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.

Arcs of the Covenant

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When using Fibonacci studies, I tend to use the retracements 90% of the time, fan lines 9% of the time, and everything else about 1%. I just haven't found much use with arcs and the time series.

However, given the dramatic plunge and rally recently, I decided to see if anything interesting was happening with respect to arcs. This definitely turned out to be the case. Index after index after index looks something like this with respect to its arc:

0823-arc

The most astonishing thing to me about this pattern is how the arc (whose definition wouldn't even be made until March, 2009) bounced off again and again where those arrows are shown. The arc was acting as support, and when it started to seriously challenge this arc (yellow tint), the consequence for breaking it were severe.

The head and shoulders pattern we were all obsessed with early in July turned out to be bouncing off arc support as well, yet, as we know, that support was never broken. We are now all the way back to the 50% arc. Given how close we are to my oft-cited 1050 prediction (which I will hasten to add is at the low end of my 1050-1200 range of an ultimate countertrend top), we could be at an interesting inflection point here.

Just for fun, I decided to back far away from the graph and look at the arc extensions. That was just as eye-opening.

0823-extensions

At each of the arcs, there's an interesting event. The magenta tint (where the prices cling to the arc fastidiously) shows the kickoff to the secular bull market, which lasted three decades. The arc at the green tint perfectly nails the crash of 1987 (!), and the blue tint kicks off the final parabolic ascent of the tech bubble (the frenetic 1995-2000 period where the angle was sharply higher).

I'll share one final item with you. I had breakfast with my boss, Tom Sosnoff, on Saturday, and we were talking about the markets. I always enjoy discussing the market with Tom, because even though our methods couldn't be more different, our conclusions are almost always the same.

He has taken on a big FAZ position, and he was looking at a graph of it on his laptop during his flight out here. The stewardess was coming up on the aisle, glanced at his screen, and said to him, "No, no. That's not the one you want. You want FAS!"

And that, my friends, is our Joe Kennedy Shoeshine Boy moment.

Tim Knight: Idiot Savant

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I am a genius. And I am a moron.

How's that for a lead-in? OK, "genius" is an exaggeration. But let me explain myself.

As regular Slopers know, I've been tying myself in knots lately. But this weekend made a huge difference. I feel like a whole new trader. And I feel chagrined by something I discovered.

During my duo of deep-thinking days, I watched the entire "Trader" video. At one point, Peter Borish and Paul Tudor Jones are examining the charts providing a correlation between the 1920s and the 1980s. (Their insight that the market, then 1900, would climb in about a year to "between 2600 and 3100" and then crash was a brilliant projection that would make the firm a fortune).

A light bulb went on over my head. I swiveled my chair around and grabbed a white binder labeled Tim's Trading Tome, which is where I keep notes and research that I consider important. I flipped to the section labeled Custom Charts, and pulled out a chart I had done last year.

This is the chart I hand-drew on October 18, 2008. It is, I believe, the only chart I've ever done like this, and I did it for myself, not even sharing it on the blog. Note that, with the exception of the ending date, I made no projections as to when the various highs and lows would happen; it was strictly a price projection.

My jaw just about dropped. I had perfectly captured every major move that had taken place from October 18th until the present. My projection of the market's low in the autumn was off by only 6%. And I had predicted that, from that point, the market would climb relentlessly, pushing all the way to 1152 on the S&P 500.

I remember drawing that chart. At the time, I felt more inspired as a chartist than I ever had been before, as if a beam of light was hitting me. And, like a fool, I decided that instead of taping this chart on top of my screen and staring at it every day, it would be better shoved into a binder where I wouldn't think about it until the huge move up was 60% done.

This is a chart that has earned my respect. If it plays out, what it means is:

  • The market's move higher has a long way to go – we're only about 60% done;
  • It should end sometime late this autumn (again, my time projections are very loose);
  • Instead of having a monstrous crash, we're in for more of a grind-it-out, multi-year slog downward, bottoming not much lower than we did last March.

You cannot imagine the weight that was lifted from my shoulders. Everything made sense now. I even did some /ES trading last night, just about nailing the bottom and top for a good profit on 30 contracts. My mojo had returned!

I am loaded to the teeth with short positions right now, and frankly I intend to dump virtually every one of them once we get the modest little pullback that I think is in store. At that point, I intend to finally heed my own projection and focus on the long side until we are wildly stretched to the upside. People will be shocked at how high things seem, and people will be uber-optimistic.

And, at this point, Tim the Bear shall return. Until then, I am saddled with short positions that I feel don't have a good long-term future, and I am going to head for the exit door at an opportune time.

And for those who plan to guffaw, "Hyunh! He's done ca-pi-tu-la-ted!", let me save you the trouble: I haven't capitulated at all. I've been right the entire time. I was just too stupid to listen to my own advice. Because charting is my talent – just about the only one I've got – and I need to listen to myself during those occasions when I have true lucidity about what the future holds.

Legends of the Fall

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This will be my last post until Monday. I'd like to forget about the past two weeks, thank you very much.

The market's rise over the past 4 months has been spectacular, and I think it might have more to go. But let's give this a bit of historical context.

Below is the Dow Jones 30 shown during a different bear market rally. In this instance, the market went down 51% and then went up 52% (I will step in here and gently remind folks that a 52% gain after a 51% fall doesn't bring you back to a profit, since you are staring with a damaged base).

0724-dowold

This is very similar to what we've seen recently, although in spite of the market's strength, it could still climb some more and be within the bounds of this historical parallel. We've gone up "only" about 41% so far, so it's entirely possible we could claw our way back to the psychologically-meaningful 10,000 on the Dow (and, boy, wouldn't that make headlines!) I've tinted in green the climb we've had so far, and I've tinted in magenta the "extra" portion we might climb given the historical analog.

0724-dowRecent

We don't know the future, but we do know the past. Below is the subsequent market action following the example on top. I have, once again, tinted in green the countertrend rally. As you can see, the 52% rise didn't matter that much once all was said and done.

0724-dowPlunge

This isn't to say it'll happen again. Based on what the past two weeks have done to my sense of certainty, I figure we could be out Dow 20,000 by next Friday and not surprise anyone.

But the point is to understand that big percentage gains over short amounts of time don't necessarily hold up. Thus ends the sermon, and thus ends these two wretched weeks. I'm going to now go and get as far away from a chart as my feet will carry me.

My Own Private Idaho

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First I'd like to acknowledge my sadness about the death of Walter Cronkite. As a boy, I remember being told he was "the most trusted man in America", and even my earliest stock market memory came from Cronkite's voice when he announced in 1981 (or so…..) that the Dow had gone up 28 points or something like that. At the time, it was really big news, and I think it was the lead story that night.

Mr. Cronkite represents the calm, thoughtful, reassuring voice I remember growing up. He represents what I think we can agree was a classier and more dignified era of reporting.

The explanation for the title of this morning's post is that I am flying up to Boise for a get-together today, and I'm currently sitting at the San Francisco airport. I haven't been to Idaho since church camp when I was 14 years old, so this will be an interesting day trip.

Whenever I am feeling confused by the markets, I return to the very long-term charts, some of them spanning a century, in order to get my bearings. Here is the S&P for the past decade:

0718-SPX

Here's what I've got to say about the very big picture:

  1. I accept the possibility – I emphasize, possibility – that we could be in a bottoming process, and the big, nasty plunge we've been talking about might never materialize. I set aside my preference for bear markets in saying this, because my preference doesn't mean squat.
  2. I also accept the possibility that the countertrend rally continues must farther, as high to my oft-cited target of 1150, before the market falls to pieces again.
  3. Finally, I accept the possibility (and, again, my unimportant preference shouldn't enter into the picture here) that we start descending from here before stabilizing at about 750 or so before resuming the uptrend. That would agree with the parallel I've made between the two tinted areas.

The reason this week was so bad for me wasn't because I ignored my rules – – with the exception of TBT, I followed by rules religiously. It was because I put a lot of trust in the H&S pattern and was heavily loaded on the short side. I have "backed off" quite a bit (largely by being stopped out of dozens of positions!) and am taking a wait-and-see approach to next week.

I remain, at the moment, still entirely short, although not as heavily as a week ago. If things do soften up, I will press the hardest on gold and energy shorts.

This is a tough market to trade, and it has been for much of the year. I find a lot of guidance and "anchoring' from sharing my experiences here. Thanks for being a part of it.

Bear in Mind

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Years ago, I would tell people that I was a really good chart analyst, but a lousy trader. And it was true. I had a natural knack for reading charts, but the actual firefight of trading was something that was horribly challenging for me.

After many years of study, reflection, and effort, I'm still a really good analyst, and my trading skills are starting to catch up. If I may say so, I've gone from "great chartist/terrible trader" to "great chartist/good trader." Once I reach "great chart/great trader", I'm going to take over the world.

A reader brought this to mind by sending me a screen shot of a chart I posted around March 20th, speculating on what I saw ahead for the market in the coming months. It is shown below, precisely as I scribbled it out nearly four months ago………

0711-prediction

Let's highlight in yellow the chunk of time which has transpired between then and now:

0711-pred2

So what I predicted was (a) down a little (b) up a little (c) down a little (d) up a lot (e) the formation of a head and shoulders pattern.

What does the actual chart look like? I've shown it below, drawing in the lines that correspond with my prediction:

0711-pred3

In the words of the Sloper who sent this to me, "You nailed it!"

I must say, I was kind of taken aback. Now, just to be clear my ego hasn't run away with me, let me beat myself up some: I called practically every wiggle of the market four months in advance with eerie precision, but I took advantage of maybe 20% of it. All in all, I'd say I screwed up royally, because only in my 401-k did I derive benefits from my insight.

So I give myself an A+ for my analysis, and a C- for my execution. Or, more accurately, a C- for my ability to believe in my own foresight. So hurray for me. And shame on me.

Thus ends today's combination of self-adulation and self-loathing. Draw from it what you can.