Wolf on Wall Street

Thursday, November 18, 2010

Afternoon, closing update

DIA 1 min still strong

DIA 5 min falling apart, near a leading negative divergence

QQQQ 1 min falling apart in a leading negative divergence

QQQQ 5 min close to a leading negative divergence-doesn't look good

SPY 1 min falling apart

SPY 5 min in line only

XLF 1 min not great looking

XLF 5 min headed for a negative leading divergence

FAZ 1 min very positive, leading positive divergence

FAZ 5 min almost at a leading positive divergence

USO hasn't gained any ground

Same with USO 5 min

GLD 1 min hasn't gained any ground

GLD 5 min slightly negative.

SLV 1 min in a relative negative divergence

5 min in a negative divergence.

There could be some more upside tomorrow, but the underlying action seems to be bearish

It looks like both the 1 and 5 min charts on the LVLT pullback are showing leading positive divergences. Furthermore the pullback today puts price closer to the 10-day moving average where the tade has a better looking risk:reward potential.

Tuesday nights bounce idea, NYNY has added another 30% today. If you want to discuss exit strategies, just email me. Volume has been high today as well which is very bullish as a confirmation day.

Another bounce idea from Tueday night was JADA, the 10 min 3C chart below shows a continued leading positive divergence with a small gain today.

DIG was another bounce idea from Tuesday night, it's up over 5%. the short term 3C looks a little shakey, but the 10-15 min are in line with the tend. I would keep a tight stop on this one as I'm not sure how much upside to expect here.

EDZ holding up Well today

Despite the price decline which was expected, the underlying action in EDZ seems to suggest there is accumulation on the pullback. Now how much longer that goes can only be answered when we see a reversal in price, but ultimately this is good news for the possible long position (Short Emerging Markets).

EDZ 1 min positive divergence...

EDZ 5 min 3C

EDZ 10 min 3C

All the chart's underlying action looks pretty good.

A little weakness

First lower high in the DIA 1 min all day

QQQQ 1 min has entered leading negative divergence territory

SPY 1 is close to entering leading divergence territory.

The Euro right now is in a consolidation, I'm guessing it resolves to the downside ultimately, but because of the very obvious pattern , a head fake is likely to the upside.

USO

May be set for more gains.

USO 5 min chart

USO 10 min chart..

The 1 min chart is a little ambiguous and looks as if there may be a slight pullback, but these two charts both suggest more upside for USO, although longterm I am not bullish on the chart.

Update

DIA 1 min

DIA 5 min

QQQQ 1 min

QQQQ 5 min

SPY 5 min

SPY 1 min

GM 5 min

From a trading desk early today, "20% OF ISSUE SIZE TRADED IN 10 MINUTES. THIS IS THE MOST AMAZING CHURN I HAVE SEEN IN MY LIFE."

Last Night

I talked about the challenges the real estate market faces, with increased lending standards and all the other bad stuff going on in the space. I actually showed a possible trade-SRS that would take advantage of the crisis going on in real estate.

Add this to last night's list, Freddie Mac Mortgages are seeing a dramatic gain in mortgage rates, the highest in 3 months. Here's the Story from the OC Register

Now I'm just waiting for the positive short term divergences to sow up in SRS...

Eventually it comes back to the dollar.

As I said last night, the recent bounce within the downtrend in the Euro made the environment ripe for a bounce, but today we saw the Euro make a lower low which I think is being reflected in the charts below.

5 min FX chart showing the downtrend, recent bounce and in the red box the first lower high, indicates a reversal may be at hand-which would be bad for equity bulls...

FXE-Euro ETF Trust 1 min 3C showing a negative divergence into the gap up.

FXE 5 min negative divergence into today's gap up...

UUP(proxy for the US dollar) showing a positive divergence into the gap down on a 1 min 3C chart

UUP 5 min 3C showing a positive divergence into the gap down

Slight Update

It looks like the SPY,Q and DIA 1 min charts are going from slow to follow to a probable negative divergence.

Shock and Awe...

The GM IPO comes out and suddenly all concerns all over the world are yesterday's news. Not quite that simple. Those "failed divergences" in the 1 -5 min charts the last 2 days failed to turn the market, but as explained it was more to do with the intense pressure the drop in the Euro put on the market; it doesn't mean there was accumulation and that accumulation ended up on the 10 min chart. Since Tuesday night I've expected this bounce, I guess the GM IPO day was far too simple to put 1+1 together. They absolutely want a warm waters environment n the market to pump GM's first day trading-even a the Euro is finally turning down, perhaps showing signs there is more coming out soon, and not good news. The press is reporting concerns over Europe have abated as a deal is close, but the problems in europe are so much bigger then whether Ireland takes a bailout or not, I hope my posts on the subject have made that clear.

In addition, now the US has our own version with municipals heading for default. Remember the post several months back about the pension "un-funded liabilities" that these states and cities face, as well as companies as is expressly written in the GM IPO. They counted on 8% annual return to meet their obligations, which is insane. Well this is finally here to haunt them as two cities and a county were downgraded yesterday, another is going bankrupt. Services are being cut everywhere.

So look at the macro side of things and I personally am not ascribing too much meaning to today's move, it's expected, there are long term signs in the Ultrashorts and 3X bear as others that major accumulation patterns are in effect there.

As far as 3C today thus far...

QQQQ 1 min. has the start of a negative divergence although it has been in confirmation most of the morning.
QQQQ 5 min has a fairly big relative negative divergence.

SPY 1 min is inline with price, but slowing down, it may go into a negative divergence.
The 5 min is positive.

The DIA 1 min loks like the SPY 1 min, it may have slowed a little more.
The 5 min is tracking price in confirmation but has also slowed.

USO 1 min has gone negative, although the 5 min remains positive.

UUP 1 and 5 min are in positive relative divergences.

FXE is in a slightly positive 1 min divergence and 5 min is in a negative relative divergence.

This seems to make some sense as the EUR/USD pair has seen the Euro lose ground the last 3 hours after staging a bounce of roughly 2 days.

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.