Wolf on Wall Street

Monday, September 19, 2011

Market Update

I mentioned already that the DIA, QQQ and IWM have already put in short term 1 min positive divergences indicating a bounce, the SPY was the only hold out, until now.

This is still only a 1 min chart and doesn't have a major impact, but it could be calling out the bounce I have expected since I sold 1/3 of my shorts in hopes of shorting at better prices.

TREASURIES ALSO IMPLYING AN INTRADAY BOUNCE

I was really hoping this Greek thing would be settled today so we can get on with it and see what the underlying action looks lke as we move toward the FOMC announcement. Now Greece says there will be no official announcement, that doesn't preclude leaks and insider trading which we'll be watching.

TLT is the long 20+ year treasury bond fund, it is a risk off trade or a safe haven trade, so when the market is down or going down, TLT rises for the most part.

You can see the price gains in TLT on market weakness today as we expected, however we also have another short term negative divergence suggesting some kind of bounce.

The longer term charts are showing a very positive 15 min divergence, implying further market weakness as far as the bigger picture goes. At some point we'll also have to be looking at TLT for some hint of what the Fed may do on Wednesday's FOMC announcement.

Greece says not to expect any official announcement

Keep watching the Euro

AAPL Short Term Fork in the Road

We have some topping negative divergences on the 1 min that have halted AAPL's parabolic rise, however, like the QQQ, we have a 1 min positive divergence forming, whether it keeps moving up will be decisive for the short term move. Considering AAPl is in a bull trap area above local resistance, a move higher that turns negative will be most likely, an excellent short position as the longer term charts remain negative.

As 3C suggested...

The TICK chart is breaking out of the downtrend channel.

The DIA 1 min continues to add to the leading positive divergence

The IWM is now showing positive divergence signals

And the QQQ are adding to the leading positive. It looks like the market is prepping for an intraday move higher, my guess, it's related to Greece and will probably be a sell the news event. Either way, it should be a good time to add or initiate short positions if you haven't already. See the list of ETFS in the WOWS model portfolio posted earlier.

Furthermore

The short term 1 min DIA/QQQ charts are starting to get slightly positive, this is for an intraday move.

DIA 1 min

QQQ 1 min

If you are watching AAPL, it to is seeing some 1 min positive developments and is the main stock that moves the NASDAQ 100. Still, the longer term charts suggest a head fake coming up in AAPL.

TICK CHART Hinting at a Bounce?

The 1 min NYSE TICK chart is in a channel that matches up with the market action.

Rarely, but sometimes I use 3C on the Tick chart to get a sense of direction, here we have a positive divergence, so we may indeed see the TICK chart break this intraday downtrend shortly, which should coincide with any Greek/Troika news about the next Tranche and whether Greece has met the conditions for disbursement.

Market Update

I may even consider starting to add some back here-I'd like to be a little more patient though, it almost looks like it may be a sell the news event, with the 1 min / 5 min charts slightly positive, but starting to back off and the longer 10-15 min charts still very negative, it looks certain we get more downside, the only question is do we get more of a bounce off Greek news?

DIA 1 negative

DIA 5 min in line

DIA 10 min negative

DIA 15 min negative

IWM 1 min negative

IWM 1 min positive leading divergence

IWM 5 min positive leading divergence

IWM 15 min negative leading divergence

QQQ 1 mn negative divergence

QQQ 5 min in line

QQQ 10 mn negative divergence

QQQ 15 min negative divergence

SPY 1 min in line

SPy 5 min positive leading divergence

SPY 10 min negative divergence-leading position

AAPL Update

AAPL's 1 min chart was in confirmation earlier, now it's headed south in a leading negative divergence. The red trendline is the breakout area and below that level, AAPL risks a massive head fake/Bull trap.

What's in the model portfolio

These are all ETFs and all bought long, even though most are inverse 2-3x leveraged (short exposure).

ERY
EPV
FAZ
SCO
TZA
SRTY
SPXU
SDOW
SQQQ
TYP
DGP

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.