Slope Of Hope with Tim Knight

One Way

2012-01-28T07:03:23-08:00

Tim Knight

Why I Shorted Devry

2012-01-27T15:48:13-08:00

As most of you know, I am a dyed-in-the-wool chartist. I base my decisions on charts and very little else.

There are rare occasions, however, when an investing idea is based on something more than just the chart. Such was the case with Devry, which is one of those for-profit education outfits.

Simply stated, I don't think I've ever seen a group of "customers" as unhappy with a given service as I have with the field of for-profit education. I'm not picking on Devry in particular - - there are many firms out there (ITT Institute, etc.) But as one surveys the landscape of the "graduates" from these "schools" (I am not accidentally using all these quotation marks....) it seems to be a bunch of folks that feel very ripped-off.

From what I can tell, it goes something like this:

(a) a given person is unhappy with their lot in life, particularly with respect to the nature of their work and salary (or lack thereof);

(b) they see one of the countless advertisements on television (often broadcast during the daytime, when unemployed folks are home) touting how such-and-such a "college" will give them the degree and prospects to make their dreams come true;

(c) they enroll at the aforementioned school, taking out huge loans in exchange for what is, let's face it, probably a pretty lame educational experience;

(d) once they have their diploma in hand, they head out into the world of work and find out that - - well - - employers aren't very dazzled by their diploma (or the knowledge gained to earn it), so the satisfying, big-paying job the graduate was hoping for doesn't materialize;

(e) and yet, my goodness, now there's a big-ass student loan to pay

I've seen these ads all my life, but until I read some of the testimonials from folks who have been to these places, I never realized how badly shafted these poor saps felt.

So, based on this - - and based on a not-too-terrific pattern in the chart, I shorted DV yesterday. It didn't take long for me to gain satisfaction, as the stock tumbled nearly 10% at one point. I went ahead and covered the short, but frankly, I think that - - long-term - - these education stocks are going to be a lot lower.

Everything's Fine in Europe Now Bar

2012-01-27T12:55:29-08:00

Tim Knight

Waiting for that Golden Shorting Opportunity

2012-01-27T10:31:54-08:00

Tim Knight

Bold Enough to Call A Top? (by Andy Crowder)

2012-01-27T09:22:01-08:00

Well, I already made that mistake. 1.9% lower. Check out my post from last Tuesday.

But, 1.9% lower really isn’t that far. Especially if you consider all of the bearish indicators that currently reside on a sentiment and technical basis.

I use very few indicators. I am a strong believer in the linear regression of time and price. You know, mean-reversion, bell curves, simple overbought/oversold indicators. Simple, logical, intellectual and more importantly mathematically sound indicators that are the first step towards long-term trading success. Emotions are nonexistent. Time and price determine my parameters.

Basically, I apply statistical principles first and foremost. And the credit spreads I apply all have the probability of success edge. Combine the two, well, it is in my opinion, THE foundation for long-term trading success.

But I also believe in sentiment, especially on a short-term basis. While I never trade based solely on sentiment, it is certainly I filter or screen that I apply.

And now both are overwhelmingly bearish on a short to intermediate-term basis.

Short-term look no further than the High-Probability, Mean-Reversion Indicator below. All of the major indices remain in a short-term overbought to very overbought state. Couple that with almost every sentiment measure in a bearish state and yes, I remain bearish for the moment.

I think this chart by highly-acclaimed Sentiment analyst Jason Goepfert of Sentimentrader.com says it all.

Certainly, food for thought.

Remember, keep it simple, remain patient and allow opportunities to come to you. Once they do, apply statistically proven strategies like credit spreads. Use option theoreticals, like probability of success to make your final decisions. And of course, the final and most important piece, use position-sizing to effectively and other risk-management techniques to maintain order within your portfolio.

Apply all of these principles, like I do in my Theta Driver Strategy and you will be well on your way to long-term success. It’s not easy, it shouldn’t be, but I can tell you that it is worth the effort. Allow yourself the independence of successfully managing a portion of your own wealth. Make your own decisions and make them with conviction.

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Revenge on Federated Investors

2012-01-27T08:24:15-08:00

You may recall that on Wednesday I got stopped out of FII at a really lousy price based on a completely bizarre intraday spike in the stock (I've pointed out where I got stopped out with the red arrow below).

Well, after taking a look at the chart, I decided it still was a good short, so - - in spite of the recent pain - - I re-entered the position. I'm glad I did, because today I covered (where the green arrow is), turning my frown about FII upside-down.

It just goes to show that even when something rattles you, it makes sense to step back, take a breath, and re-assess with as much objectivity as you can muster.

Short Term High Probably In (by Springheel Jack)

2012-01-27T06:30:16-08:00

I sent the following tweet out shortly after the highs yesterday morning:

If we are going to see a reversal on SPX soon, odds favor the high this morning. Hit the top SPX rising wedge. Hit support Vix falling wedge.

After the retracement yesterday I think the odds are excellent that a short term high is in, and my retracement targets on SPX would be a test of support in the 1305-10 area, though that would be disappointingly shallow, then a test of rising support from November in the 1270-80, and if that was broken then main support from the October low in the 1250-60 areas. Those last two targets have ten point ranges because they are moving targets, and the exact target would depend on when those trendlines were reached. The lowest risk long entry IMO would be at the test of rising support from the November lows, with a stop below the rising support trendline from the October lows:

Much depends on the GDP figure this morning of course and if that figure is good then we might discover very shortly that the short term high is not in. I'm expecting an indifferent figure at best though, as if the figure was going to exceed expectations, I think the Fed would have been less doveish on Wednesday.

Subject to that the setup for a retracement here looks very nice. Obviously the rising wedge shown above is breaking down but on the spike down yesterday the lower trendline of a potential huge falling wedge on Vix was hit and confirmed. The open gap just above that was also filled and the overall setup on Vix now looks extremely bearish. Short term, falling wedge resistance gives us an upside target slightly under 22 for any bounce here, and if that wedge resistance trendline breaks, that will be a strong signal to get out of equities:

Is this (probable) interim top a major top? I'm thinking not on balance though it's possible. I'll show the MSWorld (ex USA) 10yr chart here as it expresses very well the ambiguous overall setup here. In essence one could view the 2011 lows as a retest of broken resistance from the 2007 high (bullish view) or as the completion of the head on a monster H&S pattern (bearish view). On either view there would be reason to think that this move up from the October lows will run further. There's a lot of interesting information on this chart so take a closer look if you'd like to see that:

I showed the two key resistance levels on copper futures a couple of weeks ago in the 375 and 390 areas. 375 was broken last week and 390 has broken overnight. That looks encouraging for equities and I've marked the next resistance levels on the chart:

30yr Treasury futures have been looking a bit confused and lost since the spike up on Wednesday's Fed announcement. The options look clear enough though and the current trading range is between 141'24 and 143. An hourly close above would invite a retest of the last highs in the 145'10 area. An hourly close below would invite a retest of the last lows in the 140'20 area, and on a move below that to significant support in the 139'25 area. For obvious reasons I'm leaning bullish on ZB:

EURUSD retested broken resistance at 130.8 overnight and that is now clearly immediate support. Immediate resistance and a possible larger IHS neckline is in the 132 area, and I'm expecting more consolidation until the lower trendline of the rising channel is hit. The outlook on EURUSD looks bullish unless that rising channel breaks:

Last chart of the day is the updated gold chart where gold has now broken back above the support trendline from early 2011. The last week's action on gold looks very bullish and gold is back on buy the dip as far as I'm concerned:

As I'm writing I see that we are only three minutes from the GDP figure so we'll see how that goes. As I mentioned yesterday the stats for yesterday were bearish and the stats for today are bullish. We may well consolidate today.

After a few requests I finally got round to adding to advertisements to my blog two days ago. That's raised about nine bucks since then which is more than I expected. If this increases considerably I might even find myself making minimum wage for these morning writeups, which is an exciting prospect. :-)

The Evil Plan (by BBFinance)

2012-01-26T20:31:13-08:00

In a regular bull market the rise in share prices is backed by general growth in economy, wage growth, falling unemployment and all good things. In a bear market, it is the opposite. There is recession or fear of recession, credit is unavailable, unemployment is high and mood is gloomy. That is what fundamental analysis tells us.

If that is correct, where do you think the world is today? Is it in a growth phase or declining phase? There is no Nobel Prize for guessing the correct answer. But the question is if the world economy is in a declining stage, why the stock prices keep getting higher. The answer to that riddle is found in the continuous flow of liquidity injected by the CBs of the world. They are trying to solve the problem of solvency with more liquidity. In the process, they are buying time, hoping somehow, miracle will happen, growth will return and we will return to the goldilocks economy.

What do the small investors do in such a situation? If we short the market now, we will see that for the next one year or so, stock prices zooming higher and at some point we will be forced to cover our short position. So the best course of action may be to run with the hare and hunt with the hound.

Many do not believe that the stock market can be manipulated. They argue that it is so big, how can anyone manipulate it. But the fact is the big Ponzi scheme that is stock market is utterly rigged by the fifty TBTFBs of the world who control 90% of the trading and most of it through black pool trading which we never know. These are the same powerful bunch who borrow money from the FED or ECB at zero % rate of interest and then give back the same money to the FED at 3% ( buying treasuries). Thus, the Fed monetizes the debt at back door and banksters make risk free money from the tax payers.

As there is no immediate trend, they set up the market and create volatility. For the last two weeks they have created an expectation of a bull market where prices just keep going up. Slowly all the bears are throwing in the towel and joining the buy program. Equity mutual funds are again seeing inflow of money. Retail is now afraid that they might miss the bus and are too eager to join. The free cash levels of the mutual funds are at all time low. Rydex money market funds have only $669 million now vs. $1.5 billion at October 2011 market bottom. The game plan is working. While retail is buying at the top, someone is selling these shares to them. You can again guess who are that someone. Today the believers of the rally are saying that one day sale does not derail such a strong bullish move. While they would be correct in a normal market, this market is anything but normal.

When almost everyone is in, then the Boyz will take out the carpet under our feet. For the next two/ three week, we will see that a bearish environment will be created. ZH, CNBC will be filled with stories how Europe is falling apart. The retail will again sell cheap.

This pattern will be repeated many times in 2012 and if we can remember this game plan and play accordingly, we can come out alive in this market. Timing will be the key. As an individual trader we are pitted against these behemoths that have the best brains, best technologies and almost unlimited resources at their disposal. Our only chance is to find a quantifiable edge. That may be cycle analysis, TA, COT report, liquidity analysis, market sentiment analysis or whatever works. Sometimes nothing seems to work, like now. But even in such situation two eternal drivers of the stock market work. Greed and Fear.

Today morning when the markets opened higher and kept going higher, those who were on the sideline, joined the buy express. Those who were short, closed their short to cut down further losses. And now the almost entire Fed rally has been wiped off. Will they buy the dips tomorrow? May be we will see some buying in the morning just to convince the doubters.

But the evil plan is: wash, rinse, repeat.

A Bullish Love Affair (by Ryan Mallory)

2012-01-26T18:01:47-08:00

To best depict what we are currently experiencing in today's market, with the bullish euphoria that exists, the belief that European woes have passed, and that somehow it's different this time, let me point you to the movie clip below that comes from "Meet Joe Black". Here you have Good 'ole Joe and his lovely lady friend, being swept away by one another in a coffee shop. But like the market bulls, both parties are completely oblivious to what lies around the corner...

Is it any surprise that Mr. Market, Joe comes back as death himself?

All kidding aside, let me point you to the chart below, which is the basis for my belief showing extreme long-term resistance at today's highs. Notice that this is a five-year chart of the S&P and we are at a resistance level that in years past has been met with extreme selling.

Now, if we can break this level, which I am very skeptical that we will, then there is legitimate reason to believe we would be entering a new bull phase, but considering how overbought we are, how all reversal indicators point to a down turn in this market, I'm confident that we move lower from here, and that we have seen the market's highs already put in.

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Vox Clamantis in Deserto 2012

2012-01-26T13:50:45-08:00

Tim Knight