Wolf on Wall Street

Wednesday, September 21, 2011

Market Update

DIA 1 min positive and leading positive divergence

DIA 5 min leading negative

DIA 10 min leading negative

DIA 15 min leading negative

IWM 1 min positive and leading positive divergence

IWM 5 min positive divergence

IWM 10 min leading negative

IWM 15 min leading negative

QQQ 1 min positive and leading positive divergence

QQQ 5 min positive divergence

QQQ 10 min, slightly positive, but within a more powerful leading negative divergence

QQQ 15 min leading negative

SPY 1 min positive and leading positive divergence

SPY 5 min is in line

SPY 10 min leading negative

SPY 15 min leading negative

Since the longer term timeframes are still negative, what I would like to see happen is for the market to move up soon on this short term positive divergence, I would prefer that the market not stay in a range and continue accumulating, although I can't say that it would be to the detriment of the longer term outlook, I don't see anything helpful about it.

USO Update

Many are wondering why USO is up...

USO

EUR/USD

Look similar?
Oil is priced in $USD all over the world, so when the Euro strengthens, the dollar drops and oil has to be adjusted up in price to compensate. The FX move is what is behind the move in Oil. Although it seems like the Euro may be moderating here.

Market Expectations For the FOMC

We have to remember the market had high expectations for the last FOMC meeting and the Jackson Hole speech, they were tossed a small bone and they were satisfied, they didn't get anything like they were expecting, but now it is pretty much assumed that the Fed will at least engage in Operation Twist by selling short dated 2 year treasuries and investing that money in to 10 years most probably to hold down the 10 year rate which is around 2%, it' also the rate that influences most consumer loans. The market is said to have priced this is, but there is no end to the speculation of what the Fed will do and all from experts in their field. From QE3 to nothing and Operation Twist being the most likely. Then there's the size of anything they might do.

I won't get in to the specifics, but I can point you to 200 different opinions.

I just want you to remember and long term members have seen this many times, the initial knee jerk reaction which can be 30 minutes or two days, is almost always the wrong reaction, meaning it tends to reverse. I suspect this is a function of the market's tactics more then reflection, but keep that in mind.

For now, I am continuing to hold all of my short positions, nothing has changed in the model portfolio and this is because of how bad the 15 min hart looks. However, if you entered the trades around the same time as most of us, you re at a profit and if you feel like taking those profits or partial profits, YOU must do what YOU are comfortable with. You should have a decent profit at this point. We don't have to always be in the market which is our main advantage over Wall Street. So consider what you're comfortable with. I have a very high tolerance for risk, but trades should not keep you awake at night, if that is the case, you may have a problem with position sizing/risk management.

Just an FYI as we move closer to the maelstrom.

In the meantime in Europe

Risk is off, especially in the Financial sector. Take a look at this summary from ZH.

3C Telegraphed The Euro

There were 3C positive divergences before the Euro made this move.

Euro/USD

A longer view

The market strangely hasn't moved yet, but the positive 1 min divergences are still there.

Market Update

DIA 1 min relative pos. divergence.

IWM 1 min relative pos. divergence

IWM 5 min positive divergence

SPY 1 min positive divergence

AAPL Update

This gap up doesn't look like it's all that strong.

AAPL 1 min

AAPL 5 min

AAPL 10 min

AAPL 15 min

AAPL 30 min

QQQ Update

1 min leading negative divergence in the QQQ

EARLY Market Update

I usually don't like updating the market this early because there are a lot of games being played in the morning, but there are a few signals.

Right now the DIA is in line with price, so no DIA charts.

Here's the IWM 1 min looking like an intraday bounce, it may be from a current leg up in the Euro.

IWM 5 mins is still solidly negative

As you know the Q's have already gapped up on the bak of APPL, here's the 5 min chart which is still negative.

The SPY 1 min chart is showing some faint signs of a possible inrtraday bounce.

The 5 min remains negative.

Miner Trading System

In real time, the long NUGT signal is switching to long DUST. I personally would take profits in NUGT or at least have a tight trailing stop. I would not trade DUST or any other miner signal right now as the system is meant to trend at least 8 days and this market is too choppy for that. I would wait until we exit the volatility.

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.