Wolf on Wall Street

Wednesday, October 5, 2011

Market Update

Interesting day so far, as I said, this market is a lot different then the last 2 months.

Bollinger Band Squeezes-IWM 10 min

QQQ 10 min

SPY 10 min

DIA 10 min, now because of the 3C charts in multiple timeframes, I'm really interested to see which way these will break. My next post will cover the VXX

So far the pullback has only hit the 50 bar ma on a 5 min chart, not a 10 min, but there are some negative MACD/RSI signals and volume is low, which can be taken a few different way, flat trading ranges with low volume are often accumulation areas. On the other hand, when you have price gains, you want to see volume pick up-we are kind of in a mix of both.

DIA 1 min still negative, but as I mentioned on the first update, it could lead to a pullback or a consolidation, although I leaned toward pullback.

DIA 5 min is negative still, not horribly so, but negative.

The 10 min had an earlier negative divergence sending 3 lower, if not for that, the recent trade is nearly in line, just lagging below.

The DIA 30 min chart has gained strength today, moving higher.

QQQ 1 min

QQQ 5 min

QQQ 10 min trading in line, just a little stronger then price.

QQQ 30 min has also added to its leading divergence today.

SPY 1 min was quite a bit worse earlier, although still negative.

SPY 5 min has largely been in line with only a recent negative divergence

SPY 10 min actually added to its leading position, but shows a relative negative divergence within that.

SPY 15 min chart has clearly added to its leading positive position today.

And the 30 min has clearly added to it's leading positive today. Just having 30 min divergences is impressive, leading are even more so.

IWM short charts look like the Q's, the 10 min added to its leading position today

As did the 30 min.

Very interesting day for me.

Target

This is kind of an educated guess, you never can tell what events or areas of support or resistance will set off different reactions.

We have a Bollinger Band Squeeze, which tells us a directional move is coming, from the 3C charts I am expecting that to be a pullback... Also the Demark-ish Indicator (What can we call this thing?) is firing a 10 min sell signal.

The 50 bar m.a. on a 10 min hart has held the trend well, so I'll use that.

And would make a best guess that the target will be around that moving average, give or take a little-$111-ish.

TLT -Safe Haven Treasuries

TLT is mirroring the market as it trades inversely and also indicating a market pullback.

TLT 1 min positive

TLT 2 min positive

TLT 5 min positive-which matches 5 min negative divergences in the DIA/IWM and to a lesser degree the QQQ, the SPY is not negative on the 5 min.

The 15 min however remains negative, which at this point would still suggest a pullback in the market.

Update

The market is very Wedgy right now and that' not bullish, meaning that the pries that have been rising in the wedge, although higher, are not bullish, it's not a long term statement, just something along the lines of the pullback I mentioned.

DIA Ascending Wedge, a lot of times we see an upside breakout first on these wedges before they fall, that's their version of a head fake.

DIA 1 min

DIA 2 min, still nothing on the 5 min.

IWM 1 min

IWM 2 min, nothing on the 5 min

QQQ 2 min

SPY 2 min

Again, the 5 min charts still look fine, which would suggest an intraday pullback thus far.

Another View

The Orange sell signal of my custom Demark-type indicator has a DIA 10 min signal

IWM 15 min signal

And a SPY 10 min signal

Early Market Update

Again, don't like early updates because there are too many games in early trade, but I have some more signals. These are pretty short timeframes, so it could be the profit taking I warned of last night, or even just a consolidation, but I tend to think some sort of pullback is likely.

IWM 1 min

IWM 2 min

QQQ 1 min

SPY 1 min

The SPY 5 min is fine

DIA 2 min

Financials Starting To Shape Up

Financials have really been the last major group to hold out, that is starting to change.

Financials at the bottom have been falling out of favor and underperforming all week and last week.

FAS/Financials 1 min chart showing improvement before yesterday's EOD rally.

The long term 2 min chart, also in a leading positive divergence yesterday.

FAS 5 min

FAS 10 min, another divergence that was finished more then an hour before the rally.

The 15 min chart is shaping up finally and has a long term relative positive divergence.

And the long term 60 min chart looks good, with a very possible strong leading positive divergence.

The market goes no where without financials.

Very Early Update

The 1 min DIA specifically, looks like it wants to pull back, I don't like early updates as I've outlined before, but I figured I'd bring this to your attention.

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.