Wolf on Wall Street

Monday, June 20, 2011

Potential SPY Targets

This is a look at some potential SPY intraday targets to the downside.

Notice on the blue Bollinger Bands (10-min chart) of the SPY, price bounces between the lower and upper bands, this would imply a target around $127.30 depending on how fast the BB's move and how fast the average moves.

The 60 min Trend Channel is lateral which is an improvement from the downtrend it has been in. It too has a rough target of approximately $127.30 or so, again depending on how fast the TC moves up and how fast price moves. Right now, this is my best estimation of a downside intraday target for the SPY. If anything develops to suggest otherwise, I'll bring it to you ASAP.

GOLD

I'm still trying to figure out the end game for Gold, long term I see it as probably having more upside, in the intermediate term, I've been expecting a pullback which would create a buying opportunity. Since then a lot has happened, between lowering of gold margins from the COMEX, to the new "Certified Conflict Free Gold" act, to the Dodd/Frank legislation that looks like it will end retail trading of gold among many other assets like FX, etc; in OTC trading. This may have a profound effect on Hedge Funds as the legislation is simply not clear. Hedge funds are seemingly taking the most pessimistic view of the legislation in their interpretation which would force them out of OTC trading and the hefty leverage that comes along with it and apparently force them into exchange regulated vehicles such as ETFs or basically any vehicle with less then 10x leverage. Don't be surprised to see some new Gold ETFs with greater leverage then 3x to try and emerge if this legislation isn't cleared up in the hedge fund industry's favor.

For now, here's what gold /GLD is looking like.

Today's move was met with a negative 3C divergence and GLD went lower from there.

The 60 min chart RIGHT NOW is inline and is not giving any hints of direction for the intermediate term yet.

The daily trend channel shows price in a bear flag type pattern within the red box. If GLD moves below the lower channel line around $148, it would not be bullish for gold in the intermediate term and may move us toward the pullback scenario.

I'll keep watching for any hints.

And there it is

QQQ 1 min 3C kept moving down even as it appeared that the bearish wedge was going to fail as The QQQ made a higher high-typical reversal behavior.

The SPY didn't make a new high, but after breaking down it went on to test a new breakout high, then failed, again pretty typical.

For short term intraday traders you might consider the flight to safety trade in TMF 3x leveraged 20 year treasury-but I would view this as an intraday trade only with a tight trailing stop.

SPY Update

SPY 1 min bearish ascending triangle. These patterns often retrace their base ($126.90 area)

The 1 min 3C negative divergence.

The 5 min 3C which started with a positive divergence and is now in line.

The hourly 3C chart which has remained positive for some time.

Pullback soon

Looking at financials, it seems we will see a small intraday pullback across the market.

FAS Financial Bull-1 min negative divergence

FAZ Financial Bear 1 min positive divergence.

The SPY/DIA are both showing small 1 min negative divergences while the QQQ is trading in line with price. I'd say we're going to see an intaday pullback.

So Far So Good

This, so far, is what we were looking for today- a higher market and perhaps the start of a bounce now that options expiration was successfully concluded pinning the most amount of people as possible.

So fas there's good underlying support from various sectors including:Energy (despite USO being down), Healthcare, Financials, Technology, Transports, Consumer Discretionary is even holding up.

This is so far, what I was hoping to see last week after OPEX. We'll see if the market can keep its footing.

EEE Follow Up

Since Friday's post on EEE, it quickly made up 5.5%.

I was looking for a breakout above $1.90 to consider looking at the trade more seriously; currently it's right in the area.

Here's the 5/15 min charts.

EEE 5 min

EEE 10 min

EEE 15 min

*PLEASE remember this is a speculative trade. I always prefer to reduce my risk exposure in speculative trades from about 2% of portfolio to 1% of portfolio.

On the Open

Overall it's not a horrible open, although there are varying degrees of strength thus far. We'll start with the strongest on the open to the weakest.

SPY is in a leading positive divergence on the 1 min 3C chart.

The DIA 1 min chart is just in confirmation of the price trend.

The QQQ are falling behind, short of confirmation, but not yet such a horrible negative divergence that I would be overly concerned about it at this point.

I think the Euro has been rather resilient considering this weekend's events regarding Greece. As fr as Gold, there's just more and more news everyday. You may remember margins being lowered, the next day, "certified conflict free gold" and Friday, the end of OTC trading in gold.

I'm not sure whether to view these events as random and not connected or not. The Dodd-Frank legislation has been out awhile, it's not like the otc laws weren't known about.

We'll keep watching for anything interesting to develop in the space.

Sunday, June 19, 2011

And Here is the E.U's Response to Changes Made to the Austerity Measures

As you know, in committee, Greece has passed a watered down version of the austerity measures required by the Troika, this plan actually had a chance to pass Parliament.

The EU's response....

You can find it here.

The Greek Tragedy Enters a New Scene

On Friday, German Chancellor Angela Merkel and French President Sarzoky apparently came to an agreement with the Germans essentially caving in to demands by the ECB, supported by France with regard to bond holders. This agreement seems to have fallen apart today. Der Spiegel has quoted an unnamed official saying the agreement is now "off the table".

As I mentioned on Friday, it seemed like there had been some coordination between Germany, the ECB and Greece as Greece immediately moved to pass austerity measures in committee which were lacking many of the components that the Troika had demanded. It seems now, there was no such coordination and the Germans pulling the rug from under the agreement reached on Friday, a mere 2 days later, seems to be in reaction to Greece moving forward in changing the austerity measures which were required by the troika, once again throwing any agreement which seemed to be almost a done deal, back to the drawing board.

Finance Ministers from the EU are meeting tonight, but this sudden u-turn by Germany (lacking a credible plan by the ministers tonight) seems like it's going to throw the markets back into disarray.

Watch for extreme volatility in the Euro. Other factors adding volatility to the FX markets this week would include the Frank-Dodd legislation which is apparently being interpreted by many as having profound effects on trading of currencies by hedge funds, it may knock them out of FX trade altogether. There are other ramifications including OTC gold trading.

The FX markets will open shortly and we'll get our first glimpse of what this week's volatility may look like.

I'll be updating the situation later after the FX market's open and if there are any further developments out of the EU finance ministers' meeting.

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.