Wolf on Wall Street: Thursday, April 05, 2012

Thursday, April 5, 2012

Last Post

I have to get to a 3:45 Dr. Appointment, looking at the 3C charts and other charts in general, the market is moving against all correlations again. It seemed like we saw noon selling from traders planning on leaving early for a long weekend and not it seems more algo driven trade, but I need to take a closer look. The positive divergences on the 5 min chart are ruined for the most part, at least for the SPY, IWM and QQQ, the DIA maintains some semblance of a divergence, however tomorrows NFP print will be the main attraction which won't be acted on until Monday.

I'll update the market and what has gone on in the lat hour of the day later, I suspect though with fewer players/less liquidity, volatility should be expected to be higher.

See ya soon

AAPL Update

AAPL is in a triangle right now, it's probably highly visible, I'd expect several moves around the apex.

The triangle intraday

a 1 min positive divergence

2 min is leading negative, the difference between the 1 and 2 min charts is pretty extreme.

5 min leading negative

Long term the 60 min is leading negative with most of that coming in the last month.

Market Update

The SPY and the DIA picked up a small intraday positive divergence, the IWM didn't and is inline and the Q's didn't, they are leading negative.

DIA 1 min

IWM 1 min

QQQ 1 min

SPY 1 min

ES Update

After the European open, ES sold off on bad economic news and most importantly, ever widening spreads in Spain, which seems to be the country of most concern right now. There were positive divergences pre-market before the NY open which makes some sense with the positive divergences yesterday, however 3C showed a negative divergence at ES's top and has been leading lower ever since.

During regular market hours, there was a lot more volume as ES was above VWAP, I seriously doubt that was aggressive buyers paying up above VWAP, it would seem much more likely that it was aggressive sellers above VWAP and 3C would seem to confirm that idea.

TICK Chart

This is no quiet pullback thus far, the TICK chart just hit -1480, an EXTREMELY low reading.

Also Taking position in FAZ (long)

I don't like loading up too much before a long weekend, so even though I'm already a bit heavy, I'm going to take FAZ May 21 Calls.

FAZ 60 min

FAZ 15 min

FAZ 5 min

Basically I'm a little heavy on Tech and wanted to balance it out a bit with financials.

I went with AMZN May 195 Puts

Looking at a 1/2 AMZN position

I really thought AMZN would do more today, so I'm looking at a 1/2 size position in May Puts, I'll add on strength if it develops.

Market Update

DIA 2 min

ES is now leading negative

Q's look worse 1 min

2 min

5 min

And the SPY looks worse

QQQ Update

The Q's look like they are running in to some trouble here...

1 min negative leading

2 min leading negative

5 min leading negative

Taking a few AAPL $635 Puts

As a speculative trade, a fade on the last run

Resorting to AAPL

Are they resorting to ramping AAPL to hold the market together?

Either way, AAPL looks pretty good as a quick fade trade here.

A little too parabolic, to fast.

Looking at the charts

Just flipping through the charts, the market isn't looking very good here. I know I said expect some early selling around 12 pm, but this is really starting to look bad, Financials especially. AMZN isn't making much progress, I may just have to take what I can get.

Maybe there's some improvement now that Europe is closed, as there usually is?

Currency/Credit

High Yield Corporate is trading below yesterday's close, it has no interest in this move.

UUP shows the market is up against the $USD correlation, again this looks like an artifically lifted market so it can be sold in to.

The lack of correlation with the Euro makes it easier to see the dollar's strength which should normally pressure stocks.

Like we saw the last two bounces, they both saw accumulation, but both rallied against all correlations, were sold off at VWAP and failed.

BIDU

I used May $150

Going to open a short in BIDU

BIDU has filled the gap, very parabolically and is negative on the 1 and 2 min chart. I'm going to look at a May slightly in the money Put position for the model portfolio.

AAPL has filled its gap

Market Update

The market isn't looking very strong here, I thought earlier we may see early selling on a long weekend.

DIA 1 and 2 min turning negative

DIA 2 min

ES turning negative

QQQ 1 and 2 min turning negative

QQQ 2

SPY 1 and 2 min turning negative.

We may not get a gap fill after all.

A breakaway gap would be extremely bearish

WMT Trade Follow Up-New Entry?

WMT long term Money Stream daily chart, leading negative

This is a rather large bear flag in WMT, we have been watching this for well over a month and had some trade entries (short) at the red arrows on the break out of the channel. Ultimately we were looking for the break below the flag to start the next leg down, which has happened this week. However, as we commonly see, breaks of serious support levels often lead to quick volatility shakeouts, so for those of you who didn't already get in to the WMT short and may want to, this may be your chance.

Returning to "kiss the channel goodbye" is a long standing technical concept, the markets recently have become a bit more aggressive then a simple test and failure of resistance, now we generally see a move back inside the channel as that is what is needed to shake shorts out, a test and failure at resistance would only embolden shorts and the market wants to knock as many people out of their positions as possible. So I'd look for a move in to the channel around the yellow box.

WMT's 60 min trend shows the negative divergences, one was at the breakout of the channel and we are now leading negative on the break below the flag.

The 5 min chart looks like it has enough intraday accumulation to make a run for the flag.

However, it seems we are already starting to see some weakness build in on the 1 min chart and just starting on the 2 min below. WMT can still rise in to this weakness, it just suggests that WMT is being sold short in to strength and limited demand on a slow day.

For a new position, I would consider the 2 day trend channel stop of $61.50-$61.75.

AAPL Update

AAPL looks to me to be one of the least bullish stocks for a bounce, thus the reason I left the puts open yesterday and even said, "I wouldn't be surprised if AAPL underperforms the market".

Here's why...

AAPL broke above resistance, this has the look and feel of the same kind of head fake move AMZN is experiencing. A move below $620 should start a flush in AAPL.

AAPL has some 1 min positive divergence, but that is it.

The 2 min chart is leading negative

And the 5 min chart is much worse, along with the longer charts.

For now, I'm leaving the puts open and on a move down, may close then in favor of a longer dated expiration. There's not much of a gap in AAPL, it should be able to fill that, that may be an area to consider AAPL short if you are interested in the trade, a stop can be placed just above the recent highs.

AMZN Update

I'm looking for a new entry in AMZN as I closed yesterday's Put from last Friday (I believe) for a healthy 242% gain.

This is the risk I took yesterday and where a potential problem may be for me. AMZN as of now has confirmed the bull-trap/head fake move above resistance with a 3 candle reversal pattern and a close below former support. there's a lot of overhead resistance now in AMZN, whether it can bounce up through that is the bet I took. Usually when strong resistance/support breaks, there's a shakeout move, when I closed the puts yesterday, I was betting on that shakeout move to come to be able to enter new put position at better prices with a longer expiration.

There's a positive divergence on the 1 min chart that has a leading component to it, but this is still only a 1 min chart.

The 2 min chart has shown several positive divergences and a gap fill and is positive here. Whether a gap fill is possible or not, I don't know, but any upside would be welcome to short in to strength.

The longer term charts from 15-60 min show negative leading divergences, these are more important to the overall trend, that is why I would not have a problem shorting AMZN in to intraday strength.

30 min

60 min at a new regional leading low.

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.