Wolf on Wall Street

Wednesday, October 6, 2010

Update 1

So far there's not much activity. On the SPY there was a negative 1 min divergence at the 10 a.m. Highs and a small positive divergence at the 11 a.m. Lows. Everything else is in confirmation mode-meaning tracking price with no divergences at this time. The DIA did put in an 11:30 small negative divergence, while the QQQQ put in an 11:15 positive divergence. Right now the QQQQ looks the strongest on 3c.

Because of the solid leading divergence yesterday, the 3C chart on the averages is trading relatively low as compared to what it should be, this is an effect of yesterday's distribution into higher prices.

Living in Florida, I've been hearing about this for awhile, but it seems the bank/service provider/legal council side of the foreclosure epidemic, has made some serious no,no's in trying to speed up foreclosures including falsifying documents, foreclosing when the actual lien holder is not known, but rather faked, etc. Now it's spreading. It's been in the local papers for sometime here-everything controversial seems to start in Florida-think hanging chad-not the child.

Do not underestimate the root system this controversy could have. Home sales numbers, banks and drawn out litigation, losses, etc. This could be shoe number 2. It may also be why we are seeing pressure in the financial sector.

XLF is seeing more 3C selling pressure as it is in another leading negative divergence on the 1 min. The hourly 3C chart on XLF is lower then it was in August at the price lows.

I'll keep you informed if anything picks up.

OOOPPPS

SPECIAL POST. I woke up this a.m. to the plumbers I hired to do some heavy plumbing at my house, they had the trench dug in 30 minutes, and had my Cable/Internet cut. So I've been dealing with that. I just got to our family cafe where there's wi-fi and I'm going to look at the market now so there will be an update coming as soon as I get caught up. Emails , I'll get to them ASAP.

Thanks.

Tuesday, October 5, 2010

NEW TRADES FOR 10/5 ARE UP

There's about 23 trades up tonight, some are based on the FAZ/XLF/UUP divergences, some are based on other factors. There's a few Cats and Dogs in there as this is still rally season for those kinds of trades.

I STRONGLY ENCOURAGE YOU TO PUT THESE TRADES INTO SOME KIND OF ALERT SYSTEM LIKE TELECHART OR FREESTOCKCHARTS.COM, I can't keep track of all the orders and prices, I have to have them in an alert system that is real time. The two I mentioned above are.

Apparently we have another POMO day tomorrow. The typical POMO days have seen buying/front running the day before, and a move up until 11 a.m., after that they tend to fall, today's didn't do that.

I'm not sure what to expect tomorrow with POMO and the strong signals we are seeing that are not congruent with a POMO day. However as I have said a few times, once a pattern is established on Wall Street and it becomes easy money for the average retail trader, they find a way to somehow throw a monkey -wrench in the mix to end that relationship so we'll just have to see what comes of it. It's another one of those Bermuda Triangle moments that I've seen so often with reversals, like the September rally reversal, everyone was so bearish and there were seemingly a million reasons to be bearish, but it reversed. The big dollar reversal, there seemed to be no plausible reason for the dollar to go up. yet it did. You always find out later. Like Paulson's "Buy Stocks" Monday, and we come to find out that his fund is just at or just over 0% on the year, which means there's a high water mark in most finds ad he's probably not making a penny until he gets his portfolio above the high water mark. So he had his reasons for being out there Monday of last week pumping stocks, as I said at the time.

Again, insiders are fleeing stocks like rats on a sinking ship. They aren't doing it because they believe stocks or their stocks are going higher. The numbers are astounding. If the Fed wasn't pumping liquidity into the markets, this market would already be in the crash zone with all of the selling and fund outflows. That's probably why we are seeing more of the HFT sponsored flash crashes.

In any case, I suspect we'll see over the next few days what the real story is.

Different Perspective.

I was going to go on and show you more 3C charts of the market showing negative divergences. It's important you understand what a negative divergence in 3C is. A Negative divergence is showing the act of distribution, a positive divergence is showing the act of accumulation, IT IS NOT an immediate signal, but more like a breadth indicator on steroids as it tells you what is happening in the underlying action of the market.

Today, BULLISH move, no doubt, last night I warned there was accumulation. 3C does not tell you where, how much or when, it is impossible to know that unless you know exactly what the accumulators/distributors are doing, how many shares they have, at what rate per day are they buying/selling/shorting, etc. It's common sense. It does tell you that a day like today, which many retail traders bought, is not as strong as it looks, if it were, why then would there be big movements of money out of the positions into higher prices? Certainly not because they think it's going much higher, or that they'll have enough time to complete their transaction. There was a lot of retail demand today, making distribution easy.

So instead of going over breadth charts, which are not much changed in a day, or 3C SPY charts, I'm going to show you an interesting occurrence a member mentioned. The $USD. I mentioned a few days ago we are seeing some indications of a "change of character".

Understand that each sotck or component is read individually by 3C, there's no bleed over unless there's underlying action to suggest it.

So lets start with what a member mentioned, FAZ showing some late day strength.

Here's an Envelope Channel, no bias of drawing trendlines, it is what it is. Look at the EOD today, FAZ trading higher and higher and breaks out of the channel at the close.

Here is my Trend Channel, it is set to 1 day, it stays short all day until the EOD, in the red square, it's long.

Here is FAZ, leveraged short financials

1 minute 3C Leading positive divergence

5 minute 3C leading positive divergence

10 minute 3C leading positive divergence.

Confirmation between each timeframe is difficult to get unless it's there, it's unlikely all 3 timeframes would by chance say the same thing.

Now, compare it to it's inverse counterpart, XLF Long financials. Again, there's no 3C correlation between two different stocks or timeframes unless one truly exists.

XLF 1 minute, LEADING NEGATIVE DIVERGENCE!

XLF 5 minute LEADING NEGATIVE DIVERGENCE

XLF 10-minute LEADING NEGATIVE DIVERGENCE.

XLF IS EXACTLY THE OPPOSITE OF FAZ, the chances of that happening in 6 timeframes and 2 different stocks is almost impossible.

Now, remember I told you that there's distribution in GLD and the Dollar is showing a "change in character"

So lets look at UUP the proxy for the dollar.

3C 1 minute LEADING POSITIVE DIVERGENCE

5 minute LEADING POSITIVE DIVERGENCE-HUGE TOO

UUP 30 MIN HUGE LEADING POSITIVE DIVERGENCE

15 minute POSITIVE LEADING DIVERGENCE.

In all 3 symbols, we are seeing the most powerful leading divergence. Can I explain the catalyst for strength in the dollar no. Could it be financials alone get taken down and the dollar is untouched, possible, but not likely. Why are we seeing what we are seeing, I believe there's something going on here that is causing smart money to distribute into higher prices, to accumulate short positions on financials and long the dollar.

Again this week, insider selling activity last week was 1411 share sold to every 1 bought. This week it is 2341 shares sold to every 1 bought.

Here's the article, read for yourself how much ORCL and GOOG are selling. Why? Because they think the market is going higher?

I hope this different perspective, will help you keep you mind open to the charts I'm showing you. When I show you 3C in a negative divergence and the stock moves higher, THAT IS THE MEANING OF DISTRIBUTION-they do not sell into declines, they sell into demand.

So lets see what happens with these charts, combined with last night's breadth charts, 3C's call for a move up today and other things such as insider selling, I think it's not wise to ignore these charts.

UPDATE

I have more charts, but I wanted to get this out ASAP

Forget about the insider selling ratio even higher today, this is why I do NOT trust this move.

Afternoon update

DIA leading negative

NASDAQ 100 Breadth going negative

QQQQ leading negative

SPY is not there yet, but the 5 minute like the 1 min are both relative negative divergences

The Tick Index is showing a change in character as well

UPdate

The Dollar is showing a little life, GLD has a leading negative divergence that started at 11 a.m. and has moved consistently lower. Just two to keep an eye on.

Update

Here are the most current charts, there's definite distribution, SMH shows several bars of no movement at all. It seems there was a push to breakout of a trading range after 11 a.m., which is very typical. Now we have a leading divergence and not too much more upward movement, it looks like a reversal is in the making here.

2nd Divergence

Usually POMO days start to sell -off around 11 a.m. So we'll see in minutes what's happening. Gold saw the bulk of the advance.

Morning Update

Well that was quite a breakout. In any case, we have our first negative divergence in all 3 averages, it's the strongest in the SPY, the weakest in the Q's. So lets see where this takes us.

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.