Wolf on Wall Street

Monday, September 27, 2010

1 min divergences

The 1 min divergences are problematic in that they can get run over by a big flow of money, but when they continue to develop into leading divergences , their signal is pretty strong, so we should see some continued downside from here.

It seems not only did theBear Flag get taken out on 2 false break outs-up and down-or at least 1 false as of this time, but all 3 averages hit new highs again triggering orders, putting money into the market makers tin cup for the day. It's been quite an active day for market makers and specialists.

Add the SPY to that

The SPY just started it's own negative 1-min divergence on this last move which appears to be a parabolic run through the top side of the flag I posted several posts ago, hitting orders again.

Negative divergences

Surprisingly, there's two 1-min negative divergences on this last parabolic run up, they are in the DIA and the QQQQ, the SPY is inline. It'll be interesting to see of they come through.

Another Bear Flag Gamed and Breadth

Breadth today has been worse then I've seen it recently.

% of Stocks at new highs

The A/D line breaking down

% of stocks above or below the 50 bar moving average

Negative divergence

Here's a bigger bear flag that formed, note the break down and the volume. More market maker games.

Resistance

Note the long wicks on the candles in the red box-the wicks at the top. This is telling us that there's a zone of resistance there. Note the price level-$114.50, another obvious level to trigger trades.

And the Answer....

IS YES!

Market Maker Fun Day?

I say market maker, but that includes specialists.

Here's a Bear Flag, the traders already took positions on the volume. Lets see if this gets gamed too.

Crazy Ivan Next?

With so little moving the markets so far today, the market makers are going to look for a way to make money, so watch for a Crazy Ivan-the stops below are cleared, now they may go for the $114.80 level and hit orders there, a "Crazy Ivan"

Will Traders Ever Learn?

Again, as usual, huge volume as the trading range support is taken out. Naturally part of that volume is short sellers, but a big part is longs setting stops at intraday support. It happens every single day, multiple times a day and they just don't learn. They're stuck in textbooks instead of learning from the charts.

Morning Update

So far the market is in a holding pattern, this is not very bullish, after Friday's move there should be follow through. Right now we seemed to be stuck in a trading range between $114.40 and $114.80 on the SPY. In the past which ever way the market broke out of the range is the way it would close, but now-a-days, I'd expect to see several false breakouts.

The 5 minute 3C is negative, it could impact prices today, the 1 min has a divergence here and there, but is largely tracking price.

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.