Wolf on Wall Street

Tuesday, January 4, 2011

New Year Trade Themes

Later I'm going to be posting some of the emerging themes I see developing and the trades that go along with them. Some interesting things are certainly afoot. Looking at the SPY today however, there's a bit of a mystery.

SPY 3C 1 minute chart.Ysterday I showed you the negative divergence that set in the SPT and market in general, as you see above, that was the high of the day for the SPY. Thus far this morning 3C is confirming the weakness in the market. This could be unwinding of risk before the Fed's minutes released at 2:00 today, or something else.

Here's a more important hourly chart of the SPY. There was a negative divergence through December which made sense, after all, for practical purposes, the SPY was nearly rangebound. The last 15 trading days or 3 weeks netted a total return of 1.48% which works out to be about a tenth of a percent a day, which is in my opinion a flat market as a strong move could easily do 1.5% in a day-this was 15 days so the distribution we see made sense.

Looking at the same important hourly 3C chart, what doesn't make sense is yesterday and today. Look at the scope of the negative divergence at yesterday's highs and the leading divergence we see today marching lower. This could be very significant. I've posted a number of charts today and yesterday showing what happens when a breakout fails, it isn't pretty. Perhaps the Fed minutes will provide some clarity, but this is a very deep change in character over a day.

As I mentioned, there are several macro-economic themes that seem to be taking shape and I believe they will offer some nice trending trades which I prefer as a good % gain can be made. Look for that tonight, I may post a few ideas during market hours, but I want to address the themes tonight in the wrap up.

LNG Update

LNG Triggered December 30 at $5.89, it's now up 6% and as high as 13% yesterday. LNG may have some more to offer, but anything over double digits, I'd consider locking in some gains.

Being LNG is not a Cats and Dog Trade, you may want to let it run a little with a tight stop as it does have an initial target of nearly $8.00 based on the triangle. You can find this on the December 27th Trade List.

USO Follow Up

Here are yesterday's and this morning's comments on USO

Yesterday's warning of a negative divergence forming

Another False Breakout from yesterday "USO could tumble pretty hard in a short period of time."

This morning

This is a parabolic price move. Look at the sell side volume on the way down.

Yesterday I was able to identify the negative divergence using 5 min charts, this is a 60 min chart and the red arrows show negative divergences/distribution with a failure at each. Note the very negative divergence as USO tried to hold above $39 on a false breakout. Once again, false move, reverse fast and hard, thus the parabolic nature of the price move.

SLV UPDATE

Yesterday was another failed test for SLV holding the line in the sand at $30, some of you may have chosen to trade SLV for a quick move, after all, failed moves or false breakouts can turn around pretty fast in the other direction and that's what we are seeing this morning in SLV.

Here are yesterday's posts on SLV and the deteriorating condition.

Post 1
Post 2
Post 3

As you can see the level of $30 that we have identified as the line in the sand is the correct level. One it's shown good resistance and solid fights at that level and two the human mind gravitates toward whole numbers so $30 is a natural area for people to place importance on. As always, please remember that support and resistance are AREAS not EXACT Numbers, many technicians fail to understand what creates support and resistance, it's the same as what moves the market, FEAR and GREED and neither care about an exact number, this is why we see moves above $30 that fail or moves fail at $29.99 or $29.85, still the area is $30 and this morning we have confirmation that the Silver vigilantes trying to take down JPM's short are now selling at a loss after buying above $30.

5 min 3C chart showing a negative divergence at the failed breakout from the triangle, tis is just before I posted link #1, the failed breakout is link #2. In the white box you can see an attempt to cling to support at the end of the day, it failed and we are now seeing a pretty good move down as those who bought yesterday are selling at a loss-fight another day I guess.

SLV is a long trade I believe can work, but as I have maintained, it NEEDS to hold $30 and it hasn't been able to do that.

UQM

Keep an eye on this C&D trade, it just triggered an alert and resistance is at $2.48

Other Trades from Yesterday

AMP closed strongly, this one triggered early in the morning yesterday and the close was on increasing volume.

AMP Daily

Here's a Swing Trade Stop using my Trend Channel, just make sure that you don't give up any gains for a loss on this one. As/if it moves higher, the Trend Channel will continue to move up and lock in gains. Email me for the latest stop whenever you like.

SIRI also triggered early yesterday and today has some follow through gains

SIRI Swing Trade Stop

SIRI yesterday/today

If you want the trending stop, email me, right now though I'd say lets start with a Swing Trade and see how it develops.

GOK also triggered yesterday, watch price and your entry, if it moves up from here, I'll post a Swing stop or you can email me as usual. The same goes for NLS which also triggered early yesterday morning.

RPC is doing great, just remember not to get greedy-it is a C&D trade

RPC has offered gains intraday as high as 48% in less then a day.

TThis is a very tight stop, you may wish to adjust it.

Sprint (S)

Sprint is up about 5% since the trigger yesterday, this is a trade that really can't be called a "Cats and Dogs" trade and it closed strongly yesterday on good volume which set up a follow through day today. If today closes strongly and volume rises again, there may be more to go on this leg. This is a trade that could become one of the trending trades or at least a swing trade. The first pullback should be to the 10-day moving average.

So far, we have confirmation in every timeframe on S. Anyone in the trade, email me if you need the current situation or outlook on Sprint's breakout from the consolidation triangle. IT was a very clean breakout which bodes well for S.

Early Update

You know I don't like relying on early morning forecasts, but as I said and showed you in last night's post, the Q's were the strongest, they remain so this morning, but there's some negative divergences right off the opening move.

Also recall last night the Price Volume relationship and the possibility it hit a 1-day oversold condition.

DIA

QQQQ

You can see the positive divergence from yesterday in the Q's, and the negative divergences this morning in the SPY and the DIA, this is exactly what 3C was signaling last night, the NASDAQ would outperform in the early going.

SUTR

Another Cats and Dogs trade that's breaking resistance at $2.30, you don't want this to close or any of them to close below their breakout levels and most of all, try never to let a profit go with these trades.

USO update

USO is a trade I've been a bit bearish on and yesterday it went up with the market, today it's back below support. I like it in this area with a stop above $39.00 maybe $39.17 or something like that, the more room you give it, the better chance it will work out.

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.