Wolf on Wall Street

Friday, July 29, 2011

DIG/DUG

Anyone remember the game?

DUG on this 15 min chart looks close to a reversal.

That would mean DIG would be the trade.

We see the 2000 leading positive divergence/accumulation and this on a 5-day chart! There was one brief negative divergence in 2002 that led to nearly a year of flat prices (red box), but largely the trend was confirmed (green arrow) by 3C making higher highs with price, that is until the 2005 top. Again, this is one chart, but I've studied this case thoroughly and can tell you there were plenty of distribution signs.

The market -The Real Market

So we are moving back up a bit, basically I think it's on news that Obama will consider a 2-day extension on a short term deal.

However, does anyone find it strange that short term accumulation in the IWM and then the SPY preceded this announcement by as far as I can tell, at least 90 minutes in the IWM and about the same in the SPY?

I personally don't think 3C would work very well if it were not for Wall Street quietly acting on non-public information while the masses are focused on negative price action.

I hearken back to the home builders accumulation during the 200o tech bear market. First of all, I think most everyone thought the next bull market would again be led by advances in Tech, secondly, there hasn't been much of a historical precedent for a housing boom leading a bull market. Housing typically appreciated by low single digits or so in most areas. So was it a lucky guess? If it were, they were sure darn committed to the guess.

Take a look at HOV during the 2000 bear.

HOV weekly accumulation. I've studied this period extensively, I use the weekly chart for convenience.

Here's HOV vs. the NASDAQ 100 in 2000, the yellow area is HOV's accumulation zone of nearly a year.

Here's the decline in the NASDAQ 100- nearly 83%

And HOV's climb, 2482%

I'd say someone had some pretty good information about the housing boom that took off in 2003. Some suggest that Fed policy was more or less a gift to the banks regarding housing to make up for losses during the tech meltdown.

A year or so of solid accumulation in housing, way before anyone knew housing was gong to prop up the entire economy through the last bull market? Unlikely it was a lucky guess or superior analysis.

SRS Trade Update

In This post I updated the SRS stop

We knew resistance was coming up and it might be a problem, so here's some new charts/stops and info.

Here's the resistance, and I can see a pullback from here.

Here's the original stop, which will still keep you at breakeven at the worst.

This stop is a bit tighter.

10 mn negative divergence upon crossing resistance, suggests SRS pullback and load up for the next leg up.

SPY Update

The SPY has finally broke from near perfect confirmation of today's price action to a positive 1 min divergence, echoing the earlier IWM positive divergence intraday.

I Had To Do It

I just couldn't resist after seeing this under the title of "Summarizing the Negotiations in D.C"

Link

On the Turkey Story

Apparently the link didn't work, lets try again.

IWM

The IWM 1 min is looking like it is preparing for its next intraday leg higher.

This is the exact same chart as above, I'd like to get some feed back as to which size you prefer. TIA.

MENA Revolts Spread to Turkey?

Article Here

Revisiting QE2

In this post a couple of nights ago, I outlined and summarized why I've been bearish. I made the case that Quantitative easing was little more then a golden parachute for the insiders at major corporations and did nothing for the economy. Now we see the Q1 revision a mere half a point away from a recessionary quarter, and this is while QE2 was in effect.

Here's the GDP trend

Only Q1 of 2009 hit 5% and that was revised lower, you can see the trend after revisions. In fact Q1 may be even worse after the next revision, Q2 will certainly be worse and the trend is likely to continue down. In fact, with revisions, we may find out that Q1 and Q2 were both running below zero and two consecutive quarters of sub 0 GDP=recession. As for Quantitative Easing, I think this chart speaks for itself.

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.