Slope Of Hope with Tim Knight

The Sweet Smell of Success

Target that IWM and Fire!

Sheer Energy

I've been studying late at night for my CMT test this Friday, and I was reminded by the FSLR chart how bullish the ascending triangle pattern can be. And, with that, I decided to sell my FSLR put (singular, just one) this morning at a loss. Congrats, Beanie! This is your day in the sun (literally).

The GDP came in at (gasp.......) a positive number, which I guess means, based on the current data, that we're not (and maybe won't be.........who knows........) in a recession. The market's reaction was positive, but hardly a blow-out. I guess everyone is on pins and needles for 2:15 EST when the Fed announces.

Now, here, from Slope HQ, is a brief update from our intrepid energy analyst......

Today could be a pivotal day for energy stocks and the whole energy/ materials trade that has dominated the markets YTD. No, it?s not because of the DOE weekly inventory report due out at 10:30 EDT. It?s not because of earnings reports by major oil companies (most of which have ?beat? by a wide margin), nor gas and heating oil futures expiration at session end. Rather, today could be a day where industry specific fundamentals don?t matter. The reason is that equity markets may decide that a floor for the US dollar has been set if the Fed truly makes one final nominal cut in rates and is then done. This view has already been firmly reflected in the price action of gold, and even more so in the price of gold equities, which have been hammered over the last 30 days. Oil stocks, however, have not corrected and are sitting just below mostly all-time highs.

The charts look extended. Even the commodity looks like it should pull-back to the $105 - $110 per barrel range. If this happens, the sector could correct 10%. Recall that OIH was below $165 just 40 days ago. The point is that the threat of sector rotation over the next several days is real and bold bets on the long side may not be warranted. The threat is magnified by the fact that today is the end of hedge fund performance reporting for April when the long energy/materials trade was a huge contributor to monthly performance. If SPY and IWM break-out today after the Fed decision at 2:15, it will likely be at the expense of OIH and XLB. We shall see.

The Big Kahuna

Well, as I've been saying, tomorrow (Wednesday) is going to be huge. An hour before the opening bell, we get the early GDP report (subject to revision - twice - in the near future). With so many people saying we're not in a recession, it'll be interesting to see what the data indicates. Then, at 2:15 EST, the Fed does their announcement. Every character, comma, and space is going to be interpreted to death.

From a charting perspective, it's impossible to say what will happen except that it'll be big. I have only one index position - - a fairly large-sized put - - but I'm definitely keeping a lot of cash on the sidelines just in case of some (God forbid) bullish blowout.

 I got rid of my NDX puts today, because I really don't like the action here. I know that $MSH looks good, but $NDX is what I had puts on, and this chart worries me.

Added to which, the $COMPQ is exhibiting a pattern that has had very bad (for bears) results in the past few years.

On a brighter note - - and I actually had a pretty good day - - my dozens of shorts in oil are doing great. OIH has only lost about 6% of its value since its peak, but I really like how this is shaping up.

Likewise, my double-inverse ETF on oil, DUG, had a good day too. I bought these on the day where the low was made.

My puts on MDR also did well, with the stock falling nearly 9% today. This is another nice example of an attempt at a bullish breakout that failed, similar to ISRG.

And.........finally!.......my puts on BHI are shaping up. I like the way the price is moving away from that trendline.

0x

One other favorite of mine is GENZ, which ever-so-slowly is building what could be a terrific head and shoulders pattern. If complete, this could take GENZ down to the low 50s.

That's it from me. I'll be watching IWM like a hawk at 5:30 a.m. my time. I offer something that I usually cannot - - and guarantee - - and it is this: April 30th is going to be really, really interesting.

Shorts for a Strong Dollar

This week's Barron's had an interesting article about stocks that would probably suffer if the dollar regains its strength. My view is that the poor ol' greenback is probably in for some recovery, so I found this article of particular interest (particular since, of the sixteen issues they mentioned, I already had puts on half of them). Anyway, here are the charts of the stocks they pointed out:

That Rose Fannie Mae

Shameless filler while I construct something meaningful for you to read.

Scared RUT-less

If there was one chart that terrifies me, it is shown below. It shows what could be a very formidable inverted H&S pattern on the IWM which, if fulfilled, would be explosively powerful for the bulls.

Conversely, if there was one chart right now that gave me comfort that the bullish nonsense of the past six weeks had, thank God, finally petered out, it would be the chart below.

One thing I will note is that volume continues to whither away. Today's volume on the IWM was 90% less than it was last August 16th. The volume today is akin to what was seen on Christmas Eve.

Now, I know only enough about Elliott Wave to hurt myself, but I've made a stab at labeling the AMEX China Index, which looks ready to resume its sweep downward. Any of you EWT folks, let me know how I did.

As for the $INDU, it was wiggling up and down all day long and wound up slightly down. I think most traders were falling asleep out of boredom.

The Russell was relatively strong, and I have to admit, I am so concerned about the aforementioned pattern that I closed out my Russell puts at a loss. I simply don't want to tolerate that kind of risk of something happening like Wednesday rolling around and being up 400 points. What if a recession hasn't started? What if the Fed produces whatever love juice the bulls are craving? Wednesday is going to be gigantic.

The S&P is a deliriously interesting pattern right now. Three different patterns at play here - - a descending trendline, a horizontal line, and a channel, all of which spell "short!" unless they are violated.

The Transports were particularly strong, pushing up to its next Fib level.

And gold, in which I have no position, looks like it could be headed for a much steeper fall soon.

Now a handful of stocks. There are a ton of stocks which have enjoyed multi-hundred (or thousand) percent gains. Anything to do with fertilizer or agriculture, it seems, has been blessed. Some of these are finally showing a bit of weakness, such as AGU.

I don't know if I've had a trade on KLAC in the past decade, but I'm intrigued by this one. It has a nice, clean stop too.

I've got a few put positions on investment banks, and this is probably my favorite of them.

I confess to feeling pretty down lately. I've pulled some chips off the table out of fear. I will be more comfortable trading these markets once the one-two punch of Wednesday is past us.

Slouching Toward Nowhere

The past six weeks have been pretty much a bull-fest. Now that we're mushing up against the upper boundaries of what (God willing) will be the end of this rally, activity has shriveled up, and people are alternating between watching (i) grass grow; and (ii) paint dry.

The VIX has whithered away back down to the teens. Complacency is king again. Just look at the smirking bull on the cover of Barron's this week. I, for one, welcome our new bull overlords.

Big Week

Although today alone is going to be pretty quiet on the economic front, this is a blockbuster week for news, particularly the Big Kahuna - Wednesday - where the GDP comes out (answering- - not speculating - - as to whether we're in a recession or not) and the Fed announces (rate cut? steady?). Expect mid-week to be insane with volatility.

Mecum Omnes Plangite!

Getting to be a rough neighborhood again, isn't it?

Whenever the market's been up for a while, the bully-boys come out. Some comments are serious, some are sarcastic, but a few merit a reply. I thought I'd tackle a quartet of these on this fine Sunday morning.

KillinMe writes:

You seem to try & tackle uptrending stocks at their highs, even though they keep making new highs. Do you ever buy puts on downtrending stocks? I gather you are a counter trend trader at the core. A true contrarian at heart.

REPLY: A bunch of my positions are uptrending, yes, and some are very near their highs. I guess you could say I'm aggressive right now. Some of my puts are on stocks that have already lost plenty of their value, though. AKAM springs to mind. In any case, yes, what I'm doing is somewhat hazardous, but my positions are spread thin enough and my stops are tight enough to protect me.

Dangit writes:

Blame it on Bush!...Beautiful Tim.....anything else?....global warming?

REPLY: I suppose this was prompted by my jab at the rebate checks going out. First of all, there was no "blame" anywhere in the post. I frankly think Presidents get way too much credit (Clinton) and way too much blame (the first George Bush, back in 1991) for when the economy is doing well or poorly. Economic trends are much larger than the man that happens to be living in the oval office at the time. But the public isn't that sharp, so they tend to create a false causation between the executive branch and the stock market.

Boomkap writes:

On what basis are you making the bearish argument for FSLR? There is nothing technically to indicate that the trend is going to reverse. Are you just speculating that FSLR will have earnings that do not meet expectations and the stock will tumble? Show me the Technicals on this. Many of your trades are based on "anticipation" of trend reversals. This is speculative rather than being based on Technical Analysis. One of the golden rules is - Dont short sell a stock just because it is too high :) Same Story with Crude, no reason to believe the trend is going to reverse. With GOLD, there is a real trend reversal and it has indeed turned bearish for the short to medium term.

REPLY: Of my two solar plays, FSLR and SPWR, it is true that SPWR has a far, far better technical argument. As for FSLR, I'm in it for a couple of reasons. First, the volume has been completely divergent from the strength in price. Second, and much more important, what should have been a terrific bullish breakout is completely limp and malformed (see yellow tinting). If this thing has great earnings, goes to $350, and my options are blown to bits, I won't be shocked. But I'm willing to take the chance given the prospect of the stock just as easily going to $250.

Finally, fatcontroller writes:

Bears reason too much. But it's wrong to trade on reason. A good example is DECK. You'd think that people would stop buying ugly and expensive boots in a recession. Yet the sucker came out swinging, knocking 21% off bears' position. Another example is GOOG. You'd think that people would search less when they have a lot less money to spend? Yet the pig came out flying, taking $100 out of bears' pocket in one day. I always maintain that it's impossible for anyone to have an accurate grasp of the fundamentals. Most economists are wrong even though they put their lives in the matter. Most ANALysts are wrong even though each of them only research a few companies with all their stupid time. My point: don't ever make a trade based on reason. While I'm at this, I hope everyone here would stop making idle predictions on the market or stocks. It's a total waste of everyone's time. And it might lead a few innocent souls into wrong trades.

REPLY: There is so much wrong with this post, it's almost impossible to know where to begin. So I'll use bullet points and go in order........

• Yes, bears reason too much. I will actually give you that point. And I actually consider it a weakness, since the market (and the bulls) are pretty much airheads. But they are what drive the market most of the time.
• DECK is a stock I follow, but I don't think I've ever placed a trade on it. And even if I were to discuss it, I doubt I'd use the style of the boots as a reason for an interest in the trade.
• As for GOOG, I think it's pretty widely accepted the entire world was wrong with this one. If you were one who bought calls beforehand, my hat is off to you, but I strongly suspect you are simply making judgments based on hindsight, which anyone can do.
• "...it's impossible for anyone to have an accurate grasp of the fundamentals" -  I agree. Which is why I'm a chartist.
• You go on to state that no one should trade based on reason, and that people should stop making predictions on markets or stocks. Well, I trust you won't be wasting your time here anymore. Because the board is based on reason (more or less), and it certain endeavors to entertain where markets and stocks might be going.

Well, that's enough. The Sunday Times awaits. Adieu.