Wolf on Wall Street

Thursday, September 29, 2011

GLD Update

GLD at the long term average or mean, this has historically been an excellent buying point over the last several years, but as I said last night, I think it needs to consolidate along the moving average and prove it can hold it, especially after the way it came down off the highs. Furthermore, it would be nice to see volatility die down to reduce the risk of another COMEX margin hike.

30 min depth chart shows this as an accumulation zone, not incredibly strong, but the best we have seen since June.

15 min chart

The short term charts remain choppy and I think that is what we will see for another week or so, some brief rallies followed by retracements. Holding that average will be important for buyers.

Commodities...

GCC 60 min chart distribution at the top

GCC-commodities, pretty closely correlated with the market

GCC 5 min leading positive divergence

GCC 10 min leading positive divergence, it also based/accumulated at the same time as the market.

GCC 15 min leading positive divergence.

I have a feeling I have an idea what this is about, it ties in to the possibility of a longer trend up that I have discussed and the catalyst for such a move. Something was said today that makes this all seem to fit. I'll cover it after the close.

Why I don't trade PCLN

Look at the daily chart-the old adage, "A rising tide lifts all boats" and the opposite is true, but PCLN has a mind of its own.

Divergences between the market and PCLN

An hourly chart, SPY vs PCLN.

Model Portfolio Action

I'm going to add back the Options trades I closed out earlier, FAS also looks good here.

I would only add trades/replace if you are already at a profit on the original entries.

Market Update

Some interesting charts, especially considering currencies.

EUR/NZD

EUR/USD

DIA 1 min

DIA 2 min

DIA leading 5 min

IWM leading 5 min

QQQ leading 1 min

QQQ leading 5 min

QQQ even positive on the 10 min

SPY leading positive 5 min.

All of these good looking charts, suggesting near term upside are strange to see, considering not only that the Euro has been trading down, but that the New Zealand Dollar was downgraded as you can see by the reaction on the FX chart, this is a carry trade favorite and a downgrade means that carry trades will have to be unwound, which should be pointing to market weakness as an unwind in a carry trade usually means selling equities. Very interesting.

The reason I'm not taking profits in the model portfolio yet

This was the pullback in August I mentioned as an accumulation period started to rally, then a pullback of 4.6%, similar to the current situation in which the market has pulled back 3.8%. choppy markets like this are meat grinders and always difficult to trade. Last night after the close, I scrolled back and looked at 3C in all of the timeframes on the August pullback and compared them to the current pullback, the only hart that didn't have enough history to look at was the 1 min chart. In all cases, the charts now look even better then the charts from the August pullback which was deeper and went on to finish it's rally. This is 1 reason, but I also need current evidence and the charts below provide that.

This Tuesday when I saw the negative divergence and warned there would be a pullback, I also took 25% of my profits off the table in hopes that I would be able to add them back at a lower cost basis. I said back then that we have to watch for the short term charts to show positive activity in to the pullback and then I would add the positions back. Longer term charts will take longer and may not show the same positive activity because once Smart Money has moved prices past their average accumulation price, which usually happens quickly, they start to distribute shares, so the longer term charts will deteriorate as the trend up continues as they are selling in to demand. Therefore, the short term charts become important, more so then usual.

Here's the DIA showing several positives

The IWM with the Tuesday negative divergence that started the pullback and since then the chart has responded favorably, even putting in a leading positive divergence.

The QQQ with the Tuesday divergence/pullback and a good relative positive divergence in to the pullback.

And the SPY showing the same. So this is why I am not making any changes to the model portfolio at this time.

STEC Chart Request

STEC 60 min chart is inline, but as for the move today, it will not show up on the 60 min chart for probably several days.

The 30 min chart is slightly out of line and negative, I wouldn't think this is due to today yet as it takes some time to reach the 30 min chart, but there are other charts that seem to agree with this.

The 10 min went negative on 9/19 and sold off from there, the current 15 min chart, which may or may not have caught up to today's action already (usually it would take longer unless distribution is very heavy) is negative.

The 10 min chart shows a negative divergence on 9/27 and prices fell, it also shows the start of a positive divergence leading to this move up today, it is out of line with price, it can catch up, but thus far it hasn't.

Here on the more detailed 5 min chart we see the same negative divergence and a broader view of accumulation yesterday and today, this chart is in line and if it remains so and starts to lead positive, it will effect the 10 min chart positively.

The 2 min hart also shows a negative divergence and the down side in price from that as well as the accumulation period for this move up, this hart is in line.

The 1 min chart shows all of the same events so confirmation is good, this chart is negative, for this reason, I would like to give STEC a chance to catch up, so I would run trailing stops behind it if your entry/risk management permits.

For the bulk of the position I would use a 50 bar m.a. on a 10 min chart, if this is broken, I would consider taking the position off.

I would also use a 50 bar on a 5 min chart to take partial profits to lock in gains, for now, these should allow enough room for consolidation and for the 1 min chart to catch up if indeed we see that. Right now it looks like short term profit taking on the 1 min chart.

I'd give it a chance, but also make sure you can lock in a profitable trade.

Market Update

Intraday pullback/consolidation..

DIA 1

IWM 1

QQQ 1

SPY 1

The next longest timeframe is still in line. I'm going to reduce my options position as I have a full house and a good profit there, I may reduce my equities risk, depending on where the next hour or so goes.

Dollar drops/Euro gains

The post I put up last night showed this was the highest probability via acumulation in FXE and distribution in UUP, if I had to guess, the wide margin that the lower house in Germany passed the EFSF bill was probably well known to those in the know. They played it as if it was an uncertainty, but coming in at 523 for and 85 against, sentiment in the lower house must have been well known for those connected and that seems to have been reflected in currencies yesterday.

Here's a look at the dollar and the distribution as of yesterday sending it lower today.

UUP 1

UUP 5

There are some other VERY interesting development out of FAD (you know who) that I will cover in a bit, they fit right in with some of the longer term 3C readings we have been seeing for a while.

Market Update

DIA 1 min positive

DIA 2 min positive

IWM leading positive

IWM 2 leading positive

QQQ 1 leading positive

QQQ leading positive

SPY 1 leading positive

SPY 5 positive

Now that the morning trade is over, we should see what they're up to

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.