Wolf on Wall Street

Wednesday, September 29, 2010

SMH back to a small positive divergence

with the Q's the way they look, the SPY now in limbo, I'd expect we'll see another move up in this very choppy market. There are 5 min divergences in many of these stocks that are borderline leading negative. If that happens then we should see a more definitive character to today's trading.

The Q's Hanging on stubbornly

The Q's have actually formed a small positive divergence. It's on the 1-min chart. The 5 min chart-which is more substantial and takes longer to turn is in a negative divergence, so maybe a move up and then the 5 min divergence kicks in....

SMH/SPY

The correlation seems to be back to a degree, the same consolidation in the SPY right now is exactly the same as SMH, so when/if SMH reverses down, SPY should continue down

SMH

Looks like it is getting set to make a turn downward on 1 min charts.

Leading Divergences 2/3

The SPY and the DIA have gone into leading negative divergences, suggesting in the short term-over the next half hour or so, price should follow them down, the QQQQ is negative, but trading with price and not leading, not yet any way.

AAPL

There's a huge triangle forming in AAPL. Yesterday there were a few sales that really knocked AAPL down, I'm not sure where this is headed, but the initial breakout, may be correct in direction, but it probably won't be the only breakout as this pattern is so obvious. I'd keep an eye on this one as a barometer of the market.

Right on the nose

Literally one minute after I hit the "post" button. Lets see where this is going.

3/3

We now have 3 negative 1 minute divergences, so there should be a turn down soon, -how far down... we'll have to wait for the 5 min divergences to form.

Market Makers/Specialists Games

They just took the SPY down to 114.02, with a one -minute hammer reversal, thereby insinuating support is safe at 114.00 as the human mind gravitates toward the whole numbers anyway. Now watch the volume when the market breaks $114.

Morning Update IT'S ALIVE

APPL's 1 min chart yesterday looked like it flatlined, I guess that's what happens when your not the Patron Saint of the market on a POMO day, today it's actually got some movement. It's a little difficult figuring out who the market's following today and maybe it's not following any Patron Saint, this may be one of our better opportunities to see what exists in the absence of POMO, what real investor sentiment is like, or as close to it as we can get.

Thus far, it seems pretty appropriate we're in a trading range, "Dazed and Confused", but that won't last for long, the market makers have to make their nut too and with little volume they'll be looking for the stops, which right now are probably sitting above and below the trading range, so watch out for a CRAZY IVAN.

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.