Wolf on Wall Street

Tuesday, November 16, 2010

The Euro Keeps Falling

The Euro has definitively broken support, meaning the dollar is rising as 3C has been forecasting due to the pair having the highest correlation.

Here are the hourly charts.

Hourly chart

Hourly chart zoomed out

Remember, it looks likely that we will see a bounce before this afternoon is through, in fact it seems it will be here shortly with 1 and 5 min charts showing positive divergences; something to consider as you contemplate trades.

MSPD is very close to a trigger of the 6.25 limit order on the latest list.

DPK Long 8.56 is in an descending wedge with a daily 3C positive divergence. Today it looks like is breakout day. Wedges tend to retrace their base which suggests a target around $22. 8.56 looks like a reasonable stop on the Trend Channel.

DPK with a large descending wedge and about a month+ of 3C daily positive divergence.

TSL Short has broken down out of a small H&S top. This may be a position worth trying o scale into, a little here and add on any strength. Otherwise, it's very close to breaking the support level ($24.51). A stop is a little tricky here depending on if you are going for a swing trade or a trend trade.

TSL's hourly 3C chart showing negative divergences at the highs.

The daily chart showing a small H&S top that is broken, a MACD negative divergence and big red volume spikes, especially on the break of the neckline.

More Coming...

Daily Trend Channel

As you know, I use my proprietary Trend Channel to stop out of positions or show a change in trend. The channel itself measures the typical volatility of each issue for a set period and anything that is a multiple of a standard deviation outside of that behavior crosses the channel and causes what I term an objective stop, rather then guessing. This is ON THE CLOSE ONLY, not intraday.

As of now, it appears all 3 averages have or are in the midst of a change in trend.

A change in trend does not mean down, it could mean sideways, but in a situation like this, I think it would be bad news for the market and probably indicate that the current trend has changed enough to cause a reversal. There's a few caveats to that, but this is the closest we have been to such as you can see the channel has held the entire rally, not even one false signal.

DIA

QQQQ

SPY

Noon Update

It still seems likely that we'll see a bounce here short;y judging by the positive divergences on most of the charts below.

DIA

QQQQ

SPY

XLF

POMO is Over

It came is at 6.2 submitted to accepted which under the old regime would be bearish for the POMO push. We may be getting a third day of useless POMO results as far as the market is concerned. NFLX gave up the divergence, front runners got it handed to them once again and is now headed lower. It's looking more and more like the market must stand on it's own two feet.

The End of The Fed's Dual Mandate?

In what is being called the biggest new since 1977 regarding the Federal Reserve, Tennessee Senator Bob Corker said that the Republicans will push for an end to the Fed's Dual Mandate of "Maximum employment" rendering issues like QE2, a hands off "None of your business" affair for the Federal Reserve.

I'll look around for any further developments.

IGR

Triggered a short idea as it broke through it's long term uptrend. If you like it, you may want to phase into it and try to add on any strength.

Results from POMO are not out yet

but it looks like someone is already front running NFLX. We'll have to see as the other divergences earlier were run over, but they still persist.

From Asia to the US

A lot has happened overnight, here's a list of some of the headlines.

China...

There are fear in China as their stock market hit 30 day lows, the fears are centered on inflationary and property concerns. In response, Crude Oil was down on fears of China tightening economic policy.

Other Asian Governments...

Other regional governments in Asia are already moving to fight inflation.

Europe

The Euro got a slight boost as some European/German economic reports came in better then expected.

That's about all the good news out of Europe this morning.

European Union President Herman Van Rompuy said "we are in a survival crisis" with Ireland/Portugal on the brink, but that's not nearly the whole story.

Austria says enough to Greek lies about their financial condition and refuses to give more money to their bailout.

Finland opposes aide to Ireland-Eurozone coming apart?

In the US...

US retail sales rose 1.2%, but there are inflationary pressures coming right in time for the holiday season-more coming.

Ny Fed president Dudley says they are not trying to kill the dollar but remove treasuries from the market and force investors into other asset classes.

Commodities...

The CME raises gold margins by 6%, it doesn't sound like a lot, but they also just raised silver margins again from 6500-7250 (originally at 5000) making it clear they will raise margins at any time they feel necessary.

Because of the rise in cotton prices, retailers may soon be hit with a 30% price increase on cotton products (i.e. clothes) just in time for the Holiday season. Along with that increase comes the likelihood of Chinese clothing exporters facing a tougher environment, one that may shut down their factories.

So inflationary pressures may not be registering as alarming in today's economic data, but it seems they are coming. Furthermore, tightening across Asia is going to have some repercussions, remember I talked about retaliation for QE2, retaliation or not, the effects will be the same and not good.

Some of the most alarming news for the E.U. is the members that are backing away from "helping thy neighbor" and the possibility of a collapse in the Euro and possibly the Union itself. The E.U. president is surely not feeling good about it right now.

So we'll see about POMO shortly and how the macroeconomics around the world which are developing in a micro economic amount of time may influence the US markets and economy. There's not a whole lot to be bullish about this morning.

Morning Update

There is a tremendous amount of important news from every corner of the globe this morning, I think it would take all day for me to get it out and then by that time there's be even more.

Right now we have a Fed POMO operation underway. Some of the positive 1 min divergences seen yesterday are still in effect in the QQQQ and DIA right off the opening gap down, the SPY is in confirmation with no positive divergence.

At 11 a.m. the POMO will end and we'll see the results. A quick brief is coming up next..

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.