurate, the better), and if you come up with an option strategy that fits your market view, you could double or triple your money overnight without risking too much money.

SPX Price Projection:

Here is my updated SPX price projection that I have been posting for a while.  My current price target for this particular wave has not changed.  

1018-2

Now, I was being asked many time to come up with an option strategy to "take advantage of P3 price move".  I know many of you are expecting a "crash into 2010" scenario after this rally, and trying to pick the top so that you could take a ride all the way down to DOW 300.

Before you jump into "P3" conclusion, I would like to discuss the possibility of "one more leg up" scenario.  Yes, that's right.  I believe that we are not done at SPX 1100 as of yet.

Remember the basic Elliott Wave Theory of "W3 being driven by the institutions and W5 being driven by the retail traders"??  This entire rally was being driven by the institution (which shall not be named) and the government pumping the money into the market, and not many people were able to participate in this rally. This is a perfect set up for "one more leg up" by the retail traders who did not have a chance to participate in the rally.

Three Peaks and Domed House

Now, I'm also exploring the possibility of the current price pattern to be "Three Peaks and Domed House".  According to Bulkowski, this is a combination of "Triple Top", "Rounded Top", and "Head and Shoulder" pattern which looks like this:

1018-3

By the way, Tim's favorite 1938 price pattern is identified as "Domed House and Three Peaks", according to Bulkowski.

1018-4

My good trader friend, Zig Zag, was also doing a similar market study and kindly agreed to share his 1978 comparative study as follows (thanks, ZZ!):

1018-5

Does this pattern look like "Three Peaks and Domed House"?   I will leave it up to you.  As this price pattern is so complex, we only know it after the fact.  At this point, we are all speculating, and we don't know the answer, but I'm hoping that I could help you to look at the possibility of "one more leg up" based on the above price pattern and the studies and not overly bearish on its way down.

  

GS after the earnings

As we all know, GS beat the earnings estimates and yet started selling off right after the earnings.  Typical "buy the rumor, sell the news" mentality.  Here is how it looks like now:

1018-6

As discussed above, the key here is not to get into the short position overly aggressive.  I see the remaining Nov/Dec time frame more like a consolidation period before the market makes another run up toward mid 2010. 

If you missed a good entry point on Thursday, you can still wait for a retracement for a better entry.  If it didn't come back, and continued to sell off, you could get in upon the breakout of the neckline.  If you still miss the trade, well, there is always another trade.

Here is some suggestion for GS option play:

January 220 Put Option (Beginners Level)

This is a single put option with January 220 strike price.  As last week's GOOG earnings play were geared more toward the intermediate to advanced option players, I understand that some of you might have been totally confused or have no clue as to what I was talking about.

I would like to provide the comprehensive options strategies to all the levels so that more people could enjoy the beauty of the option play going forward. 

What I like about this position is the followings:

1. Because this is a deep in the money option, time decay is minimal

2. This position has a delta of 85, which means that it moves $85 up and down for every $1 move of the underlying stock.  As one contract represents 100 shares of the underlying stock, this position moves similar to 100 shares of the underlying stock WITHOUT a capital commitment of 100 shares.  It only costs $3,400 for one contract of Jan 200 put options whereas it would cost just as much as $18K if you decide to short it instead.  In addition, GS is not available to short (at my TOS account) so you cannot short it in the first place.

3. Risk/Reward ratio is pretty nice, assuming that your entry is close to the swing point, and you are going to hold on to your position until you hit at least the first target of 170.

1018-7

Single Option Play Book

For those who are new to the options and like to play with single options, here is a play book for the single option:

1. Do not buy the front month options.

2. Always buy the options with more than 60 days to the expiration.

3. Avoid OTM (out of the money) options.

4. Close out your position before 30 days to the expiration.

5. Set up both time and price stop (of the underlying, not the option in itself) to avoid unnecessary time decay.

Ok, I think I have provided enough charts for the weekend.

The ES Futures

Before I'm totally gone, here is for ES traders (I have a little bit of everything.  I should start covering the currency trade for Wilson pretty soon).  The price to watch on Monday is 1070.25.

1018-8
 

I hope everyone has a wonderful weekend and see you on the other side!

Revisiting an Important Projection

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This is a pretty important post, so I'm going to put it up and leave it up until the market closes (with apologies to readers who don't like seeing hundreds and hundreds of comments in a single post).

Regular readers are quite acquainted with my chicken-scratch drawing from October 18, 2008, laying out where I thought the market would be headed over the coming years. This chart, for me, represents a point of pride and a point of shame:

  • I am immensely proud that, so far, it has been extremely accurate in terms of market direction. The S&P did indeed fall hard (although it exceeded my 711.50 level by 45 points), and it certainly exploded higher after that, just as I conjectured.
  • I am immensely ashamed of the fact I did not exploit my own insight to take advantage of this year's rise. This was an incomprehensible failure on my part that I live with every day.

But my drawing holds a lot of weight for me, and it is based on the notion that we are in a 1937-1942 style market. Below I have tinted that market's surge higher, which is precisely what we're going through now.

1015-surge
The big question now, of course, is whether 1152 – – the level I predicted, but which I felt was unthinkable when I did my projection – – is going to be met or not. After all, we didn't fall to 711.50 – we fell 45 points below that. So what does it mean?

My thinking is that it means 1152 will not be reached. By updating my calculations, the new figure would be between 1080 and 1100 (which, errr, is where we are at as I am typing this).

Now, in this business, taking a stand on anything is a thankless task. If you're right, people don't really remember, but if you're wrong, you are subject to derision and mockery.

It's much safer to basically say things will either go up or down, and the next time you write about the market, carefully pull out the quotes that line up with reality and make yourself look like you nailed it. (I won't name any particular publications, Should That Upset them).

One such "bold prediction" – and I called it that – was posted here over a month ago, and it was amplified in more detail in a later post.It called for the S&P 500 to fall to a level of about 950.

It didn't.

So what went wrong? I paid too much attention to the form and not enough to the size of the former move. Here is the move I was anticipating from 1938…….

1015-1938

And here is the updated view of the 2009 instance:

1015-2009

So…………

I have been very conservative lately, but the gloves are going to come off tomorrow. If I were feeling really aggressive (and I am not), I would start shorting today, but the risk of a GOOG blowout is too great.

So I'm going to continue to sit on my hands for one more day. But then I am going to start getting into position. If GOOG doesn't work its magic for the market, so much the better, but I'm not counting on it. GOOG doesn't make a habit of making the market go down. So, in a way, I'd love for GOOG to have a blowout and drive the S&P to 1100. It would make shorting that much sweeter.

Timeframes and Actions

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Since – and I'm being my typically overly-polite self here – some people seem confused as to my attitude toward the market, allow me to explain. Again.

Short Term (Hours/Days)

  • Open to the possibility of S&P getting as high as 1120
  • Have opened up about 10% of intended short positions already. Vast majority of accounts in cash.
  • Have a small number of long positions, and a pretty big SSO position to soften the blow if the rise continues; occasionally briefly trading ES for pops and drops. Long /ES as of this writing.
  • Opportunistic day-trading ETFs when risk/reward seems heavily in my favor

Medium Term (Next Few Weeks)

  • Think likelihood of trend change very strong;
  • Going through all stocks in advance and preparing target entry points and stop prices;
  • Intend to hang on to already-established positions and ratchet stops down as needed

Long-Term (Months/Years)

  • Believe people who are planning on a new bull market are incorrect;
  • Think slow, grinding bear market will continue several years;
  • Believes major government policy shifts and social unrest will accompany bear market;
  • Will trade infrequently once bulk of positions are in place

Got it? Good. Thank you.

What Money Can’t Buy

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I keep reading in various blogs and newsletters how any weakness in the market will be answered by Uncle Ben and his Printing Press. In other words, now that the government has proved it can simply pour Monopoly money into the marketplace by way of Goldman Sachs and prop up the markets, it will just keep doing so in perpetuity. No more bear markets – ever!

There is one thing about which I am certain in this very uncertain world in which we live: at some point, this little game of creating trillions of dollars for the sole purpose of creating an artificial demand for financial instruments is going to fail. It might not fail tomorrow It might not fail next month. But one day, it will fail. And when it does fail, the Dot-Gov bubble is going to make the Dot-Com bubble and the Housing bubble look like pathetic jokes in comparison.

The reason capitalism – real capitalism – not fraud and artifice – has always appealed to me is because it most closely resembled the natural order of things; that is: the truth. And I've got a familiarity with the truth that some people find disquieting. I'm kind of a big fan of it.

And truthful capitalism is about things like quality products, satisfied customers, an inspired and creative workforce, and earnings growth. It is also, in turn, about a mindful board of directors, a satisfied (and yet vigilant) body of shareholders and an earnest track record of truthful accountancy and reporting.

I'm not interested in shorting AAPL or GOOG, not only because their charts simply aren't that opportune (even in the face of a severe leg down), but also because, by and large, these companies represent capitalism at its best. That's also probably why they charts don't look like good shorts.

But what's going on now with the market in general – superb companies like the above notwithstanding – is fakery. If you've got a dead tree………but you hire someone to spray paint the leaves green and trim off some of the more obvious diseased branches………you're going to convince most people for a given period of time that the tree is OK. But you've still got a dead tree. And one day when a storm blows the whole thing over, people are going to realize you've been lying to them for however long the charade has been going on.

My point is that government money, funneled through Goldman Sachs, can – and has – created artificial demand for equities that have sent them soaring. The government's printing presses are big enough to "buy" the market. But even the government can't fake widespread corporate prosperity, and for that reason, sooner or later, this game is going to reach its ugly conclusion.