Wolf on Wall Street

Thursday, July 14, 2011

VXX Follow Up

Yesterday I posted the VXX long trade idea based on some positive 3C divergences later after examining the chart more closely, I said I thought this was more then just an intraday trade. Then last night I said this about VXX,

"I think VXX pulls back earlier tomorrow, but I think it will present an opportunity, options would probably be my choice on VXX, although I haven't looked at the chain."

Here's VXX today...

Today's daily chart

Today's 1 min hart, we saw the early pullback below yesterday's close and up and away from there.

Right now it looks like it's going to consolidate a bit as RSI has gone negative.

I don't think it looks like much more then a consolidation, but until I can check the underlying trade, I would trail a stop behind this intraday. I do think there will be more opportunities in VXX in case you get stopped out as the longer term 3C charts linked in the posts above, look healthy.

Today's Flash Crash-ASIA

I'll check this one out as soon as 3C is back up, but I'm sure I'll find the same thing I always find, a negative divergence late yesterday.

The moral of the story continues to be, Keep stops in your head, not with your broker, t's only a matter of time before the next flash crash hits the averages and don't panic, they always recover, even though you'd have to have superman like reflexes to sell on a flash rash, that is unless you have a stop in with your broker.

Lets take bets on whether the SEC will investigate! I'm saying, uhhhmmm.... NO!

I'll bring you the 3C charts on this one as usual ASAP, but as I said on the earlier FC this week, these algos keep pulling them off, even though they know most trades will be nixed, but there's still some profit motive at work here and the sooner we figure it out, the better.

Here's ASIA on the open.

Click on the chart for a larger view.

Intraday market bounce?

I still don't have my preferred tool of choice, but looking at the SPY, it looks possible we just saw a shakeout.

A good RSI positive divergence on a 1 min chart.

Here support is broken, volume picks up, there's your shake out. Watch for a bounce from here if the SPY crosses back above the trendline (now resistance), it'll produce a mini-short squeeze.

The market didn't like this one...

After the Fed minutes came out, the QE-crack addicted bulls were as Mike Tyson says with such lovely lisp, "eksthatic" which of course would be "ecstatic".

So Bernanke saying the following regarding QE3 took the wind out of their collective sails...

Bernanke Says Fed Not Prepared to Take Action at This Point, but, Bernanke Says Recovery 'Still Rather Fragile'.

That's okay, I'm sure Wall Street can still ramp the ES to get the pin they want by Friday.

DUST Update

This is another I look forward to seeng the underlying 3C action (very frustrating for me right now and I'm sure you). In any case, yesterday I showed you the improvement in DUST, even though it's not a long signal in the trading system, I know several of you had a cost basis and risk management that allowed you to hold it. So far so good. Here's yesterday's 3C update of DUST.

And here's DUST today...

Moving up off a gap lower in to the green.

The moral of the 3C analysis is when you have all timeframes lining up like they did yesterday, it's a pretty good bet that there's been accumulation. Next up, we need to quantify it to get an idea of where this is going. The fact I'm a bit blind right now doesn't matter too much in this case, we need several hours of data to see what the longer timeframes are dong, whether they are confirming , leading or out of confirmation.

I'll get the updated charts up ASAP.

USO Update

Still blind, but things are happening thus far as expected. Yesterday I posted this about USO, be sure to check out the charts.

In Short, I'm still intermediate term bullish on USO, but yesterday it was bumping up against resistance and showing 3 negative divergences as you can see n the post above. Today t's backed off that resistance level.

Remember, resistance is only an exact level for technical traders. Much of what you see on a price chart s created by the two main drivers of price, those would be Fear and Greed. As I've mentioned before, a price chart is an emotional map when read correctly, therefore exact resistance/support levels are really only useful to Wall Street in shaking out technical traders who get a little too technical about these levels. The truth is support and resistance are areas and if you think about the emotional process of how each are created, you'll understand why they are areas and not exact levels.

In any case, my original thinking was for a pullback to the $37.75-$38 area. I'll be very interested to see what 3C looks like as soon as real time is restored.

Keep an eye on GLD

You know I've been warning of underlying weakness in GLD the last 2 days.

Right now it's in a doji switching back and forth from unchanged to slightly green to down on the day. It's not an unusual reversal pattern to see a candle open higher like we have today and close lower to engulf the previous day's candle as I've drawn in under today's candle in red, it would be a bearish engulfing pattern which is a reversal pattern. Also remember that reversal doesn't always mean down, GLD can go in the 3rd direction which would be sideways, but given the fact that it's been trading for 3 days above the consolidation triangle, I'd view any failure as a likely false breakout. When 3C is back up I'll confirm.

Still Waiting on RealTime.

In any case, I'm looking at a TOS chart for the first time ever.

So far, no big surprises in the market today, 3C was indicating yesterday toward the close as I pointed out last night, we'd see some strength early this morning, which I find interesting because late last night Futures were down, yet it seems insiders were buying yesterday afternoon.

I'll let you come to your own conclusions on that one, you know why the market is up this a.m., just pointing it out. We're also trading in the pin zone level for Op-ex, as I mentioned yesterday-the mid $132's on the SPY and here we are again.

Hopefully we'll be up soon, they usually aren't down this long when a real time problem crops up, but they are pretty good about getting it resolved quickly.

Worden Realtime Down

I just got an update from customer service, we should be up in a few minutes. If you re using Worden charts, know that it's across all of their platforms (TC, TC2000, StockFinder).

As for the market...

I showed you most of the 3C charts, the only thing of note toward the close was a 1 min positive 3C divergence in the SPY, a 1 and 5 min positive divergence in the DIA and a pretty nice looking 1 min positive divergence in the Q's that lasted for about 3 hours, all of which suggest some early strength tomorrow.

You saw the options chain and know my opinion as far as the rest of the week goes going in to Op-Ex on Friday.

As for Price/Volume relationships today, there was no single dominant relationship n the NYSE, however the Dow, the S&P-500 and the NASDAQ 100 all had a dominant P/V relationship, it was Close Up/Volume down (16, 45 and 214 stocks respectively) and of course that's out of the 4 possible combinations. Close Up/ Volume Down is considered to be the most bearish of the 4 relationships, even though price closes up. It generally tells us that traders are backing away from higher prices, that was evident today by looking at a hart of the SPY.

Traders weren't keen on chasing prices higher. You know my opinion for the rest of the week and what I think comes after Op-Ex.

I think VXX pulls back earlier tomorrow, but I think it will present an opportunity, options would probably be my choice on VXX, although I haven't looked at the chain. We'll watch for a pullback and a positive divergence.

If we do get a pin on Friday, I would suspect we are probably in for some volatile chop tomorrow, so I'd be looking to use strength to short into in your favorite short positions. FSIN is definitely n the right area price wise, I'll be watching for the entry on that one.

The one thing that is playing the role of Monkey Wrench s the debt celling talks and the associated musings out of the ratings agencies-China's just put the US on a negative watch. I would think though that the opportunity to pin the market on OP-EX would be a strong incentive to keep the SPY around the $132-$132.50 mark at least by Friday's close.

Keep an eye on gold, the warning I gave on Tuesday showed some teeth today on an intraday basis.

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.