That Did the Trick

Last night I mentioned we had a lot of economic reports, out, nothing really all that spectacular happened, but as I suggested, it was excuse enough to spark the market to rally  and gap up we did. We have some trades off to a nice start, many have chosen to go with a leveraged long Oil ETF like UCO, rather then DBO, but both are doing well so far. I think there's still an opportunity to get in although you may want to wait for a pullback. I'll let you know when I see one coming.

Remember that this isn't going to last forever, and if you are holding short core positions it could get a little scary, but in the end, you'll see that in all likelihood, this is just a jiggle and gyration that makes up the market and we'll be off to test another support level which will most likely fail and bounce and down again, so on and so forth. So we are in good position with a core short and some cash to work these little bounces that pop up.

I'll be updating all afternoon, so stay close...

5 New Trades Are Up

Just scroll down to the bottom of the list. There's some nice looking charts there.

The Wrap

Today, the Q's and IWM  outperformed-Tech was up. The S&P just eeked out a positive return and the Dow just missed a positive return. Breadth was pretty even today. You know there's only 1 person I read with any sense of regularity and that is Don Worden's nightly commentary on TeleChart (it's that software I use and recommend-there's links at the top of the site). Tonight Don said the market didn't do much, but it's improving. Hopefully it improves right into a nice bounce.

The IWM actually put in a bullish engulfing day today, while the index it tracks, the Russell 2000 closed up but just missed the bullish engulfing reversal pattern. This suggests to me that traders are more optimistic, but it's not a sure thing as this is an ETF with approximated gains.

The Q's failed to do the same, but volume was up in the ETF today, a positive day, actually the most bullish price/volume relationship.

The Dow 30 is a picture perfect loss of momentum as illustrated by the range of the body of each successive candle. A doji, like today's is often found at reversal points.

This is the beauty of candlestick charting, it gives you so much more information at a glance then any other representation of price.  Note the similar pattern just below the red trend line and look what happened after. Note that the Doji day began the reversal, and today was a Doji day as well.

Interestingly, the S&P-500 put in a hammer candle today, known as a reversal candle with the phrase, "Hammering out a bottom" while the SPY looked quite different, but it's full body closing above the ATR for the day can only be interpreted positively, unless you look at the volume being down.

As 3C suggested, the dollar was down today, although on very light volume, which fits perfectly with my notion of a possible bounce. There wasn't a hard sell-off in the dollar, just a pullback on low volume. Remember, the dollar typically trades inversely against the market, oil and certain commodities, as well as multi national corporations.

Tonight, I can not turn to 3C as I'm getting mixed readings. I don't consider a signal valid unless it confirms on all 3 versions and I have no confirmation tonight. My assumption is the pattern will continue tomorrow with a gap down that is bought and this market only has a few days left in my opinion to make it's move.

Markets correct in two ways, one is through price, like pullbacks, the other is through time. Recently the last few days, it has been more time then pullback. My other assumption is that the market is accumulating on the cheap, on the gaps down and selling the highs so it doesn't launch yet. There will be a certain amount of accumulation that needs to take place at a specific target range and when they are done, that is when you see a move. However, news is sporadic today, but in general, we have to assume news will be biased toward the negative, so if this market doesn't get launching soon, it will eventually hit a bad news day with a flood of sellers. I don't know if this bounce is that important for smart money to absorb all of that supply and still try to take the market higher, so I think if it happens, it's in the next day or two. We have enough reversal signals in place, the market is taking bad news in stride so far, tomorrow seems like an ideal day.

With the Fed buying treasuries, I found this story to be interesting (remember I said the truth usually comes out a few weeks later) well this could have some correlation to the Fed's buying.


http://finance.yahoo.com/news/China-reduces-holdings-of-apf-290032879.html?x=0&sec=topStories&pos=7&asset=&ccode=

Tomorrow morning we have a bevy of announcements coming, perhaps there's something in there that sparks the market. All before the bell we have: Housing Starts, Building Permits, PPI, Core PPI, Industrial Production, and Capacity Utilization. Any one of those coming in above consensus could be excuse enough to get the spark flowing.

I must tell you again though so there's no misunderstanding, the market is in a bearish place, judging by history, if it's true, as Mark Twain said, "it doesn't repeat, it rhymes" then we are in a very bearish place. A bounce here is for short term trades only and really you can sit it out if you choose to and wait for it to start to reverse, at which point, we will have a plethora of short items to sort through. Many stocks on my watchlists are just several percent away from being the types of setups that you really couldn't ask for more. This bounce, if it happens, which I'm inclined to believe it will, will be a gift from the market, I'm salivating just looking at the prospects-high probability, low risk, long term trend trades.

As I have posted, one of my favorite trades for a bounce will be DBO, certainly if the dollar continues down, it will only help DBO. This chart seems to indicate someone with deep pockets is thinking the same.

I'm going to check my scans again tonight and see if any new candidates are on the radar screen, if so they will be posted.

Tomorrow should be back to business as usual, today I had some unexpected interruptions, I apologize for any inconvenience.

To remind you of where this market really stands, I leave you with this chart....

Final update

My minor emergency requires that I am away from my computer until after market close. So far, there's nothing unusual about today, it's almost a mirror image of the last several days, gap down, buying and then distribution into highs with a little buying here and there near the lows. It should be decided after 3 pm, it'll either do as it has done and give up some of the day's gains or it will put together a strong late afternoon advance. They are not tipping their hand yet, except to say they keep accumulating at the gap down, they may have accumulated more then they've sold, I can't tell yet. The market is in a good lace for a bounce, but until we see it, I'd still have that short portfolio in place. Interestingly, the 5 min chart is stronger then the 1 minute, maybe they are accumulating more on those gaps down?

I'll answer your email when I get back, my apologies for the inconvenience.

Update

Right now, it's more of the same, drop it down, buy and then ...? I don't know that we'll see any real action until the afternoon, 3C is confirmed the little rollover and may be starting the next roll up, it's too early.

WTR did trigger short today.

I have had a minor emergency come up today so if I'm a little slow on the emails please forgive me.

Don't Forget to Take a Serious Look at That DBO Long Trade

DBO is a leveraged ETF for oil, even though it seems to be down in Asian trade, there seems to be strong accumulation in that ETF with distribution in the short ETF SCO.

So long DBO, I think it's a trade that's worth seriously considering. I doubt it lasts too long, but DBO can really move.

Few Trades Are Up

These are speculative trades, they're all at market open, but read the notes. these are the tyoe of trades that can return double digits in a day, but are also volatile and speculative. You have to always keep risk management first and foremost in your mind. If the market bounces, these are likely to pop. Don't get greedy, don't expect them to run forever, it may only be a day. I always say, if the market gives you a gift, take it and double digit returns in a day is a gift to be sure.

When the market/if the market bounces, which I think we'll see early this week if not tomorrow, then we will start looking for stocks rallying into resistance. Don't forget to set your alerts, the free stock charting program I listed earlier has that capability.

Junk Bonds

I just did a follow up story on Junk Bonds at Trade-Guild, you might want to check it out. This is what I call a piece of the puzzle-it' not a light bulb that just lit up, but it fits in there.

COT is in this junk bond class and the trade did trigger, just keep that stop in place and moving up to lock in any potential gains. the good thing COT did that others did not was to buy out it's competition where others used the proceeds to refinance debt or to pay special dividends, COT actually used it to get a leg up so the trade might not be all that bad.

In any case,

You know the oil long I'd take a shot at. If we get the bounce, I'll be throwing a lot of trades your way, fir the bounce, I still really like the leveraged oil trade (see posts below).

ETFs that you might want to consider, especially at higher prices that are inverse, which means you buy them, but they give you short exposure, include the following...

FAZ, TWM, EDZ, SRS, EEV, FXP, ERY, SSG, SPXU, SRTY, SQQQ, SDOW,  and SMN

LOOKING AT 3C, MY MOUTH WATERS. These are leveraged and set to fly. I would not use ETFs exclusively for short exposure to the market, you need stocks too, but the leverage of these makes them very attractive. If you look at a 5-day chart, each one is a buy right now. We do have this possibility of a pullback, but what if we don't get it? You may want to put together a plan of which of these you like, be sure not to over-correlate. I don't think you need shorts on the S&P, DOW and the Q's  as they are likely to move together, but you may want one of those, China , Financials , Real Estate, etc. So figure which you like, what your allocation will be and consider phasing into them. Maybe you pick up 25% of your intended position now so you have some exposure in case the market just drops like a rock, then you add some in a market pullback/bounce, then you add a little more as we break key support levels and by the time the SPY is under $101 you'll want the position filled out. You'll be playing it like the big boys, you'll be accumulating. You can use a VWAP and buy under the VWAP-Stockfinder has this built in, I have the code for TeleChart-the tabs for both are at the top. I don't think these ETFs will pullback to their 10-day moving averages, there doesn't seem to be enough accumulation in the market for a bounce that big, but maybe they do, that would be an ideal spot to add a nice chunk.

If you have questions about these and how they may work with what's in your portfolio now, email me and I'll gladly give you an opinion if I feel like I can be of some help.

So... Junk bonds, the ETF isn't looking good. I smell default. With banks not lending, if junk bonds implode, where in the world will the money come from to keep these troubled companies afloat?

Have a great week everyone. If I see anything exciting, you'll find it here or on the list later as I'm off to go through some new scans I've set up.

WOWS Members Only Video

In this video I'm going to introduce you to an entry system that will serve you well in a market that is trending, but is in a counter trend move. Right now we consider the market to be trending down, but as you know, I'm expecting a bounce which will set up some great shorts. The problem is, although we have a good idea of when the market will turn, we can't say the exact day with 100% certainty. So I may list a limit order trade based on my belief that the market will turn in the next day or so, but in reality, perhaps the trade continues higher before it turns and becomes a great short entry-the higher you can enter the short, the more money you can make. So we will call this system of entering a trade "Swing 1" and typically I will tell you to use a 2,3 or 5 day chart, which reduces the noise and gives us a clear picture of the trend (counter trend) up and where and when that trend reverses at which point we want to be short.

The entry can be made on an intraday basis as the trade triggers during the trading day, however, the stop should always be made as close to the closing of the market as possible, not intraday. If you have questions about the video, please email me, I know it's a new concept, but it is designed to get you the most profit in a trade with the least amount of risk.

Remember this is a member's only video so you'll need access to it, use this link as it is an unlisted video and will not appear in any public places, you will only be able to access it with this link.

http://www.youtube.com/watch?v=P7md3_bXkao

So remember, if it is a limit order trade, watch in the notes for "Swing 1 Entry" and the type of chart-"2-day chart" or "5-day chart". If you need access to free charts in real time, this is the only place I know of that does not have the 20 minute exchange implemented delay (the exchanges charge for real time data).

FREE Stock Charts from Worden! The Web’s Only FREE, Streaming Real-Time, Web-Based Charting Service! 

Here's the link to the junk bond story

http://online.wsj.com/article/SB10001424052748703960004575427690901781072.html?mod=WSJ_hpp_LEFTWhatsNewsCollection

This means investors see the market as no longer affording them returns, they understand the rally is done. The treasuries yield is too low, so they are creating a new bubble in junk bonds which will probably become another problem down the line, but for now, it's good for us and our long term wealth accumulation strategy. Note COTT Corp mentioned. Isn't it interesting that I saw accumulation there and then they issue junk bonds and buy out a competitor. the trade triggered late last week as a long. This is what I mean about market manipulation, it is everywhere.

Thanks for Your Patience

I've had/have a bit of a high fever, right now it's broken for a few hours so I figured I'd catch up with the site.

The last few days all I hear about is this Hindenburg Omen, which is supposed to predict a crash in the market anywhere from a day to several months after it is observed. Apparently one occurred on Thursday and people are talking about it everywhere.  It saddens me a little because this top has been obvious the entire year. Distribution set in last October after a large long position was accumulated between November 2008 and April-May of 2009. The rally, while it was a very tradable rally, was destined to fail. I watched as distribution became evident around October. Any reading you will do that I have written about this rally, I never mentioned it without the accompanying words "Bear Market Rally"-a historic one at that. After the crash of 1929 we had probably what could be classified as 5 bear market rallies. Bear market rallies have a specific purpose, they are strong, they are convincing and after they go on for a bit, people believe that they are missing the new bull market so they are designed to pull money into the market, institutions would be the ones selling into the rally while the average guy is buying, then they top and fall, usually to make new lows. In the last few weeks I posted several charts of the 2008 sell-off and the 1929 crash and how similar our recent market was to those markets right before they crashed. We did see the decisive break of the final rally of this top on August 11th. Even if we were to make new highs, that day was the day that this market cracked and sealed its fate. See the charts below...

This is a large base of accumulation, note the 3C positive relative divergence and then a leading divergence. This is where Institutional money "stocked up" so to speak, a rally was inevitable.

During October, as prices were significantly higher, we saw institutional money's first signs of distributing those shares they accumulated into higher prices.

It was also around this time that a top took shape, a very reliable H&S top that looks remarkably like the 1929 top before the crash and almost identical in many ways to the top that crashed in 2008. This is an area of volatility smart money uses to make trading profits by using volatility to knock traders that were once riding a bull trend, out of their position as their biases from having made money on the uptrend keep them in the trade in hopes that this is actually the new bull market. It also allows institutional money to distribute remaining shares and set up short positions for the decline to come

This is an hourly chart of the top of the final right shoulder-as I said, it looks very much like what we saw in 1929 and 2008. 3C picked up accumulation that setup the July rally, but as you can see, they distributed shares at the start of August and quite aggressively. The breakdown below the bearish ascending wedge was indeed the last straw.

So when I read about this weeks, Hindenburg Omen, I think to myself, "A little late" . IT also saddens me because technical analysis is about hard work, it's about looking for the small things the crowd missed, it's about putting the pieces of the puzzle together, the indicator above 3C's very name embodies this concept as it stands for "compare, compare, compare". However, technical analysis has long received a bad rap because many see the practitioners of TA as purely lazy, always on the quest for the "Holy Grail Indicator" and plainly spoken, there is none. It's about thinking for yourself, thinking outside of the box, being observant and only placing trades when probabilities are greatly in your favor. The closest thing we have to a Holy Grail is the much ignored concept of risk management.

A quick word on risk management....

Society has traders brainwashed to their own detriment. From out first experiences in school, we are taught that we must be right 70% of the time to receive a passing grade. Many traders bring this notion into trading, which is a huge mistake and has given rise the the saying, "Do you want to be right or make money?" I think that I could be right 70% of the time, but to do so, I'd have to take profits very quickly and they'd be small. This is a fast way to losing everything. To put it into perspective, think bout baseball's batting average- 400 batting average means you hit the ball 40% of the time, it's a hugely successful number. Babe Ruth had a batting average of 3.42 meaning every time at bat, he hit the ball a little less the 3.5x out of 10 tries. A batting average above 300 is excellent, a batting average of 400 (still failing more then succeeding is described as nearly unachievable. This is why risk management is the KEY to your success. If you can keep your losses very small on the many "at bats" or trades that will not succeed, you give yourself the opportunity to live to fight another day and eventually, even purely statistically, you will eventually hit that huge home-run that will make up for all the small losses and put your portfolio in the positive.

Back to the Hindenburg Omen, this appears to be the latest search for the Holy Grail and thus saddens me for the things that count the most, hard work, thinking for yourself, excellent risk management are all forgotten about as people rush to understand the Hindenburg Omen, which for many of our members who were able to short at much higher prices and make significant returns on the June decline, it would not have done a thing for them. And the Omen came on Thursday, as you can see by the last chart, we were well aware the market was ready to break the final straw long before Thursday, which hopefully allowed many members to take up profitable positions when the market was still at higher prices.

Now, moving forward. There appears to be enough accumulation in the markets, distribution in the dollar (short term) to suggest a bounce. I have tried to be diligent in giving you some short term trades that will allow you to make some extra cash on the bounce, but understand they are bounce trades only, although there may be a few that have more opportunity to trend against the market. If you happen to be in a long trade that is trending against the market, email me and we will look closely at the prospects. Unfortunately I can not update every single idea I post as I'm already working 14 hours a day or more without that extra burden and why update trades that no one may have taken. This is what email is for and I will give you everything I can that you need if you email me with your trades including stops, trailing stops, targets and any other relevant information. If you do not understand a trade, email me. I'm here not to provide ideas and insight, I am here hopefully to contribute to your success in the markets. I'm tired of seeing the manipulation and corruption that makes it difficult to beat the market. Luckily I've been blessed with tools to do so and I intend to use those tools to help you beat Wall Street at their own game.

I do feel the most probable course is for a bounce, but things are happening so quickly, the economy is deteriorating so rapidly that even smart money reserves the right to change their minds. The charts below show the best evidence for a bounce in the market, they are all in or have been in a positive divergence recently.

(UUP as a proxy for the $USD) and with UUP in a negative divergence, this just adds to the probabilities. Remember, this is a short term bounce in the market, your core position trades should be centered toward the short side.

A bounce in the market is likely to be fairly extreme, it will likely cause you doubts and to second guess your short positions, that is the intent of a bounce. It is however a blessing for us as it allows many to enter or add to core short-side position trades at better pricing. IF we don't get the bounce, hopefully you have already started taking on the short trades that have triggered. It's not anywhere close to too late to get involved in shorts as this market, in my opinion has a long, long way to go on the downside. In the coming days and weeks I will be teaching you to leverage the shorts you have to be able to make more then 100% on the position, it is possible, although this is one of the many myths about short selling that is inaccurate, "You can't make more then 1005 because a stock can only go to zero", this is a fallacy.

As part of your membership here and as my goal, you will learn how the market truly operates. For instance, the rally that started around March of 2009 did not materialize out of thin air or because of good economic news or any of that. 3C shows you clearly that institutional money stocked up in advance, they had every intention of taking this market higher and we could see that long before it actually happened. The market to some degree, is pre-destined, we are lucky  that 3C is effective in seeing that.

So this week, we may see bad news come out and don't be surprised to see the market rally despite it, as it seems that smart money has already committed capital to long positions that they will want to sell at higher prices. It is just difficult to know what their true average cost is and therefore how high they need to take the market to realize a return on their investment. This is an indicator I have great interest in trying to develop, one that estimates their average cost.

Finally, you are my members, you are part of the Wolf Pack. If you'd like access to my indicators yo use yourself, just email me and if you have a compatible charting platform, I'm happy to share them with you.

If you have questions please email me and any interesting trades I find will be updated on the spreadsheet. Thank you for all the get well wishes and thank you for the emails about your successes, I am inspired all the more to hear about them.

Enjoy your weekend. I'm off to bed for a bit...