Wolf on Wall Street

Wednesday, June 8, 2011

SPY

The SPY and others look like they are trying to set up a short term base to rally from. The SPY will need to take out $129.50 if it wants to get anywhere.

USO Update

As I mentioned, USO broke out of a bullish consolidation pattern. Here are the current charts...

USO is below confirmation, a bit higher readings in 3C and we'd have a pretty strong reason to be long USO for at least a short trade.

When I change the zoom to look only at the current move up, thus far it's in near perfect confirmation, but the previous chart has cast some suspicion on the move so it will need to be watched for improvement or a possible head fake move here.

I don't think it was any big surprise how the OPEC meeting went down. I had written about it a week ago. Iran controls the revolving presidency and is also the second biggest producer in the cartel. The Gulf States including Saudi Arabia, which threatened unilateral action yesterday (albeit they probably are lacking the teeth), are supportive of increasing quotas, IRAN of course was on the other side of the equation.

The Dollar

The Dollar is on the move again, I would say it may be exerting some downward pressure on Crude , but crude just broke out of the triangle I mentioned. We'll watch it for a false breakout.

In the meantime, here's what the dollar is looking like.

Up about .50% on a leading positive divergence.

Trading System-Long DUST

We got our signal Friday, bought Monday and thus far DUST is doing awesome, well beyond the backtested average winning trade.

If you want to try to enhance gains (because a signal will always have you 1 -day behind), you might consider a trailing stop of some kind, or you can just stick with the system as i which is returning probably close to 90% on an equity line right now over the last six months. That's about 400% better then some of the top hedge funds!

A Great Link

On of our members just sent this link that has the inventories report as well as many other key reports ad timely. It's an awesome find so book mark this one.

http://bloomberg.econoday.com/

USO Update-DOE

I can't believe how long it took to find the DOE report, if anyone has the direct link to the report on the DOE site, please forward it to me so I don't have to spend so much time looking for it in the future.

Crude inventories came in at a huge miss-down 4.9 million barrels on expectations of a 300k draw

On the other side of the coin, Gasoline inventories were up far greater then expected at 2.2 million barrels, I'm not sure what consensus was, but whatever it was, this was a big upside surprise.

Oil didn't see the typical 10:30 DOE parabolic move up or down and just continued trading in a range. I'm not sure what to make of this at this point.

As you can see, USO is consolidating in a triangle, the implication of the price pattern is a move higher. There's been a little improvement in 3C, but it's far away from confirming.

As I said, I'm not sure what to make of this, but I'd be careful about buying the first breakout without a tight trailing stop.

Are the Republicans Playing Chicken?

The idea of a "short term" technical default is gaining traction among Republicans, it's starting to appear more in the mainstream press. I have to wonder if they are serious about this possibility or if they are using it to force the spending cuts they are demanding without raising taxes?

A Technical Default for a Fiat currency could have immeasurable repercussions, after all, our debt is backed by the "Full Faith and Credit of the United States"-FAITH, nothing else, not gold.

If we cross that threshold once as a political ploy, what would make the world and specifically China think that we wouldn't do it twice the next time a game of hardball comes about?

As I have stated more and more frequently, the Treasury and Fed's answer to the crisis during the Lehman era was to make big toxic banks, bigger and more toxic. If one defaults or falls into a Lehman situation, I would hate to be in the country watching it all play out.

Market Update

DIA 1 min positive

SPY 1 min positive

QQQ is in line.

As To OPEC

I suspect the Iranian presidency (in OPEC) along with the situation in MENA had a lot to do with the fact they could not reach a decision.

Yesterday Saudi Arabia said it would act unilaterally and increase production, but we already know that the last time they said that (when Libyan oil went off line) they never actually increased production. It's already proven they have overstated their reserves and may not have the ability to increase production. Furthermore, Saudi Crude is a poor substitute for the missing Libyan Crude, for those who used Libyan crude like Italy, it will take 3 Saudi barrels to get the same equivalent of 1 Libyan barrel due to the heavy sulfur content.

We'll see how USO reacts through the morning.

USO

These are early indications

USO 1 min

USO 5 min

Some unusual volume today thus far as well as the dollar being up a bit. I'm not sure I would trust this move in USO at this point. Perhaps some strength builds in behind it relatively soon, but it's not there now.

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.