Slope Of Hope with Tim Knight

Optimism Is Our Friend

I saw these articles side-by-side in this morning's New York Times business section:

As bears, this is precisely what we want to see. When someone like Ben Stein writes a column titled, "I Give Up - There Is No Hope", then we can start getting aggressive on the long side. As long as folks mired in the mindset of the 80s and 90s keep mewing about how things have turned a corner, we can continue to feast on them.

I'm looking forward to this week. I have a mountain of juicy short setups waiting in the wings. I do think the S&P might have some more upside left - - say to around 925 or so. But take note of the tinted pattern as well as the moving averages. I like what I see.

For me, a very safe shorting area would be if the S&P were to poke above the top of that recent tinted area. The last time it did this, it was able to struggle another 1% higher before succumbing. I think I will avoid any index bets until such a move took place. In the meantime, I will judiciously enter new shorts that I've already got waiting in the wings.

Dystopia, Ltd.

Having passed levels 1 and 2 of the CMT exam, I'll be taking the final level, 3, this spring. As part of my required reading, I just finished Financial Armageddon (a search at Amazon reveals a surprising number of different books, all published in the past couple of years, with the identical title............in any case, it's the one in the middle):

 As sourpussed a character as I might seem, the dystopian vision laid out in a book like this is, to me, simply the polar opposite of insane bullish nonsense like Dow 30,000 by 2008 (as proof of Amazon's solid technology, this book is listed as being "Frequently Bought With" another book, Why the Real Estate Boom Will Not Go Bust - And How You Can Profit From It, published February 21, 2006...........which I imagine is the very day that the boom peaked).

I do believe the next several years (four? five? six? something like that...........) are going to be surprisingly nasty for the United States and the world, but I see it as more of a soul-cleaning purgatory rather than a permanent hell. Financial Armageddon lays out a vision of the country's future not much different than Zimbabwe's...........rampant crime, a crippled legal system, shattered lives, and mayhem in the streets. The dislocation caused by our financial hubris will be severe, but for goodness sake, the established infrastructure, wealth, and resources aren't going to suddenly vanish.

Although it is somewhat fringe, I still find Conquer the Crash to be the most helpful guide on how to navigate our financial future. I'd be interested in hearing opinions on writings or books you have found helpful. I'm going to tackle Crash Proof now. See you on Monday morning, if not sooner.

Quickly Cooling on 1000 Target

I've looked at hundreds and hundreds of charts this weekend, and I am neck-deep in fantastic opportunities for shorts and puts on Monday. I'd love to see the S&P inch forward to ~905 before weakening again. I have disposed of all index positions and am probably going to focus much more on individual issues in the near-term as opposed to big index moves.

I'll share some of my ideas on Monday morning.

Wacky Sax

Chinese Leftovers

One trade I'm considering is entering China on the short side. We've come off some very battered levels in a very short amount of time:

Bulls are very much swimming upstream on this one; this index has climbed nearly 40% in just a few days - - the kind of action you'd expect to see in a countertrend bear market rally. Here's another view with the FXI:

As you can see, we're getting close to the 50 day moving average for the first time in a while. The scary thing is how wild the FXP, which is the ultrabearish ETF for China, is behaving. This has plunged nearly 80% (!) just since the highs of last month:

I think I'm going to wait for a little push higher in the markets before I get serious about this. All the same - - food for thought.

QuintUPle

Five up days so far. Impressive! I trimmed a few of my longs (never did I think I'd make 30% on the likes of Abercrombie and Fitch in a few days............) and added a few shorts.

This upward movement is great for the bears. The VIX needs to go down; confidence and comfort need to go up. There are plenty of dynamite short opportunities that will be available to us.

The market is going to hit its first bit of struggle at around 905, which is getting very close.

I think it still has a good chance of bullying its way just north of 1,000 before we can get really aggressive on the short side. I am pretty much in a defensive mode right now, using longs as a way of cushioning my short positions, and updating my stops to be safe.

I am getting a little more squirellish at we inch higher, but I am doing a pretty good job keeping emotions out of the picture. I will get some serious "chart time" this weekend, now that Thanksgiving is behind us, and I'll have a better view into the near-term.

Some Short Set-Ups

Nothin' Doin'

Sorry to have been so quiet, everyone. The reasons are obvious. Added to which, there is simply nothing-at-all of interest happening in the markets today! They close early today at 1 p.m., and I keep checking the chart, wondering if I got the time wrong, because things haven't budged.

I'll do a decent post later today. Just saying howdy.

Whole Paycheck Thanksgiving

Just one of the ingredients:

Mrs. Bear is calling me; back to the kitchen...........hope everyone is having a good Thanksgiving!

Flexibility Reigns

I'm sure glad I was open-minded about bullish positions. It saved my bacon today. Here is a chart from ElliottWave.com illustrating the extremely negative sentiment which, in their view (and I agree) set the stage for a potent wave 4 advance.

Earlier today, I bought into QLD and SSO. I remain long DBA, although I'm a little dumbfounded how it seems to be just sitting there, doing diddly squat, on a day when OIH shot up nearly 10% and all the indexes rallied huge. A net daily change of 0.42% just doesn't get my blood pumping.

I still have plenty of shorts and puts, and obviously they took on some damage today, but few very were stopped out. I am comfortable hanging onto this blend of positions, and I will update stops regularly. I imagine that, if we continue easing higher, more and more shorts/puts will drop off, and I'll supplement my long positions. We'll see if the color of my portfolio moves from an even split to outright bullish.

This is all about (a) capital preservation and (b) opportunistic gains during our wait for the next big plunge, which could be many weeks or even a few months off. Until then, let's continue to do our best and use charts as our voice of reason in a world gone mad.