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.

The Last Chunk is the Biggest

By -

Well, for a holiday weekend, Slope has been pretty busy!

I've got about 100 shorts on, and – unfortunately – about 161 potential shorts just sitting in a watch list. Having 250 shorts would be a better feeling right now, but my time machine is still not complete.

As I'm typing this, the equity, crude oil, and Euro markets are all getting mauled, and the gold and bond markets are pushing to never-seen-in-human-history highs. Silver, strangely, is left out in the cold.

Late in July, I was thrilled to see the profits on my shorts climbing, and I happily took those profits. Unfortunately, the stocks just kept falling, and it became clear to me that, for shorts, the biggest profits are actually in the very last stages of the plunge.

In other words – – and I'm just making up these numbers for illustrative purposes – – if a stock peaked on day "1" and bottomed on day "10", then you might see 30% of your profit by day "7" and then the remaining 70% of the profit on those final three days when everyone completely freaks out. My problem has been covering on day 7, patting myself firmly on the back for getting a profit, and then watching the real juice happen in the final stages.

You can see the problem with this, however. You never know when the bottom is in, and oftentimes – especially these days – you get these V-bottoms which permit almost no time to scramble out of a position (particularly if there is some bullish news in the middle of the night).

My intention this time, however, is to try to be more patient with these shorts. Unless something huge happens between now and Tuesday's open, I am expecting to see very handsome profits within seconds of the opening bell. But those may only be 30% of the potential profits of these positions.

Sorry for the rambling, but I've been thinking a lot about this lately, and I wanted to share the thoughts about the value of the "final plunge."

Hedging Update — BAC Again

By -

BAC Again

In a post last week ("Optimal Hedging Costs: A Tell for Stocks"), we mentioned that Bank of America (BAC) had the highest hedging costs in the Dow for most of the last several months, and we speculated about how those high hedging costs might have been a red flag for BAC longs. BAC is up about 28% since then, on news of Warren Buffett's $5 billion preferred stock investment in the Berkshire holding. But as David Weidner noted on Tuesday, Buffett followers who piled into the common stock of Goldman Sachs and General Electric after previous preferred stock investments by Buffett are still under water. 

(more…)

Neutered

By -

As I was going through charts this weekend, I was facing the situation that I've mentioned frequently of late: that is, a surprising number of very impressive looking potential long positions, in addition to the usual short opportunities. So great in number were these potential longs that I realized the potential for a meaningful rally this week (which got a huge kick-off today with over 250 points on the Dow) was very real.

Setting aside all this bull/bear dichotomy, one thought kept pressing itself upon me: I do not want to care what the market does. In other words, given the stunning amount of uncertainty right now – and, yes, it's more than normal – I really am sick and tired of wringing my hands each night about the /ES is doing (or the Euro, or Gold, or Oil, or anything else).

What I wanted this weekend was to already be in position with both longs and shorts, but that was impossible. My positioning was on the short side only, with about two-thirds of my portfolio in good old cash. So I knew today wasn't going to be that great.

In spite of being only in short positions, the damage was dramatically mitigated by two factors: (1) all that cash I just mentioned, which doesn't budge; (2) the willingness to enter a quantity of long positions to help balance out the short ones. Indeed, by day's end, I had almost precisely the same quantity of positions on each side.

All other things being equal, this makes me market-neutral, but that of course isn't exactly my goal. Cash, after all, is market-neutral, and it's a hell of a lot less work than what I put myself through. Ideally, if my long choices are better than the normal long, and my short choices are better than the normal short, I would hope to eke out a profit irrespective of market conditions. To "eke" isn't really a grand goal either, but in these extremely uncertain market conditions, I feel a lot better about being balanced than I do being entirely short or entirely long (ha!; like that's ever happened).

Let's take a quick look at the NASDAQ, which pretty much typifies any of the big equity indexes right now:

0829-compq

On the bullish side of things, the lift over the past couple of days has been merciless to the bears. That five-minute-long fake-out Friday morning was positively malicious, and in many ways today's rally was heartier and more sweeping than Friday's.

On the bearish side of the ledger, the market is all-too-quickly lifting prices up to the Come To Butthead levels that I've been watching. But as much as I love technical analysis, I do know that nowhere is it written that prices are not permitted to cross resistance levels. I simply observe that the likelihood of bearish opportunities being profitable increases as prices push up toward former failure zones.

Just as everyone wasted a huge amount of emotional energy on the Jackson Hole speech (I mean, my God, we worried about that for months, and its denouement was absolutely comic), now we're going to waste all kinds of time worrying about the September 20-21 two (count 'em! TWO!) day meeting. To say nothing of the Fed minutes on Tuesday and the jobs report on Friday.

So, as I stated earlier, I really don't want to care which way the market is heading right now. I have a series of carefully-selected longs and shorts. Don't get me wrong; I vastly prefer being up to my neck in short positions and watching the market absolutely fall to pieces. But, let's face it, falling-to-pieces only lasts a little while, and there are ample forces that are constantly at work to keep propping up the house of cards. Having endured the rally-from-hell from September 2010 to July 2011, I have no interest in continuously entering shorts and hoping that the rally will end. No, thank you.

In going through charts this evening, the vast, vast majority of opportunities remaining appear to be on the short side (whereas this weekend it was about a 50/50 split). So while I am relatively neutral right now, I imagine I'll be tipping a bit more bearish soon, unless we see yet another rally on Tuesday.

In closing I will say if you doubt the end-of-days is upon us, just take a moment to read this little article about a new Twitter record. If that doesn't convince you that doom is on the horizon, nothing will.

Color, Mania, and Hedging Gold

By -

Color, Mania, and Hedging Gold

Below are some thoughts on hedging gold, but before that, a quick aside, prompted by a chapter I read today in The Slope of Hope Bathroom Reader. On p.28 ("Color and Mania in the Valley), Tim mentions the mobile app Color, the creators of which received an astonishing $41 million in venture financing, as an example of the recent bubble in tech. As it happens, one of my daily clicks is the iOS app tracker AppShopper.com, which provides hourly rankings of Apple iOS apps. (Editor's Note – thanks for the book mention, Dave!)

(more…)