Friday, May 13, 2011

ADM May 3rd Short Trade

ADM still looks very much like it's prepping for a dead cat bounce.

LEI Chart Request

60 min 3C

30 min 3C

1 min 3C

Daily chart.

All in all, it looks pretty good. Price makes this trade a speculative trade, but spec. trades are also the ones that can move a lot very fast. The last run was 136% in 4 days

I want to get this out quick and it'll take too long to get all the charts here.

Basically the IWM, SPY and DIA are all in line on the 1 min chart, there's not a positive bias going into te close, just in line with price. On the 5 min charts, all 3 show positive divergences.

The QQQ is the exception, the 1 min and 5 min charts are exactly in line with price, they're not showing the 5 min positives the other 3 are showing.

From a market action standpoint, a lot of stops were hit today and that's where the 5 min positive divergences start, right where the stops were hit and at the lows of the day. The 1 thing that makes me still think there's a decent possibility of an upside move and the false breakout that I've been looking for is that the SPY DID NOT violate the lower trendline of the Triangle it's been trading in. There was a strong bout of selling when those stops were hit, but the SPY managed to stay within the triangle or held support. I use the SPY as an example because it has the clearest price pattern.

I personally would reduce my risk exposure a little going into the weekend. We want to increase our risk exposure when we have a strong, high probability trade. A false breakout with a negative divergence like we saw intraday at the close in the SPY on Tuesday was such a scenario. Or if we get a solid breakdown below that triangle and good confirmation. Those would be the strong probabilities. Inside this triangle we are just seeing a bunch of up and down volatility. I don't think it makes sense to have a lot of open risk. I'm not saying I would shut down all of my positions, certainly I wouldn't shut down the May 3rd trades in the inverse ETFs like FAZ, EDZ, etc. I would not have a full position size until they breakout, but I would continue to cary those trades so long as I wasn't over-leveraged on them.

PSLV/USO

Yesterday and today I mentioned I thought both of these would see further upside today, if you managed to hang in there and I know from emails that some of you did, you have a further gain today. However, I would not take these for granted. I would definitely have a trailing stop and probably take some profits off the table going into the weekend. The CME always runs their margin hikes after hours.

From a short term perspective, which is about as far as I think it's prudent to go with either of these, the 3C charts look a bit stronger in USO then PSLV. Of course, PSLV moves a lot more in terms of % moves. If you want to take your chances with the margin hikes, on a longer term 3C perspective, PSLV actually looks quite strong.

Same...

MAY 13, 2011 · 11:34 AM | EDIT

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FLASH CRASH in ESRG

I’ve been documenting these flash crash whenever I hear about or see one. The reason? Because they are becoming more and more common and hitting big names that you are likely to trade. Today’s is the worst I’ve seen, from $102 to $.01 in 1 minute.

While ultimately the exchange will probably deal wit this and break up the trades, some of the not so extreme crashes may catch you at a loss. The first thing you need to know about them is in all cases I’ve documented, they first will see a negative divergence or distribution period before they occur which means I’m 99% sure they are pr-planned. The second thing you need to know is if you have stops placed with your broker, you will be stopped out and this is yet another reason I prefer to keep stops mental. And lastly, it’s best not to panic, nearly everyone I’ve seen recovers within a minute or so, although they usually fall a bit short of where they started the crash, as in the case here, from $102 and recovered back to $99.98

Every one of these I’ve covered has shown selling/short selling before they happen

Here’s the daily chart of the crash from $102 to $.01 and the recovery back up to nearly $99.

Using the TICK Chart for Early Warning

For those of you who have access to real time data, the TICK chart is a pretty useful tool to get early warning on intraday changes in trend. For TeleChart/Worden users, type in the symbol $TICK. Worden also offers free real time charting software at www.FreeStockCharts.com, there’s no 20 min exchange imposed delay like most other free charting software. The symbol on their free platform should be the same- $TICK. This shows stocks ticking up less stocks ticking down, use a 1 min chart.

This is an earlier tick chart from today when the market bottomed, the lowest reading was -1866 which is VERY low, recently on down days a low reading has been around -1250 so to see sub -1500 was pretty unusual.

This is the most recent Tick chart captured, remember that this is all NYSE stocks. Notice how I’ve drawn trendlines around the highs/lows. Once the Tick chart moves above +1000 you usually see a pretty decent move up. If the trend line is broken, then you know the trend is about to be broken. Then you simply can draw the next set of trendlines. It’s not a perfect indicator or one with an especially large lead, but it’s useful.

The Micro and Macro View

In the micro view, this is what the market has been doing with these triangles before reversing, so this is what I’ve been looking for, a run up above the upper trendline at the white arrow, then the drop at the red arrow, it’s all part of the “snowball effect” I’v described.

Here’s the example I mentioned yesterday in ADM, we have the triangle which is very obvious, the 2 day break above the triangle and then the snowball effect as it falls fast and hard.

From this 15 min chart, it appears the SPY wants to do this, looking at the last time the SPY challenged the lower trendline we saw an accumulation period that ran prices up, but our triangle was not as well defined then and it certainly wouldn’t be as easy then as it is now with a much narrower apex of the triangle (less distance to travel to create a false breakout). However, tme is growing short as this triangle will most likely produce a very directional move shortly as the apex is nearly complete (similar to a Bollinger Band Squeeze).

That’s the Micro view of events. Here’s the bigger picture.

This hourly chart is showing a leading negative divergence in the SPY triangle, this is pretty ugly and puts the odds of a sharp breakdown out of the triangle pretty high. As you can see in the past, 3C on this chart has been reliable with accumulation zones sending prices higher and distribution zones sending them lower. There’s another accumulation zone not marked on the chart right before prices moved up into the triangle, you may be able to see the divergence. The leading negative divergence on a 60 min chart is about as negative as you get.

You can also see the apex of the triangle nearly closed so events should unfold pretty quickly.

Posts From Wordpress that some of you are missing

I hope this shows up with the charts....

Financials Update

Since Financials seem to be the key to the S&P moving, here’s an update on what they are looking like right now.

XLF 5 min chart looking pretty strong

Another financial, IYG 5 min looking strong, not quite as strong as XLF, but remember that IYG has been underperforming the XLF the last 2 days.

FAZ, a financial short or inverse is breaking down a bit

SKF is another financial short or inverse ETF and it looks largely the same as FAZ above. So there’s 4 charts that are all more or less pointing in the same direction, Financials to gain ground, which should lift the S&P

TEST

Thursday, May 12, 2011

Another PSLV adjustment

So far PSLV is up nearly 5% since the early morning post about playing this as a long, so far the old NYSE day trader scheme has worked out as well. 5% isn't bad for a few hours. It's probably also time to take a look at this stop again.

Remember yesterday there was some positive divergences in PSLVso there's the chance this is part of a bigger move. You'll have to decide what tactic fits you.

This is the 5 min stop we've been using thus far, and its worked out pretty well, my concern is that a consolidation may take you out of a trade that may otherwise have more or perhaps significantly more upside.

Here's a wider stop channel intraday, it would still take you out at a profit if it was hit.

I see multiple 3C charts that suggest that this will move higher, perhaps much higher in a multi-day move. I can't reconcile that with the possibility of another surprise margin hike, but we have to make decisions based on what we know right now. We know about the margin hikes, we also know that there have been signs of accumulation in PSLV.

At this point, the 10 min chart (it's not the only chart with positive divergences, but I'd think as far along as we are into the trading day, it would be the most relevant) looks pretty positive and has had a good track record with positive and negative divergences.

In the white box is a leading positive divergence.

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.