Slope Of Hope with Tim Knight

Are Bears Evil?

2009-07-06T10:01:05-07:00

A couple of items in the comments section caught my eye last Thursday:

I know these comments were (probably) offered tongue-in-cheek, but the implication generally seems to be that people who profit from reductions in equity prices revel in the misfortune of others.

Indeed, as the equity market plunges later this year, the scapegoating of short-sellers is guaranteed to happen again. Barney Frank, himself a paragon of moral probity, is already eager to reinstate the uptick rule. And remember, the market is down only a little bit. Just imagine what kinds of crosses will be burning on my lawn when the Dow is under 5,000!

I bristle at the notion that short-selling is un-American or malicious. We didn't cause these problems, but I have no compunction about profiting from them. I personally find bulls these days to be much closer to the definition of "Evil" (lying/manipulating/deceitful) than bears. Bernie Madoff was the king of the bulls. Even his huge yacht was named "Bull". The main difference between Bernie is that he got caught.

And don't simply think that I'm only a doom 'n' gloomer. This beautiful house my family lives in was built on bullishness - - namely, optimism surrounding the growth of the company I started, Prophet.net. It grew, prospered, and profited, and I sold it - - - but my faith in the virtue of small business is far afield from the blind notion that equities must go up all the time.

I think the core difference is whether or not one celebrates the hardship of others or simply profits from it. Let's take 9/11/2001, for instance. Suppose the week before you loaded up on puts on American Airlines and United Airlines based strictly on your chart-reading abilities. September 11 comes along, and once the market finally re-opens, your puts up are hundreds of percent.

I see absolutely nothing wrong or immoral with the fact that you've made money. You had absolutely nothing to do with the death and destruction which caused your profits. It just so happens that your assessment of the charts was accurate.

Now, I think it would be callous, stupid, and impolitic to revel in your profits publicly - at a minimum, it would be in horrible taste. You might even decide to take a portion of those profits and contribute to the Red Cross (or, if you're feeling particularly patriotic, donate all of your windfall). But, I say again, your analysis led you to a profitable trade: you did nothing to add evil to the world.

I hope this doesn't come off as amoral-sounding; my Jesuit education is bubbling to the surface, since I enjoy philosophical discourse. But I'm not going to let bears get the blame for the mess that the bulls themselves created.

Back to May Levels

2009-07-06T07:24:21-07:00

We are now trading at levels on the /ES not seen since May. The green shoots are bursting into flames before everyone's eyes.

The only weak spot among all my holdings are my lottery positions, which I am partially ditching. Otherwise, I am simply tightening stops, as I am "fully loaded" on the bear side.

OIH Vey

2009-07-06T06:09:50-07:00

Happy New Week, everyone. I'm ready to tackle the first full week of trading with my big honkin' monitors and my big honkin' ambitions.

It looks like energy is going to grab the market by the throat this morning. Judging from the very nicely-formed head/shoulders pattern on OIH, I'd say we're heading for ~$70 before any real strength re-appears.

Fall Down

2009-07-05T08:24:40-07:00

I was musing about a scenario that probably plays itself out thousands of times a day in the formerly great state of California, where I reside:

A person who has a negative net worth (due to being severely underwater on his house).......
goes into Bank of America, an institution that would have been bankrupt, were it not for........
the United States, which is also technically insolvent..........
and gives the teller an IOU from the State of California, which is no longer issuing checks due to its own insolvency.

Pretty sad, isn't it? This isn't fiction, though. The above situation is repeated every day of the week. It's only more dramatic now since California is issuing scrip for its bills now.

I'm back home, and I'm reveling being surrounded by big monitors again. Being a holiday weekend Sunday, I only looked at a few charts, and I have another outlandish and bold prediction to make: by autumn of this year, Gold will return to about $700 per ounce, and crude oil will be in the $30s or low $40s.

And with that, I shall return to my Sunday New York Times. See you Monday morning!

I Drink Your Milkshake!

2009-07-04T06:41:38-07:00

Well, I am getting ready to head home this morning after a beautiful and peaceful week at Fallen Leaf Lake.

Long-time readers know some of my quirks when it comes to camp (such as my sanctimonious disposition toward the proper way marshmallows should be roasted), but my once-a-year love of archery stands out. I used to like shooting arrows as a boy, so our annual trek to Stanford Sierra Camp allows me to recapture a bit of my misspent youth.

I had promised Mrs. Bear that I would once again win her a milkshake - - the prize for hitting a difficult target. This year was frustrating for me, though, because other campers kept beating me to the punch. I was worried that I would get skunked this year.

Finally, on the last day of camp, I went to the archery range with a very crowded field of competitors. On that day, the milkshake would go to the person who put an arrow through an apple at a substantial range.

Literally hundreds of arrows were attempted by the crew, and they all missed. People eventually became frustrated and bored, and one by one they left. But there was no way I was going to let Mrs. Bear go shake-less this week, so even though my drawing fingers felt like they were about to start bleeding, I kept at it. Just me and one other fellow were the other ones left on the field.

And then, finally............

Victory is mine! I can go home now.

A Reader Responds

2009-07-03T14:01:36-07:00

Hi Tim

I'm a big fan of Slope and was intrigued by a comment in your latest missive – "I cannot picture a scenario in which we get above it this year." Perhaps there is. I call it Rally 2, instigated in much the same way as Rally 1, but in a much more compressed time frame.

I am a behaviourist at heart. Once I have digested some of the fundamentals, the technicals, EWs, chart-pattern formations, Dow Theory, Fibs (and trader views such as yours) et al, I put my behaviour hat on.

Elliot Wavers such as Robert McHugh, Karimba, Lamoureux and even EWI's own STU, have expected this June 11 top to be followed by:
       - a zig-zag down (albeit on differing wave counts) to a mid/late July bottom
       - followed by a final summer surge (or what I call Rally 2)
       - followed by Catastrophic wave C down in the autumn.

I know this idea is popular out there, except with Elliot Waver Bill Neely who has called the top as Jun 11, like you.

I am not a conspiracy theorist but I do believe that we have just witnessed some of the strongest market intervention by the President's Committee or the PPT (call it what you will) that we have ever seen. The conditions for intervention were perfect. Loaded up shorts, lower-than-average volume, a weakening USD, bail-out funds sloshing to big banks balance sheets via the AIG conduit, and the outrageous tweaking of accounting rules. It didn't take much buying of the market to drive a short-squeeze that could be put into fifth gear by 'dumb money' and fed by the 'green shoots' brigade.

I expect much of that to happen again. I expect a down towards 7800 in the next fortnight. Shorts will be loading up as the Jun11 top argument gains traction. This is just as we enter the summer doldrums on volume. Next, I believe the USD isn't going to bounce any further than 84 on the index in the coming fortnight. Thereafter, the pressure will be back on (for all sorts of very obvious reasons) and we'll see a falling dollar that's great for stocks (Inflation looms, will be the call). The bond recovery is looking like the dollar too. Renewed pressure on bonds will reignite the yields (inflation looms, will be the call) and drive minds to stocks again. And people will be saying "where's that next rally?". Oh, and "Inflation is looming". Did I mention inflation?

Behaviourally, the mood will be dominated by those not wanting to miss out on 'the next rally'. Many of them did miss out on Rally 1. But not Rally 2. They will be in there early when the very first of the new green shoots appear (what do we call these?). As usual, these will have been planted by the Fed, watered by the big banks, and fertilised by the media. Expect the last week of July and the first week August to be happy blue-sky days on the news tickers. We'll get commodity speculation to kick it all off, and upswings on market-proxy Goldman Sachs. I really don't think it will take much to turn this current mini-reversal and create Rally 2.

But compared to Rally 1, I expect a take-off of rocket proportions - a true stampede for the markets. 1050 tops for the S&P, 9700 for the DOW look like a shoe-in under this scenario. And then the rocket fuel will run out as some piece of macro news, that can't be manipulated, finally makes folks understand what deflation is really all about, and why we need Austrian economics not fiscalism. The plunge will be un-protectable.

I'm a behaviourist and I know things have a (bad) habit of repeating themselves, so I'm for Rally 2.

And I know I may also be wrong. That's why I'm currently 75% cash and ready either way, watching GS, BKX, copper, gold and oil like a hawk.

Thanks for your site.

Nick

June 11 Was the Top

2009-07-02T14:54:28-07:00

Pretty bold (or stupid) for me to say something so definitive, isn't it? Well, if nothing else, I am opinionated. I don't think we're going to see 1,000+ after all. The government threw everything they had at the market, and June 11 was the top (in my opinion..........obviously). We got awfully close to 1,000, but I cannot picture a scenario in which we get above it this year.

This is actually kind of disappointing for me, and part of me is hoping we get up to 1,200 on the S&P by some miracle. I'm hoping to make a lot of profit in the resumption of the bear market, and these aren't exactly nosebleed levels we're at. But the charts are seriously broken for the bulls. This is why I added nearly 100 new positions today alone - all of them short.

If we break the neckline on the S&P, as shown below, I think we're heading to 800 this summer - - maybe even this month. After that, I have no earthly idea. I think a horrible chop between 800 and 900 is the most likely prospect, torturous as that sounds.

We family has been really patient with me during this two week "vacation", so I think I'm going to go silent for a while - - maybe even a couple of days! So enjoy the July 4th holiday, and congratulations to everyone who was short.

We Hold These Truths to be Self-Evident

2009-07-02T13:00:15-07:00

Printing up trillions of dollars of fiat money is no way to save a crumbling economy;
A soaring jobless rate is not a basis for optimism about the prospects for equities;
The fact that Goldman Sachs was able to snooker the public (again) by pushing the market higher 1 quarter out of 7 does not mean a new bull market has appeared;
Dumping tens of billions of dollars into the completely failed US auto industry at taxpayer expense is not a wise move;
Throwing trillions of dollars at insolvent banks, which spend most of their attention lining their executives pockets with enormous bonuses, is imprudent;
Pretending that the Medicare and Social Security System aren't headed for certain collapse is disingenuous
Peach cobbler with two scoops of ice cream can make a delicious noontime treat.

Congratulations, Slopers. The trading week is over. You won.

All the New Shorts

2009-07-02T10:24:09-07:00

Here is my gift to you - the result of many, many hours of hard work - - you can download my entire list of new shorts with stop prices as a simple text file. The file format is:

The quantity won't be very useful, since it's simply about the quantity of shares required for a $10,000 position.

I was able to enter orders on virtually all of these (a few were not available). I am very "fully loaded" now on the short side.

Fall from Grace

2009-07-02T08:01:11-07:00

I've got nearly 100 positions to short, but here's just one of them - I think GRA looks like a delicious bearish position.

Incidentally, is today cursed or something? Quotes are down (which is just lovely). Disqus is having more troubles. Sheesh.