Wolf on Wall Street: Friday, January 07, 2011

Friday, January 7, 2011

WG Triggered on the open of 12/31/2010

There's nearly a 10% gain there. Looking at this trade, I'm guessing that it will go higher in the future because it shows a double bottom base, however, in the short term a pullback is looking likely. You may want to take some gains and re-enter on a pullback.

JPM Follow Up

When JPM broke out of the range it had been trading in, I suspected it may be a false breakout-these are profitable trades as they reverse.

There were negative divergences on the breakout, yet it went higher. The last few days, 3C has failed to confirm the higher prices.

Today JPM is down on increasing volume. The highest probability trade will be a break of support around $41.50 or so, at that point it could quickly move to the $35.50 area-next major support. If/when the first break of support occurs, you may want to look at this trade as it could and probably would fall fast. I think you have some time before then, but the rate of decline today and the rising volume is dangerous for the longs in JPM.

LNG UPDATE

LNG triggered 12/30/2010 at $5.89, it's done well with gains as high as 19% on an intraday basis. The implied target from the pattern is around $7.50-it touched $7.01 this morning. At this point I'd be setting up a trailing stop. If you need ideas, email me.

While triangles have been heavily manipulated in the averages and higher priced stocks, they continue to perform well-as they are expected to in the lower priced stocks. The reason? Blackbox firms just can't make money on these low priced stocks.

XLF Update

As of now, XLF has taken out the last 4 days of closes and the volume is very significant. This may be due to the Mass. high court decision, but we saw signs before today. Financials are definitely in the crosshairs.

Look at that volume-being it's so large, I think the court case had something to do with it as the outcome could not be priced in.

More C&D Trade Management

ZBB triggered Jan 3 at 9:58 a.m. at $1.20 as of right now, it's up 25% and as high as 32% on an intraday basis.

When I tell you to keep in touch with me regarding trade management of these C&D trades, here's a reason. Look at the base on this trade, look at the accumulation. A trade like this has a higher probability of continued gains because the size accumulated was so large and it needs to be distributed into higher prices which tells me it's likely to last longer. So do you take a 1-day gain? That's up to you, but I'd let you know about the base and accumulation and lay out options such as phasing out f the trade at higher prices, put a trailing stop in place, etc. Other trades are definitely one day pops. So take care to manage these well and email me anytime for a second perspective.

Second Verse for CFW

CFW already triggered once for us and produced a 28% 1-day gain. I really like the looks of the trade here as it's consolidated the gains from the last move which we caught.

Here the daily 3C chart has shown accumulation before the last move up and it continues during the triangle consolidation. THIS IS a CATS & DOGS trade. Gains are big and fast and don't last forever, but there's a base here and this may be able to produce a small trend. I'm adding this to the trade list which I don't usually do for these trades, it's because I like it here.

Here's the last move which we caught on an intraday trigger-as much as 28% in a day. The next breakout from the consolidation is likely also going to break out of the base. You can wait for a breakout of the triangle for a higher probability trade or take it here in favor of greater gains.

The stop I'm using for this trade is $.35 to give it some room. If you use a stop that wide, be sure to watch your position size isn't too large. If you are not comfortable with a stop that far, you may want to wait for a breakout above the $.40 level.

More Cats and Dogs-BQI

We have been seeing a killing in these trades, they aren't easy to find and for many people they aren't easy to take. the hardest part is knowing when to get out.

On January 4th alone, look at what happened with a cluster of 4 trades that triggered and one of them, I want you to watch in particular today as it is moving-BQI.

PSID posted a 1 day 19% gain from the trigger. MVIS gained as much as 13% in a couple of days, AEN triggered at 1.44 on the 4th- a 32% 1 day gain from the trigger. Now BQI from the same list has shown some significant gains today. The point is, these double digit gains are hard to find, we've seen a lot lately, but finding them and entering them are just the start, then there's manageing and exiting them. As I've said, these are short term gains and you don't want to lose them. I favor taking some or all off the table on any double digit gain, if I leave something on the table, I run a trailing stop nice and tight. The trades are there, the gains are there-don't refuse a gift from the market, they don't come all that often.

You have to do what fits your trading style, but I'm here to help in any way I can so email me when you need to and perhaps we can extract the maximum gains.

CPST-Don't lose those profits!

CPST was a trade that triggered yesterday at 9:41 a.m. at $1.05, the gain today could be higher then 12% for those who took the trade. Be careful not to lose those gains, double digit single day gains aren't easy to find. If you need any information on the trade, stops, etc-PLEASE EMAIL ME. I just saw Whitney Tilson's Fund did 10% for the entirety of 2010-here's a 10% one day gain!

TWM From January Trade List Just Triggered

Remember, this is an inverse, leveraged ETF which is a short on the Russell 2000. Details can be found on the January trade list linked at the top right of the site.

Keep an Eye on SRS

Today a Massachusetts High Court dealt a serious blow to the FraudClosure scandal and US Bancorp and Wells Fargo.

I can't see how this can possibly be god for real estate. SRS is a favored trade and $18.50 is a level in which I think it deserves some serious consideration.

As you can se, SRS is trading near that breakout level, as high as $18.42 today so keep this ETF on your radar-it's an inverse leveraged short on Real Estate.

As Usual, the Devil is in the Details

NFP misses consensus, the unemployment rate drops...blah, blah, blah.

Headlines aside, here's what counts. This is the way unemployment was counted during the Great Recession, the much ignored U6 unemployment rate, which is the broadest measure.

It seemed to level off, now it's back on the rise. U6 jumped from 16.3 to 16.6%. This represents 3 months of deterioration and the highest since July 2010. but don't expect to see that information in the Headlines.

The average amount of time someone is unemployed also increased. Also the last reading, as usual was revised higher, a disturbing trend when one considers the revision rate which is almost always revised to a more negative number, not positive, so the data seems to be massaged for the release. The next release will most likely see a negative revision as the effect of the "seasonal adjustment" on NFP is highly questionable.

The bottom line remains, that nearly 1 in 5 are not making it according to U6 and the real detail that remains largely unaccounted for is how people who are employed are doing. Being employed is not always enough to make your bills, pay your mortgage and such. As I've talked about, in our own private experience-(our family cafe) no one working there is making the kind of money they made several year ago. Architects nearly making 6 digit salaries now forced to gather what they can for their families at minimum wage.

I really wish people would wake up, read the reports and understand that the headlines are always going to be massaged. Like I said, the devil is in the details and with the U6 rate edging up a 3rd consecutive month, despite QE2, there's a lot of people not making it and they are largely being ignored as the media hails the green shoots that are the headline numbers.

FX Market-The Euro

It was bound to happen and now it has, the Euro has crossed below $1.30-there's a lot of volatility as the Euro is trying to be propped up as $1.30 is an important psychological level. FXE is a trade you can take, but it's not going to produce huge gains. What's more important is the relationship to the dollar, which should rise, although we didn't have great news today on employment. As I mentioned last night, a rising dollar will affect commodity prices, so I'll be looking at those trades.

Still Raining Cats and Dogs

IVAN is the latest, it's limit long trigger is $3.07, it's trading in the area-this will be a breakout above that level. Make sure to keep an eye on it and remember these aren't trending trades, I prefer to take gains or partial gains pretty quickly.

Market Update

Yesterday around 1 p.m. it was pretty obvious distribution was taking place, perhaps the jobs number was leaked, it wouldn't be the first time we've seen such action.

The divergence is now on the 15 minute chart and SPY has broken some initial support.

STI Follow Up

Yesterday STI was a trade posted for entry, it looked bad, it continues to look bad and just took out some support at $28.50. Anyone trading any of these who needs swing or trending stop updates, just email me.

3C's negative divergence isn't slowing down at all on the 15 minute chart, an excellent time frame to catch swings.

This 1 min chart depicts the action this morning, note the increased volume on the break of support. Since the entry yesterday, STI has given up another 2% today.

Follow up on Financials

Yesterday, one of the last market updates of the day, I noted XLF has seen distribution the last few days and looks to be reversing, HERE'S THE POST

Here's XLF this morning

Here's the decline this morning on a minute chart-note the volume increase.

Here's the distribution I mentioned yesterday, so far there's no sign of it letting up.

UMC a C&D trade Just triggered at 3.22 long

JSDA

Many of you have been in this trade, probably at a small profit, today it's breaking out-it's still in a tradeable position. Take a look.

MOS Swing Trade +?

Take a look at MOS, it's not quite the commodity play I talked about last night, but it's related certainly.

MOS broke and rallied once more, it looks like it's giving way today. This is a pretty decent low risk position to try a short trade with a stop above yesterday's high. This will be on the January trade list.

Here's the 30 min 3C chart looking very bad at the attempted highs that did not hold.

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.