Wolf on Wall Street

Tuesday, January 18, 2011

Strange Action in AAPL

AAPL will be reporting shortly. Obviously an announcement of Steve Jobs leave of absence during market hours would have torn AAPL apart. The whole European sentiment report that rescued AAPL and US equity futures was strange to say the very least.

I'm wondering if we're not in for another surprise in AAPL and what we are seeing is a controlled slide to avoid tripping a circuit breaker?

JPM Earnings Trade FOLLOW UP

JPM WAS AN EARNINGS PLAY FROM THIS POST from last Thursday. It's made no forward progress since earnings and the 3C charts seen in the original post seem to show JPM under distribution. JPM spent most of the day in the green, but take a look at the closing trade, even as SPY and Q's held their ground into the close when the pros come out.

Late afternoon intraday trade (1 min. chart)-note the volume rising on the slide.

The 15 min 3C chart has worsened and is now in a new negative leading divergence to the downside.

Personally I think this trade is a hold and is still in good position to establish a new short position.

Last update

At 2 p.m. the DIA was showing negative divergences on the 5 min chart and trading at $118.30, it's gained no ground so it appears distribution or churning has been underway since.

The 30 min chart is now showing a negative divergence as well.

SBCF Follow up

Here's a C&D trade from Thursday of last week (1/13/2011). SBCF broke out at $1.58 and is now up 16.5%

Great looking base-healthy MACD and volume on the breakout.

Huge daily 3C accumulation.

the 5 min 3C chart is showing signs of profit taking.

Given the size of the base and accumulation, I believe there's more upside here after a pullback to the area in the red square.

The pattern implied target is over $2.00 so a pullback may offer a great opportunity to add to or establish a new position in SBCF

AMR Possible Earnings Play

DAL is dragging the space down today on their earnings. Tomorrow before the open, AMR reports. I found these charts to be the most interesting of all the earnings plays I've looked at thus far.

AMR Daily-some accumulation in white, resistance near $8.75 3x with a small daily negative divergence.

A closer look at the 15 min chart shows each successive attempt at $8.75 showing negative divergences.

A few years ago AMR telegraphed very well via 3C on a upside move. This isn't looking too good for AMR. Remember though, the earnings play idea is not about whether they beat or miss, but the reaction to earnings which can take several days to play out or it can be immediate. What I'm seeing on the chart above looks like money moving out of AMR. One concern I have is whether the DAL earnings will create an oversold environment. In any case, they report before the bell tomorrow and always, earnings trades are speculative and need god risk management a the report before the open can produce an unfavorable gap. This is the best looking chart though thus far for an earnings play-this one on the short side.

AAPL-Fulcrum

Every day there's a stock or sometimes a report that is the fulcrum of the market, today the fulcrum is one of the heaviest fulcrums out there, AAPL.

The European sentiment data which seems absolutely ridiculous to me, which also lifted US equity futures this morning seems to have made some HFTs a little profit in AAPL today.

That's a large 1 min positive divergence off the opening gap-someone bought aggressively and now they are showing their hand in the first negative divergence of distribution. This is a 1 min chart and the divergence is new so whether it continues or not to the 5 min chart will be interesting.

USO

USO 1 min

USO hit resistance and a negative divergence just as it crossed the gap from this a.m. The volume is a bit high, but not extraordinarily so. We'll see what develops from this pullback.

Market Update

The DIA is showing the first significant negative divergence o the day via a 5 min. chart.

It's a bit early, but enough that I'd expect some downside selling pressure.

Insider Transactions

Every week I bring you insider transactions as they are released from Bloomberg. Here' a new one, I can't give you a ratio because there wasn't a single buy last week. On the sell side, there were 54 transactions for $163,000,000

This is the first time I've ever seen no insider buys. On the other side of the coin, the insider sell transactions aren't exceptionally high, we've seen much higher in the recent past.

A Goofy Tuesday

We started with the Holiday announcement of Steve Jobs taking sick leave again which sent AAPL shares much lower in overseas trade. This morning though, the indications for AAPl and futures were miraculously lifted due to the German and Eurozone ZEW economic sentiment survey, which maybe should be called "zoo".

On the Eurozone, the print came in at 25.4 vs. previous 16.6 and on Germany 15.4 which is double the anticipated 7.0 with previous month's at 4.3

Ask yourself, do you believe economic sentiment is that MUCH BETTER in Europe? This sent the Euro higher as well as US stock futures. By the way, AAPL also reports today.

I'm literally speechless. I guess the Fed's swap lines carry some weight, if I were to be cynical.

Empire Manufacturing Survey also missed consensus, but we'll dig into that later. NAHB also misses consensus-National Association of Home Builders.

On the earnings front, the big miss was CITI.

We'll see how today develops, but thus far there's been some interesting props thrown under the market from some unlikely places.

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.