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 Wisdom by Selden (Leisa)

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I wanted to share one of Selden's quotes (there are so many of them that resonate). From Psychology of the Stock Market:

To a great extent we train our judgment to lend itself to our selfish interests. . . We cannot work for our own interests as in other lines of business–we can only fit our interests to the facts. . . To make the greatest success it is necessary for the trader to forget entirely his own position in he market, his profits or losses, the relation of present prices to the point where he bought or sold, and to fix his thoughts upon the position of the market. (p.57)

Leadership (by Retracement Levels)

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Group members believe group leaders more than they believe themselves.

It is well known in military circles that the best way to predict an individual effectiveness in combat is his relationship with his sergeant. A soldier who trusts his sergeant/leader will literally follow him to his death.

A trader who believes he is following a 'leader' (i.e. a Secular Bear Market trend in equities) may insist trading that trend, until his account is wiped out.

Let us introduce a friend of us, his name is Joe.

Joe is a nice guy and he's convinced that, at the moment, short-selling is the best thing to do in the Stock Market.

Joe is a bearish trader. He loves to short. In fact, he likes to call himself a 'short-seller'.

Joe
What is Joe's problem?

Well, Joe is convinced that equities in the Stock Market are in a Secular Bear Market (although there is absolutely no scientific way to prove that, but a lot of blogs say we are in a Bear Market Rally,  and many experts says the economy is going bad, and we know the USD is in the shambles, and what about Elliott Waves? Didn't they say we are in a Grand Secular Bear Market Cycle? So, Joe thinks we must be in a Bear Market… or sort of).

Truth is, no matter what the reality is, Joe will always trust his sergeant/leader, the Bear Market trend.

People has been joining groups since the beginning of time. Especially at the origins of the human species, thousands of years ago, a group of hunters with a good leader was  more likely to survive than a lone hunter. That is still true for many animal species, like wolves, lions, etc., but not necessarily for humans, in certain situations, at least.

In fact, the problem with the leader+crowd approach is this: what if the leader is wrong? What if there is no Bear Market? What if we are not in a Grand Bear Market Cycle, but in a Grand Bull Market Cycle?

Boy, that would hurt

Actually it did already… since March 2009.

When we join a group, we act like a child following a parent. But to be successful in trading we must become adults and take our own way. Successful traders are independent thinkers.They are leaders to themselves.

What successful traders have in common are 3 things:

1) a good trading system

2) sound money management rules embedded in the trading system

3) mastership of his/her own psychology (i.e. no fear, no bias, etc.)

Some may want to add this one:

4) they are cheaters

and yes, that is true as well, very often the most successful traders are actually cheaters, using insider information or all sort of tricks to make great gains (just ask some pit trader in Chicago…or shall we mention Goldman Sachs 'sniffing algos'? Don't even get us started…).

Unfortunately trading is basically like trying to rob other people while they are trying to rob you, it's hard business, so we have to accept the cheaters as a part of the game.

Concluding this post, we'd like to borrow the name of a notorious NY hardcore punk band of the 90s, to give a suggestion to all the Joes in the world:

"Kill Your Idols, Kill Your Sergeant, Kill Your Leader".

It will greatly benefit you, as a trader, to decide that you can be alone, out there, into the wild.

Fear is Being Rewarded

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There is one and only one reason that I, who entered this morning loaded with shorts, am still showing a profit this morning: fear. And that's a sad situation.

One would have thought with a new trillion-dollar boondoggle passed (think of it as another – but very large – nail being banged into the country's coffin) that the market would be falling. Well it did……..briefly……..during nighttime trading. But the moment the market opened, it's been shooting straight up. As I'm typing this, the Dow is up, the S&P is up, the NASDAQ is up, banks are up; you get the idea.

My feeling this morning was that I'd better get out of my big short positions, and thank goodness I did. But I don't like that one little bit. Why? I want to be rewarded for discipline and patience – – not fear. I want to be paid for calm reason – – not paranoia. I don't like seeing green on my screen in exchange for selling out to timidity.

To be clear, the vast, vast majority of my positions – on a quantity basis – are in place. I am much more willing to flow in and out of large ETF positions, whereas my little positions simply have their stops updated. But I don't like how the bears remaining on the planet (that would be me, and some guy in East Brunswick named Sully) are being trained to regard fear as a virtue.

“Peak Oil” Nonsense

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Peak Oil? Nonsense. Sure, conserve energy and go green and all that, but let's stick to the facts about oil reserves.

Otherwise, I’ve just about had it with this dramatized rant and whoop and holler by certain a certain poster here and other alarmists about the “Dangers of Peak Oil.” He goes around on the net finding other soothsayers that supports his theory to get more hype for his website, and cries “fire” to get people to stampede his website for more information on how to head off another “crisis.”

Slope is too sacred of a temple of truth to allow this crap to splash the walls and not get cleaned off.

I'm just a Petroleum Engineer, not a scientist or a Doctorate PS Bullshitist, but about the closest thing you'll know to an expert on the subject of oil reserves, other than "THE Expert," whomever the media says that is next.

Over the past 33 years mankind has consumed more than three times the world’s known oil reserves in 1976 – and today proven oil reserves are nearly double what they were before we started. The story with natural gas is even better – here and around the world enormous amounts of natural gas have been found. More will be found.

There will never be "no oil" in your lifetime, so relax, and discern the truth for yourself when you get the facts. If you are old enough to read this, your shiny car will have plenty of gasoline for your lifetime. You may not be able to afford it, but they cannot possibly run out. So all you have to do is make some money with us here on Slope, and you’re set, just like the politicians. Whenever there is GREAT change, there is also GREAT opportunity. It is impossible to be otherwise. Instead of worrying about the black hole right now, look for new opportunities… it won't take long, they're EVERYWHERE.

Now that oil is $80/bbl, it opens the door to production of different grades of oil and different kinds of oil, and new places that oil was never thought to exist.

America has the biggest "Shale Oil" field in the world, at over a trillion barrels, that has never been tapped until two years ago, because it will be expensive to extract, and the technology has not yet been improved enough to tackle it before then. But money solves a lot of problems, and $100/bbl oil would certainly do it. You will have to be surprised how fast the technology will ramp up when there's a profit to be made. Just type in “shale oil reserves” into your little Search Bar, and you’ll come up with hundreds of new projects that have never before been thought possible. And these are primarily domestic, lower 48 States, where the oil in America was thought to be depleted!

Ever heard of the Bakken Formation? No? Why not? GOOGLE it, Mr. OilPrice, or follow this link. It will blow your mind. http://www.usgs.gov/newsroom/article.asp?ID=1911
The Bakken is the largest domestic oil discovery since Alaska's Prudhoe Bay, and has the potential to eliminate all American dependence on foreign oil. There’s enough crude to fully fuel the American economy for 40 years straight. And because this is light, sweet oil, those billions of barrels will cost Americans just $16 PER BARREL! Well, except we know those damn oil barrons are going to gouge us, but cheap oil nonetheless.

Another example of huge unexpected and unknown reserves are the "Coal Oil" sands in Canada that they are already extracting by truck and converting to usable oil. It's slower to extract and convert than to simply produce liquid oil, but the one field they are producing from today is bigger than the Saudi field, which is the biggest in the world. And that isn't the only "Coal Oil" field in Canada, and certainly not the only one in the world. These Coal Oil fields contain almost as much oil as the Saudi Arabian oil fields.

Most people don't realize that we only produce about 20% of the oil from a producing oil sand (conventional production), and leave the rest of it there because it was too expensive to produce by secondary or tertiary recovery methods. That is no longer true, so the natural oil reserves just doubled when the price of oil doubled.

One more real obvious report that you should have caught up on, is the the Stansberry Report from 2006. Hidden only 1,000 feet beneath the surface of the Rocky Mountains lies the largest untapped oil reserve in the world. It is more than 2 TRILLION barrels. Who gives a blinking crap about “Peak Oil?” It’s just more jargon that we don’t understand to create a crisis from (sorry about the hanging past participle).

Governments and alarmists that don’t care about the truth or the facts are good at creating crisis after crisis, so that they can be your friend and be the only one to solve the problem, that is, by taking control, taking your rights, enacting more laws, forming more committees out of their cousins, and generally living like Kings off of years of perceived crisis. Oh yeah, and they can take over whole countries if they need to and the gullible public is behind them on an invasion, and they can get enough young people to fight their special-interest wars for them.

No sir, the only real perceived crisis here is that the great masses of people will figure out that there is not a shortage, but rather an EXCESS of oil, for centuries to come, and that the price of oil should be back down around $20/bbl. Whatta ya’ know, we’ve been lied to again.

When I was in college in the 1970's, the known problem of that time was that temperatures were getting "colder." By the year 2030, it would be so cold that plants could not live and man would face extinction without drastically changing things. That was to be in my lifetime.

But now the "experts" claim "Global Warming." It's all just a theory, like Evolution, but after so many "experts" parrot the "truth" in the media, and even colleges and universities begin teaching it as truth, then it becomes "truth,' even when at best it's a 50-50 shot. I’ve read that 63% of those surveyed were “concerned” about Global Warming. Geez, don’t people even know how to ask the right questions anymore?

Why make a crisis out of something? There's money to be made, control to be taken, and new gov't offices to fill. And of course, the 30-year cooling trend that prompted the global cooling scare in the mid-70s abruptly ended in the late 70s, replaced by with a 20-year warming trend that peaked in 1998.

Watch this short video from the founder of the Weather Channel how he blows Al Gore's climate change scam out the window. Finally, a REAL EXPERT showing the fallacy of the concept of "global warming". www.kusi.com/home/78477082.html?video=pop&t=a

Philosophy Section

If you don’t mind, I would like to delve a little bit into what you might think you “know.” Tim likes philosophical stuff, so maybe he will let me rant on the rant, of why I’m having to waste my time keeping others from wasting your time with more worthless and time-consuming “information” that doesn’t hold a candle to truth.

How can a “Theory” of Evolution be taken as fact so easily, when this treatise involved in biology asserts no proof, or even a well-defined premise, that man evolved from apes? Even if the truth we are seeking were revealed, people believe that because they comprehend, they conclude that they have successfully taken in the material and reached a proper conclusion. Permanent incorporation requires repeated exposures and answering difficult questions. We can eliminate this major misconception or false expectation with the evidence of psychological research and the Ebbinghaus Curve of Forgetting. Recall deteriorates rapidly unless refreshed; a known fact, proven.

Well, getting too long-winded. I’ve written a whole Essay on truth and how we “know” things, another four pages. It even answers the question “What is truth?” Not even Plato could answer that question.

If anybody’s interested, let me know, and I’ll post it. Oh, and as an aside, it even answers the question of “Why did God create man?” with a darn good “theory.” I challenge you to come up with a better one.

Let’s Think This Through

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This is a very important – and somewhat selfish – post. I need your help, and I'm hoping you'll come through. But I think we might all learn something together. I'm going to leave it up for a good long while so I can get as much feedback as possible.

In spite of a horrendously rough month, my faith in charting – – the kind of charting I've been doing for decades and which I discuss in my book – – is strong. My charts haven't done me any damage. My judgment of market direction definitely has.

Generally speaking, my decision-making process has been a three-step approach:

(1) Make a judgement on the market's general direction;

(2) Assess individual charts and choose bullish and bearish patterns

(3) Load up on either bullish or bearish charts, based upon the conclusion from step (1)

This method worked marvels in 2008/early 2009. Even though the middle of 2009, it continued to work well. Even during the last six months, there have been brief instances (Jan 19 to Feb 5) where it has worked, but there have also been times (Feb 5 to present) when it's been devastating. In a market like this, the above "top-down" method isn't working consistently enough to keep. So I need a new approach.

Part "(2)", I am totally happy with. I'm a good chartist, and I think I can pick out bullish and bearish charts with the best of them. So this area – which is where I've got twenty years of experience – can remain.

It's parts 1 and 3 that need to get thrown under the bus, and I have three new approaches that are candidates for its replacement. I will tell you right now I do not judge all three of these as equal; there's one I really like, and there's one I don't care for, but I am going to try my best to excise my feelings about any of these three since I'd like unvarnished opinions. Oftentimes the comments section drifts off into other realms, but I ask that, for this post, let's stay on topic. Your aunt's recipe for Zesty Banana Pudding will have to wait.

So here are my three candidates, along with a brief description of each and, off the top of my head, the advantages and disadvantages for each. I could write a lot more about each of these, but I think you'll get the gist of it.

Candidate One: See-Saw

Assumption: That the market's direction, being unknowable, should not be relied upon as a basis for positions, and that the bullish/bearish configuration of a portfolio should simply be dictated, in a Darwinian fashion, on which positions "survive", adjusting accordingly.

Description: The simplest execution would be something like this: in a portfolio, an even number of bullish and bearish positions are executed, each of which is similar in size. Let's say 20 of your best bullish charts, and 20 of your best bearish charts. Stops are set and are updated daily. If a given position is stopped out, the trader is allowed to enter a new position on the other side. (Example: two bearish positions are stopped out; therefore, two new bullish positions are entered, yielding a mix of 18 bearish and 22 bullish positions). The mix "see-saws" either bullish or bearish, depending on what happens on a chart-by-chart basis.

Advantages:

+ Agnostic initially with respect to market direction

+ Intuitively, it seems to me that this is the most objective trending mechanism, because by its nature, it permits bullish (or bearish) positions to continue on their merry way, and it nukes losing positions (and permits opposing positions to take their place). So this seems to be a self-correcting mechanism.

Disadvantages:

+ Having equally-sized positions is troublesome. After all, does one want to have the same sized bullish position on something like SPY as they do a bearish position on some micro-cap stock? It also severely "collars" the size of the portfolio, because the small position is going to restrict the overall size. For example, let's say the most I wanted to risk on a particular position was $20,000, and I'm planning on having 40 positions (20 bullish, 20 bearish). That means a total portfolio of $800,000. That isn't going to do it. I need to be able to size for a much larger portfolio than that, but at the same time, I don't want to risk, say, $200,000 on some speculative issue only because overall portfolio size requires it.

+ It seems a method like this would be dangerous in a very choppy market. If, for instance, things were up one week, down the next, over and over again, a strategy like this would chop one into little pieces. It seems to me this method is best for markets that trend for at least a couple of months at a time.

Candidate Two: Cyclic Weighting

Assumption: The assumption here is that the market regularly moves above and below its moving average (for the sake of example, let's say its 50-day moving average) and, generally speaking, oscillates over time.

Description: This system would weight the portfolio from extremely bearish (a figure of -1) to extremely bullish (a figure of +1) – – usually somewhere in between – – based on the relationship of a major market index (like the $SPX) to its moving average. For instance, once the index has reached an extreme high vis a vis its moving average, the portfolio would be weighted highly bearish (perhaps 95% bearish positions and 5% bullish). If the index were exactly in the middle of its historic extremes, the split would be half bullish, half bearish. And, when the index was at a nadir relative to its moving average, the portfolio would have reached a point whereby it was almost entirely bullish. The portfolio would be in a constant state of change based upon the oscillation.

Advantages:

+ Makes the most of bullish moves from weakest points in index performance, and makes the most of bearish moves from strongest points in index performance.

Disadvantages:

+ Would suffer greatly in a trending market. So, for instance, if an index was at an extreme relative to its moving average, and it stayed there for many weeks, being loaded up on bearish positions would be harmful. Of course, the moving average would be in a constant state of "catching up" with its index, so bearish positions would be trimmed, but a market that is steadily trending up or down for long periods of time may be very disagreeable with such a system.

Candidate Three: The 80/20 Rule

Assumption: That, by and large, markets tend to go up, and while there is some room permitted for bearish positions, on the whole the assumption should be for asset inflation.

Description: The portfolio overall would have a weighting of 80% bullish positions and 20% bearish positions. 

Advantages:

+ Simplest of the system

+ Over the long haul, this is the most in tune with broad market direction

Disadvantages:

+ Seems overly blind to market movement. If one remained 80% in bullish positions during 2007 and 2008, the bearish positions would have not be sufficient to fully counteract the damage going on.

I'm putting a poll below, so if you think any of these three is worthwhile, please vote for it. If you have a totally different approach that addresses this need for a "weighting system", please put it in the comments section. I am really looking forward to reading what people have to say. Thank you!