Wolf on Wall Street: Wednesday, August 03, 2011

Wednesday, August 3, 2011

GLD Update

Some interesting action near the close.

Look at that price spike and how quickly the 1 min chart went negative on it.

The 15 min negative divergence is still there.

A Small Victory For Financials

I've been showing this FAZ chart today frequently.

FAZ breaks support-Now has the potential of a false breakout f t can hold through the close.

Volume jumped on the break, we weren't the only ones watching this level.

SPY Through Another Hurdle

SPY breaks through the LN down channel

Volume is picking up again.

TICK Data

The TICK chart is starting to break out of the 1:30-ish downtrend, if it can keep the newly established trend, the market should be challenging its intraday highs.

The effect of the TICK data on the SPY

OMX Trade Idea (long)

OMX is looking interesting here with an ascending triangle.

There's a bit of risk with the stop being under $7.00, unless you choose an intraday level, you may want to consider the trade on a breakout from the triangle and set some price alerts.

Volume is running very high, ZH published a piece earlier about the volume at 1 pm being 63% above the 30 day moving average and on track to make 1 year highs. Considering the averages are at the break even area, this implies significant churning today.

Some Short Covering?

IWM break through yesterday's close on volume...

QQQ break of resistance on good volume, the price action in the white box looks similar to short covering with few pullbacks of consequence.

The same is true of the SPY

This is the accumulation of the lows that I mentioned in the last post-SPY

USO Update

As many of you probably remember, my expectation for USO after it failed to convingingly breakout, was for a pullback where it would be accumulated to take a second shot at resstance around $38.40-$38.50.

There are some initial signs USO is making a move.

USO 5 min

SCO-Ultrashort Crude 5 min

UCO Ultralong Crude 5 min.

Financials Moving

FAS-Financial Bull ETF

FAZ Financial Bear ETF- closing in on the breakout level

XLF like many other averages, looks like the lows this morning were accumulated.

Update

Now seeing more improvement in the SPY, QQQ, DIA and especially the NASDAQ A/D line.

Also AAPL which has been able to hold the line in it's range is showing improvement along with GOOG, BIDU also showing improvement since 12 p.m., RIMM, MSFT, MCD, GE, AMZN showing some potential, C, IBM also showing some potential here, YHOO to name a few...

NASDAQ 100 A/D ratio

RIMM Update

As most of you know, I'm no fan of RIMM, however in the last update I thought we should be on the lookout for a Crazy Ivan, first to the downside, and then above the trading range. RIMM is an interesting stock today.

RIMM trading range, I would like to look at RIMM as a short above the trading range. Note today's gain of nearly 5% and increasing volume. Also note the break of support, setting up a potential Crazy Ivan shakeout.

RIMM 15 min, this is part of the reason I suspected a Crazy Ivan shakeout and a move above the trading range.

RIMM 5 min 3C has called all of the moves up. It's now leading.

The 1 min chart suggests a pullback

This is one potential target, at which the risk on a long entry is pretty low with a stop below today's lows.

This is the second potential pullback area.

Ultimately I'd like to get good short positioning on RIMM above the trading range.

Market Update

If you caught last night's market wrap then you probably understand the thinking as far as today's action. I've compiled a bunch of charts and in the interest of expediency, they may not be in the order I'd prefer.

This is the most important DIA chart of now, being it's positive on a 30 min timeframe, all of the shorter divergences that are seen more or less, if they are strong enough, filter in to the longer timeframes, 30 min is significant.

The IWM this morning on the dip explained last night.

Again the 30 min chart is the most significant, you can see where it turned the market down on the last (negative) divergence.

QQQ is also positive on the 30 min, these charts were not this strong a few days ago.

This s the NASDAQ 100 Advance/Decline ratio.

SPY on a long term (55 period) TSV positive into this morning's break of the March low.

Here's the March low, a signifiant level and one that probably drew in a lot of interest on the short side, this plays in to my thoughts from last night

SPY 5 min remained positive this a.m.

A break above the March lows will be signifiant, although I would expect some volatility in the region, it also may not be a bad place to enter long positions on a risk:reward basis, being you have several stop options close by. The red line os the widest of those stop options.

The sectors are starting to fall inline, Financials, Staples, Industrials, Tech and even Discretionary. Basic Materials and Energy remain to be seen.

The Tick chart washes out on the break of the March Lows and since has been pretty strong at +1000 readings.

For Financials, FAZ is an ETF to watch as it made an important breakout, should the breakout fail, FAS will be looking pretty good from a risk:reward and probabilities perspective.

This a.m.'s 3C on a new FAZ high, this is the breakout level at the red trendline.

UUP 10 min looks like there's going to be more pressure on the dollar.

FXE (EURO) looks like it will be putting that pressure on the dollar, despite Italy.

FXF may not be useful as there was an intervention in the currency since yesterday

To the extent that it may still be useful, it's showing some negative signs.

UUP Follow Up

Yesterday I posted two updates on UUP (as a proxy for the Dollar Index being there's no real tme data for 3C on the actual Dollar Index). Both posts concluded UUP/$USD was preparing to decline.

Post 1

Post 2

Here's UUP this morning...

We'll see if the chart below takes UUP lower as it suggests.

30 min negative divergence, would suggest lower prices for UUP over the coming days.

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.