Wolf on Wall Street: Wednesday, January 05, 2011

Wednesday, January 5, 2011

CPSL

Here's another Chinese stock that's close to a breakout around $1.94. This may very well be some sector rotation into China. Keep this one on your radar.

MGI C&D Trade Alert

MGI just triggered as it probed resistance of a pretty good size base.

This one, if it breaks out, will enter stage two and may offer more then a 1-2 day return considering the size of the base. I might put a stop just below $2.70

CSUN

Maybe Chinese stocks are coming into rotation, but looking through charts, I came up with another Chinese trade looking good.

CSUN 30 min 3C accumulation as it breaks out of a bullish descending Wedge

I'd give it a little room on the stop as wedge breakouts have been volatile lately, maybe around $4.15 or so.

Here's the wedge breakout. A strong close and rising volume would be very bullish, otherwise we may see a pullback, thus the wider stop.

CHINA

Here's a trade worth considering, CHINA long

The 22 day moving average has been important support and resistance.

the 10-minute 3C chart showed accumulation just before the recent move up and still remains positive.

My Crossover screen is giving a long signal and a stop can be placed under yesterday and today's lows.

It makes for a decent probability and reasonable risk trade.

As I mentioned earlier, headlines drive retail, what's below the surface and important that is not to be found in the headlines, drives institutional money. today's headlines have been great, below the surface, they more or less cancelled each other out.

Here's what's been going on as I mentioned earlier, retail has been bidding the market up, it appears institutions have been taking the other side of that trade.

Here are the 1 & 5 minute 3C charts for the majors..

DIA 1 min.

DIA 5 min.

QQQQ 1 min.

QQQQ 5 min.

SPY 1 min.

SPY 5 min.

As you can see, through the afternoon, it appears institutions having been taking the sell-side of the retail bid. We'll see, but I suspect momentum is running out here and that should produce some late afternoon selling.

AGEN follow up

As predicted at the 1:00 p.m. AGEN post it has broken above resistance for a gain for a 3.5% gain in the last 30 minutes. Now, if AGEN can close strongly above resistance, and on good volume, the chances of a move higher increase for the coming days.

BEN

I just added BEN as a short to the January trade list. Please see the notes for more information on the trade list. Here are the charts..

BEN broke below a H&S top and had an unsuccessful test of the neckline resistance of the top on Monday and Tuesday.volume has been high on the downside/sell side. I view this as a long term position/trend trade.

10 minute 3C chart showing the test of the Head and Shoulders neckline resistance, note the negative divergences at both attempts sending BEN lower today.

This is a 2-day chart of my Trend Channel, as you can see, it's held several decent trends in BEN recently. The stop is a bit high, but there's a lot of volatility around a top breakdown. See my notes on the January trade list for alternative stop and entry options.

AGEN Alert

AGEN needs to move above $1.13 or to $1.13 to break out of resistance and a small base. It moved there intraday and backed off. I have a feeling it will move above it again and may lead to some nice gains.

As always if you need stops, targets or anything else, just email me.

Bounce in MCD

MCD is a DOW-30 Bellwhether stock, it's fallen apart recently making it a short trade idea. An interesting fact for some of the newer members, in a BEAR market, there tend to be more up days then down days, it's just the down days are bigger percentage moves. What this should tell you is the simple fact that nothing, whether bear market or bull market goes straight up or down, there are corrections.

MCD which has been performing well on the downside looks like it's about to see an upside correction/bounce. For Swing traders, this is where you may want to take profits, for trend traders, this is just part of the game and you can't get caught up pyschologically in the fact that there will be corrections, especially when you have a day like MCD recently had on the downside.

Here's the charts leading me to believe a correction is coming. ***Also note, that if you are looking to add to the position, a correction is a great time to add.

Daily chart of MCD-note the big move down yesterday on increasing volume. Today there was no follow through downside, at least to this point. When we see heavy volume on a downside move with no follow through, the chances are it's a micro-version of capitulation and a bounce/correction is nearby.

3C 10-minute shows some accumulation yesterday and today, this is generally market makers and others that have access to the order flow and know that there's not a lot of short orders coming in or they see shorts have taken profits. This is part f the reason I never place any kind of order that market makers can see until I'm ready to actually execute the trade.

I'd take a wild guess that MCD will probably bounce near the $76.50-$77 level on an attempt to test resistance and fill some gaps. If the gap is not filled, it's very bearish as it would constitute a breakaway gap down. In either case, watch for some upside in MCD over the coming days and act accordingly for your trading style.

FBP

FBP is a trade that has already been featured. It is one of the few low priced trades I'm including on the January Trade list because I believe this trade could produce a sustained trend based on the size and depth of accumulation during the base.

Here's the charts...

Here, if you can make out the red trendline, it shows a rounding bottom base which is over 4 months long. 3C on this daily chart, which is the most important timeframe, is showing a huge positive leading divergence. This is still a speculative trade and risk management should reflect that. It's also very close to a breakout, but even if it pulls back, I'd still like this trade unless it were to completely fall apart which I don't see happening. It's been added with a trade price of the current $.48

Here's my proprietary Trend channel i use for stops, the stop I'm placing on this trade (feel free to adjust yours as you see fit) is at $.42 on a CLOSING basis, not intraday. That's a fair amount of risk, so be sure to plan for it with good risk management and proper position sizing. If you need assistance, feel free to email me.

VITA Just Triggered a long trade @ $2.14 This is a Cats and Dogs Trade

Still Raining Cats and Dogs

These trades that I keep updating you on when they trigger are still doing well. Here's what today is shaping up like for some of the recent ones.

LOCM from Sunday December 26^th featured trades is moving today, keep an eye on it, yesterday PEIX broke out strong, it sometimes takes a few days.

Speaking of PEIX, it's added more gains today as I suggested it may given the strong close, so we'r seeing some follow through buying. I'd be careful to keep that gain.

RNN from the same list as LOCM is up today over 13.5% on what looks to be a breakout. OPXT is also moving in the right direction.

S has added a bit to its gains thus far today.

STEM is one to keep an eye on, I like the looks of this pattern.

XING which already gave us great gains last week is up today 23.65%

EEE triggered December 29^th, it's up as much as 33+% today

CPSL Has Just Triggered a C&D breakout above $1.94

Market Update

ADP came out with an astonisshing print in employment gains, watching the ADP numbers for some time now as they started emailing them to me several years ago, my opinion of them is not too high. In any case, the number was very strong and the market bounced off the gap lower on the open. ISM came out strong, but the key was the employment index which droped, completely contradicting the ADP gain. To me it looks like institutional money is riding the headline as retail doesn't tend to look too far bayond the headline and they seem to be distributing into retail's chase of the headline numbers. Had they read what's inside the ISM report, they'd see that the ADP number is completely at odds with ISM. There were some interesting trends in ISM that confirm a few of the 2011 themes I've been looking at-more on that later. Here's the SPY.

The strongest 3C reading today thus far was off the gap lower, since the 1 minute chart has shown distribution into higher prices as retail interprets ADP and ISM as both positives, while institutional money must be thinking ahead to Friday and the employment numbers with such a huge disparity between the two reports and ADPs not so accurate track record with last month seeing a huge miss by ADP's forecast.

The 5 minute 3C chart is showing the same negative divergence, specifically into the second intraday wave higher.

DRL Just triggered a C&D trade above resistance

INTC

INTC was a featured short sale last week and this week, it's been bouncing around in a bear flag, typical pattern volatility but now we have the second break, this one is more reliable. Take a look at the trade, it may be one that has some legs, at least for a swing move down.

INTC's negative divergence on yesterday's move up

Here's the break of the flag.

PIIGS are back with contagion

Today Portugal, the "G" in PIIGS issued a 6 month bond, the yield paid to sell this piece of junk went up from 2.045% to 3.686% That's nearly double the last auction! This means the cost of borrowing once again is in the center of european contagion fears and fears of default, the higher yield will do nothing to allay those concerns.

We seem to have a cycle of fear over Europe, then it forgotten about for a month and then it's back, it's not going away and for a simple reason, there's a big problem there and while the ECB is kicking the can down the road creating those moments of peace in Europe, once again we have walked far enough to arrive at the can again.

Here's the Euro's Reaction

5 minute chart

15 minute chart, first red box is the open of the currency trading week, second box is where we are now.

PPHM Just triggered a C&D long @ $2.51

Keep an Eye on TWM

TWM is on the January list, it's trigger for a long position is at $12.58 which it touched this morning.

C&D longs

GLUU has just triggered a Cats and Dogs long position

3C Quick Start

Many of the charts you see here at WOWS are my proprietary indicator 3C which reveals underlying institutional money movements and often contradicts price. To understand the annotations made on charts, you must first understand that 3C has no numerical value, it is a pure divergence indicator. Positive divergences represent accumulation by smart money, negative divergences represent distribution by smart money and when 3C trades with price, that is trend confirmation.

The chart annotation system is simple; white arrows represent relative positive divergences, red arrows represent relative negative divergences and green arrows represent trend confirmation. When 3C is in a white or red box, that represents a leading positive or negative divergence, leading divergences are the most powerful.

We analyse 3C in multiple timeframes, the longer the timeframe the stronger the accumulation. 1-2 min timeframes represent intraday moves, a 5 min timeframe can represent a day or two and 15 min timeframes average trends of a swing trade nature. 30 and 60 min charts can move the market for a month or more and daily charts can be over a year.

You'll get use to seeing the charts and understanding how the multiple timeframe analysis works and works well.

Welcome to Wolf on Wall Street.

The trades featured here are meant to maximize returns with the least risk and highest probabilities. Unless otherwise mentioned, all trades are meant to be executed at market. I prefer long-term trending trades which perform well in rising markets, but really stand out in declining markets. However, we get occasional one day gifts 30,40,60% 1-day gains. I'd urge you to consider taking some or all off the table in such cases, the markets don't give gifts like that often or for very long. Most of the returns that make the system outperform so well come in short-entry trades. If you are opposed to short trades, this is not the system for you, unless you are ok with buying an inverse ETF. If you would like more information about the truth about shorting stocks, just email me.

Risk management. I recommend a specific and consistent risk management approach to all positions. In most cases we try for 2% risk money (2% of portfolio) unless such a position size exceeds 15-20% of overall portfolio in actual position size. Each trader is different and each has a different allowance of open trades. I like to keep the overall money in the trade around 10-15% of portfolio per position in case of gaps against you. Stops are generally executed at the end of day and I personally never place a stop order, all my stops are mental; remember, the middle man gets to see everyone's cards. When you are not in tune with the market or opportunities just aren't that spectacular, I take my risk per position down to 1% or even half a percent of portfolio value.

Each trader is different and must determine their own level of comfort with risk. I do have a channel stop which I provide to TeleChart/StockFinder users for automated stops, I appreciate you using my links to sign up if you do. The Trend Channel catches trends and works well as it automatically adjusts for each stock's volatility. Arbitrary exits based on nervousness about the markets WILL decrease the portfolio performance dramatically. This system will not ever get you in at market bottoms or tops. The recent 1 year performance against the Russell 2k buy and hold had the system beating it by 3:1. Ultimately it is up to you as to how you proceed, but I'm always available to help you determine what might work best for you.

I do use other scans and systems when market conditions warrant their use and may change strategy with market conditions.

The MOST IMPORTANT tool you have to bring you long term success is RISK MANAGEMENT. There are plenty of articles linked at Trade-Guild.net on Risk Management. We can be wrong 75% of the time and still outperform the market with solid, consistent risk management.

Position Sizing

The position sizes noted in the positions @ 2% risk of portfolio are based on a $20,000 portfolio-adjust as needed. Due to tight stops, there is the possibility, even probability that one position could take up the entire portfolio. You need to decide how many positions you want to trade and reduce the position size according to that. For instance, if you want to trade 5 positions in a $20,000 portfolio, no one position should be valued at more than $4,000-not risk money or 2% rule, but share price entry x shares.