Wolf on Wall Street: Friday, September 16, 2011

Friday, September 16, 2011

So far so good

I'm going to put out a post this weekend, probably Sunday that you absolutely don't want to miss. I'm pretty sure from the 3C charts in the longer timeframes this is going to be one of the most volatile weeks we have seen and it is going to take quick action at some point next week to stay on the right side of the trade, but it could also be a huge payday.

Of course I want to get my charts straight and verify what I have been seeing for some time and make sure I have my ducks in a row before presenting it to you, but don't miss this post.

Have a great weekend.

Pretty Amazing

There was some deep distribution today and with that, all 4 major averages moved from the 15 min chart and all went negative on the 30 min chart in 1 day, that doesn't happen often.

DIA 30 min

IWM 30 min

QQQ 30 min

SPY 30 min

What a nice way to end the day/week.

And There Go the Bulls Chasing It

Volume doesn't lie.

Back to the 3CBack to the new 3C Depth Indicator

Note how the indicator in red rounds over at the reversal, we're very close to the same point.

Head Fake Post 2

This little bullish triangle should breakout to the upside any moment now.

I would use that strength to add any shorts I wanted to fill out.

One More Head Fake?

It looks that way...

Here's the daily head fake above local resistance

On the intraday chart we have a nice little bullish continuation triangle, a breakout here would lead longs in to the market and set a nice bull trap.

And the SPY in 10 min Bollinger Bands, notice how they are getting tight, implying a directional move. Even the presence of this triangle will get bulls to buy.

Portfolio Positioning

As you can see below, the SPY which as of yesterday's close was holding up the best, has seen some major damage done to the 15 min chart, which is an important reversal timeframe.

We may get even more distribution, it's difficult to say, but a lot of damage was done today as you can see a leading negative divergence today that wasn't there yesterday.

As for portfolio, today seems to be a good day to be adding those positions you want. I am willing to take more risk on this leg then I was on the last leg up that is ending now. Why? Because I feel there's a good chance we make a new low below the August low and if I'm correct, we'll see on heck of a rally after that like we haven't seen in a long time. For now though, I am filling out positions in the ETFs discussed earlier. While Monday may offer another day to add to these positions, I don't want to take the chance. Some of you may feel more comfortable waiting for the weekend to pass, to that I say, that's fine too, you can still add even if the market starts down on Monday as we should have nearly a week of downside.

Going Short Emerging Markets with EDZ (long)

The recent action in this daily chart is just beautiful, I can tell by looking at this chart without 3C that EDZ wants to rip higher. Today also gave us a little head fake that was promptly accumulated.

Here's the head fake earlier and the positive divergence and look at the leading divergence as EDZ is in a trading range in the yellow box. It seems a lot of accumulation is going on today.

EDZ 5 min-leading positive

A really beautiful 15 min leading positive divergence, again with most of the leading coming today, to move a 15 min chart in to leading position in one day requires a lot of underlying strength.

Technology Bear TYP

I'm really liking TYP right here.

First take a look at XLK-Technology.

This is a 30 min leading negative divergence, one of the worst I have seen so far.

TYP, Technology Bear 3x as I showed earlier today, looks like it saw tow head fakes and it appears both were aggressively accumulated.

The head fakes happened over the last 3 days, exactly where we see accumulation on the 1 min chart.

The 15 min TYP chart is in a beautiful leading positive divergence. I like this one as a buy right here.

Energy/Oil Update-I like the action here (on the short side)

ERY 1 min is positive, but there's a little pullback going on, a nice place to start a position or add to.

ERY 5 min

ERY 10 min

ERY 15 min-so energy is looking good as a short. Since ERY is an inverse ETF, buying ERY gives you a short position against energy.

SCO is also an inverse ETF, you buy and get short coverage against crude oil. This 1 min chart shows the intraday pullback, I want to buy on weakness intraday.

SCO 5 min is positive

SCO 10 min

SCO 15 min

And VERY Surprisingly, SCO 60 min in a huge leading positive divergence!

Some Market News

As mentioned earlier, the Greek bondholder debt rollover that needed about 90% of bond holders to participate, fell short of that mark, not a good thing at all for th Greek debt restructuring, it actually renders the whole process moot. However, in some form or fashion, Belgium has announced that the non-Greek bond holding bailout facility, the EFSF will make up for the short fall. How, considering they are not holders of Greek bonds? No one knows. However, on the close in Europe, there was some major selling in financials.

Market Update...

DIA 1 min, negative on the open, a positive divergence at 11:25 and a possible negative divergence starting now.

DIA 5 min chart is pretty ugly today, a lot of damage has been done between yesterday afternoon and today.

DIA 15 min turned negative on a small head fake this morning in the white box.

QQQ 1 min doing a lot more damage today on a further leading negative divergence.

The 5 min Q chart isn't looking good here.

The 15 min chart is one of the worst I have seen, I think you definitely want some short side exposure to the QQQ, I'm using SQQQ long.

SPY 1 min looks like it could be getting ready to turn down.

SPY 5 min has seen major damage today on a leading negative divergence

The 10 min chart is also leading negative today, so a lot of distribution happening which can be selling or short selling by Wall Street.

The SPY 15 min chart is on of the last holdouts, in a relative negative divergence, I would like to see it really plunge. The white arrow suggests a chance that we see more of this chop of bounces and fades. Remember, the bigger, longer and deeper the divergence, the worse the following move will be on the downside.

Some ETFs I Like

These are the charts of some of my favorite ETFs, again, be careful with over-correlating your portfolio, but that being said, since these tend to me short moves, I like to have broad coverage as there's not a lot of time for sector rotation. You don't need to have all of these or even half, I would just aim to cover some of the different sectors.

BGZ Large Cap Bear 3x 10 min chart, I would not be surprised to see a pullback in any of these, perhaps to or below the red trendline?

DGP 2x Long Gold ETN 15 min chart-I bought a partial position in this yesterday as I announced.

EDZ Emerging Markets Bear 3X 15 min chart, again a pullback could strengthen the divergence and make this a bigger move down, thus I am adding in select areas in partial positions hoping to fill out the position at a better price.

EDZ 1 min is leading positive today

EPV UltraShort MSCI Europe (15 min.), a member brought this one to my attention yesterday when I listed some ETFs, I didn't intentionally not include t, I was just running names off the top of my head that looked good. I like this one and I think it's good to have exposure to Europe, especially with the bond holder roll-over problem just announced in Greece, it looks like they didn't get enough participation to make it work.

EPV 5 min looks very strong this morning, perhaps due to the Greek problem mentioned above.

EPV 1 min, like many other ETFs, the short term looks like a pullback is possible, that would allow you to enter at better price with less risk.

ERY Energy Bear 3X 1 min-this is ENERGY-not just Crude, the 1 min chart is strong, I'm guessing it is because of weakness in the Euro and strength in the $USD.

EUO-if you want to short the Euro directly, this is your ETF. This is a 10 min chart, it seems as if this could build a larger base.

SCO UltraShort Crude Oil 15 min, I like this one and this I think is part of having diversified coverage, just be careful not to over-correlate with an Energy Short. For risk purposes, I might treat them as 1 position.

SCO 10 min chart also very strong.

SDOW UltraPro Short the Dow-30 10 min in a leading positive divergence, be careful with correlations with large caps and industrials.

SPXU UltraPro Short S&P-500 5 min chart is very strong the 10 and especially the 15 min charts are coming along, still I could see a pullback making a bigger base. Be careful with Large Caps and Financials.

SRTY UltraPro Short Russell 2000 1 min leading positive divergence, the 15 min chart is leading as well with about 2 days of accumulation. Be careful correlating with small caps.

TYP Technology Bear 3x daily chart showing a likely head fake.

TYP 1 min leading positive, but showing some signs of a pullback.

TYP 15 min in a leading positive divergence. Correlations to watch for would include small caps to a degree and the QQQ related ETFs.

TZA Small Cap Bear 3x 10 min chart showing 3 days of accumulation, we may get a fourth today which would imply a pretty significant move down that may break the market's August lows as I mentioned last night.

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.