Yesterday I mentioned several possibilities and among them was a "W" shape base which requires the market to pullback this a.m., in fact in my 3:55 p.m. post, "Working Thesis" this was my final opinion, "My assumption is the market is going to build a bigger divergence, this is still not very big or strong, but it needs to move emotions, today didn't do that.
I'd say look for the SPY to pullback to $165.8- or so and accumulation to pick up on the second leg of a small "W". We'll set some new positions there." I actually meant SPY $164.80 as $165.80 would be no where near a "W" bottom, in fact it would still be within yesterday's range. Thus far we are on track and there are a number of things lining up that are suggesting that we continue to be on track so there may be some trades thrown out there if they look strong enough, I don't want to get caught with my hand in the cookie jar here. The charts...
I can't draw the "W" as it should be on the right side, it doesn't need to be as wide as the left, in fact it probably won't be, but we have a "W" as was the idea yesterday. This is a base that can support a small or short move that is strong enough to do what yesterday didn't, Move Emotions, tap in to fear, overrun longs with greed.
SPY chart today at the bottom of the "W" in a leading positive divergence; the price formation is there as is the 3C confirmation of accumulation.
SPY accumulation in the "W" and starting to build on the second bottom on a 5 min chart- That's what we are looking for as per yesterday's post.
SRTY (inverse/short IWM) is going negative confirming the IWM accumulation with the SPY.
And the QQQ are obviously there too. The actual mechanical lever to move the market up will be the USD/JPY, when it moves higher so does the market, for that to happen, the USD has to move up and/or the JPY has to move down. The Yen is in line, the USD below...
Well that's a strong leading positive divergence so I'm guessing we see a move higher in the averages sooner than later.
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.
Futures Update BR-EXIT Edition
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So the conventional wisdom couldn't have been more wrong. Those chasing
risk and closing hedges couldn't be in a worse place right now. I would
still remin...
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