You saw a lot of these already earlier, Leading Indicators was an enlightening look at the multiple dichotomies in the market such as bonds and stocks moving together or VIX and stocks, or USD/JPY failing stocks when it was the last of the levers. First, here's how we ended the day, typically the market will pick back up the next day where 3C left off... There were varying degrees of negative divegrences in the averages, interestingly quite a few picked up in to the close where VIX was used to lift the market even though spot VIIX closed green today, up 1.76%
DIA worse in to the close
IWM worse in to the close
QQQ worse in to the close
And SPY worse in to the close. As for VIX...
SPY intraday in green vs VIX intraday in red, VIX closed green on the day despite the market gapping and closing up, only at the EOD did VIX get a little monkey hammered which seems to be the only thing that sent it higher.
TLT in red vs the SPY is moving opposite of what is the norm, it's a Risk on and risk off trade at the same time or as I suspect as we closed TBT (TLT 2x short) last week, money is flowing from equities from the bear flag boomerang momentum as it loses what momentum the bear trap and Crazy Ivan could create and flowing in to the safety not only on Treasuries, but VIX as well. The USD/JPY surely wasn't supporting the market in to the close as it was the last lever left as of Friday.
USD/JPY 1 min (red/green) vs ES (SPX futures in purple). Every time we've seen a dislocation of ES/SPX futures from the USD/JPY correlation, ES has been brought right back to the correlation which would mean downside and the other issue is USD/JPY looks like it has about had it as it has been loitering after a severe break of several forms of support last week.
$USDX was in better shape this morning, but by the EOD, it was negatively divergent on multiple timeframes which isn't good for USD/JPY.
And the long end of $USD/JPY where probabilities are at 60 min, leading negative.
The Yen for its part is leading positive so if USD/JPY loses even more ground as its loitering period ends, that's even more dislocation for ES to revert down to. Credit as you saw in the Leading Indicators post had given out, I mentioned I'd get a chart of the liquid High Yield Credit, a smart money risk on asset...
Just like HYG and DHY, High Yield Credit didn't trust the market to move any higher today as we saw last week as well. I believe the momentum that was scraped together last week was largely from a bear flag and a large head fake based on a Crazy Ivan used for short squeeze momentum, I think that's about used up, the week before last was the set up that we had pretty much nailed as far as forecasting, last week was the move, this week seems to be the resolution of the move. The way I had imagined a possible resolution Friday was a bearish reversal candlestick pattern, the DIA is a good example of what I'd be looking for and I also put out the SPY 5/10 min chart negative divegrence resolution (Broad Market Update) that I believe will lead to excellent timing as we saw set ups already starting to form in assets like NFLX, NFLX Trade Set-up
This would be an Evening Star Doji, similar to the last failed breakout, the only thing missing was broad market confirmation and volume, but these often show up in pairs or several which are often called "Spinning tops", I believe increasing volume on one of these days with a bearish reversal will be a key element. So I intend to keep looking for assets that are looking like excellent set ups like NFLX out today or FXI also out both Friday and today, FXI / FXP Trade Set-up. Ultimately the watchlist will really tell the story, a few more set ups like NFLX and you really don't need to see much more. This also gives the head fake move I thought we'd see as we see it on 80% of all reversals right down to intraday, so how much more on a large multi-month range/top?
In this case it's not just a range bound head fake breakout, but an ascending (bullish technical analysis price pattern that traders buy on the breakout like today (yellow) that sets up a real bull trap or the entire reason for a head fake move just as the bear flag set up the upside momentum, the bull trap sets us the downside momentum, However what's really screaming "Something is not right", is the divergence in credit, the rally of the "Flight to Safety" bond trade, the VIX ignoring the market and moving with it rather than against it, Yields dislocating negatively and of course, "CREDIT".
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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