Wolf on Wall Street: 08/01/2015

Monday, August 3, 2015

A.M. Update

Good Morning,

Again as a reminder, we will be transitioning to the new website at www.Wolf-on-WalStreet.com TODAY. This first post is just a reminder.

I hope everyone had a fantastic weekend.

Last Friday in the "Week Ahead" post, the charts look horrible, what I'd call jumping off the screen or "screaming", the kind of divergences that I don't ignore. However I also said in the second sentence,

"My best guess would be that we see a head fake move early in the week, likely Monday, but this is almost exclusively based on concept, but a strong concept."

I'll get a bit more in to this below, but it's really about how obvious the market is at times , how many traders are leaning to one side of the boat and how Wall Street does all it can to make the most number of traders wrong at any one given time as a general rule of thumb.

Honestly seeing this morning's Bank of America sentiment research that put the ratings of sell side analysts at a bullish factor of 52 for the 4th consecutive month reminds me of the contrarian bearish levels from the October lows when I had said something like a monster rally was coming. A reading of 52, which is taken as a measure of sell side analysts opinion on the last trading day of the month is still overall bullish, but well below the long run 60-65% and acts as a contrarian indicator.

As I said on Friday about the Week ahead (excerpt above), the idea that we see some early price strength this week is almost entirely based on concept, not a contrarian indicator like that of BofA's above because I didn't even see that until this morning, but a similar contrarian concept that we've seen many times over in price patterns, the Igloo/Chimney top that finishes a cycle before transitioning to the final stage of a cycle, stage 4 decline.

It's a lot easier to see on charts...

This is the 5 min S&P futures' (ES) 5 min chart which has seen the indicator diverge from price to the downside. This is a prerequisite for me to open any short position as not only price has lost upside momentum, but you can see why as the underlying trade has seen selling through the bounce.

The 10 min chart which shows 3C in line with ES as it declined off the 7/10 bounce to the left side of the chart is price confirmation, but again to the right at last week's bounce, you can see the indicator clearly not following along and negatively diverging which is what I want to see.

However the entire concept behind the excerpt above from Friday's Week Ahead is based entirely on concept...what is easy to see is usually going to be turned on its side or the "Head Fake" a false move that isn't intended to hold, but throw traders off.

Looking at the same chart as above with some of my fantastic drawing, this is what I meant in saying,

"My best guess would be that we see a head fake move early in the week, likely Monday, but this is almost exclusively based on concept, but a strong concept."

The loss of momentum on last week's bounce as there was distribution in to it caused a rounding top that looks pretty obvious as to which direction it's heading, this is where we most often see a head fake and I generally estimate that to be about 80% of the time before a price reversal whether it's a reversal from a downtrend to up or here, a bounce to down.

That's why we have the concept, based on observation, of a price top called an "Igloo with a Chimney". The rounding portion you see above being the Igloo and a vertical pop in price that exceeds the highs of the Igloo forming a chimney, usually a quick move as the powers that be just need to get traders to move, to get shorts to cover or longs to chase price which gives them an opportunity to sell or short in to those higher prices/demand and then the reversal to the downside finishing the structure.

That's what I meant in last week's "Week Ahead" post.

As for the rest of the world, it's like "Second verse same as the first". China is still unable to close green, commodities all around have been hit pretty hard as a result of the Chinese economy, and Europe is just as broken as ever with the Greek stock market opening today after a 1-month closure to a bloodbath with a opening that dropped -22% right off the bat with bank stocks going limit down at -30%, the last I saw it had pared some losses and was down around -16%.

As for the market this week, the "Week Ahead" was strictly my "Gut" feeling based on concept, but as you know I like objective evidence before taking any action so we'll do as we always do and let the charts guide us, but I can't say I'd be upset with a pop higher early in the week as bad as the overall charts look, that's opportunity.

I'll see you in a few minutes. remember at the new website, www.Wolf-on-WallStreet.com

If you have any questions or issues, please send emails to Support@Wolf-on-WallStreet.com

Sunday, August 2, 2015

NEW WEBSITE INFORMATION-Going Live Monday

Hey everyone, Andrea and I just got back from celebrating her birthday this weekend and the first thing I did (other than a quick shower), was come here to say THANK YOU. She had so many birthday wishes from so many of you and those that were sent to me, I forwarded them to her . She read everyone , but would never be able to respond to all of them, so one big thank you for helping me make this a very special birthday weekend as she's worked so hard for me and all of us to get the new website up and running and we'll be adding more feature as we move forward.

Speaking of the new website, as I mentioned Friday, so long as everything went ok with Friday's test (and we only had one issue which was pretty easy to clear up), we'd be transitioning to the new website at www.Wolf-on-WallStreet.com on Monday. I realize we have members across the world so tomorrow the first several posts I'll also put on the Blogspot (former) website as a reminder and so you don't miss anything.

If you have any questions about the new website, changing your password, changing your email delivery content preferences or any other questions, concerns or suggestions, please feel free to email them to Support@Wolf-onWallStreet.com

I'll still be taking emails at my email as always, but for anything website related, please use the email above.

Thank you all for hanging in their with the testing, duplicate emails, transition process, etc. I really think this is a much better platform with much more ability to expand new services and if you have written in about ideas to better the site, don't worry, I haven't forgotten any of them and have them all in a folder so we can look at the feasibility and the best way to implement suggestion/ideas, etc.

So once again, as of tomorrow morning we'll be at our new home linked above, you'll still have the same real time email delivery and the ability to choose specific categories of post types you may want emailed.

I'm going to recover a bit from a fantastic weekend and get ready for the new week I hope you all had the same.

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.