Wolf on Wall Street

Thursday, October 20, 2011

The QQQ/DIA

DIA 1 min is also turning negative

as is the 2 min-these look worse then the SPY

DIA 5 min

DIA 15 min is hitting new leading lows, this would imply that the short term bounce was distributed and thus the 15 min accumulates more distribution.

QQQ 1 min-remember the Q's looked the best, they are slightly leading on the 1 min

The 2 min is turning negative on the intraday bounce.

The 5 min is still in a positive position

Looking at the Bollinger Bands as a target, it would appear that this is about right as far as an upside target goes.

Market/SPY update

In the last market update I mentioned the start of a negative divergence...

Here was the negative divergence, which ended up being a consolidation/pullback within the bounce off the lows.

2 min is starting a relative negative divergence

The 5 min is trading in line so this is the fulcrum pint between the short term and longer term trend.

15 min remains leading negative

The 30 min longer term trend has added to the leading negative downside today

as has the 60 min

Here's ES 5 min starting to go negative as well.

Let me take a look at the other averages.

Remember the updates of the last few days I have said there seems to be something fundamental (perhaps a supply issue) that we don't know about yet, that seems to be effecting crude?

Well quite obviously that fundamental information was Gaddafi's death and Libyan light/sweet now apparently back or moving back toward normal production. Remember the Saudis pledge to take up the slack for Libya? Also Italy being the main consumer of Libyan Crude and how the fact that Saudi crude had such a high sulfur content that it would take 3 barrels of Saudi crude to equal 1 barrel of Libyan crude and the fact that the plants might not even be set up to remove that much sulfur from Saudi crude?

We talked a lot about it and apparently this is what has been giving USO that previously "undefinable" fundamental issue that was causing the charts to look a bit strange. Any way, now we know.

So here's USO now...

1 min looks like there could be some further upside

2 min looks the same

5 min also looks like further upside is probable

10 min is the fulcrum and trading in line.

15 minutes is where it start to get negative

Long term trend 60 min-this looks like a fairly good size downtrend and recently we have seen a sub-intermediate trend consolidation.

A close up of the 60 min shows the larger sub-intermediate trend at a turning point which should continue the downtrend, perhaps it will move to an intermediate downtrend.

However in the short term, it looks like a bounce is likely. The short term strength may be an opportunity to start a position or add to a position in something like SCO.

GLD Update

The charts/updates over the last several days have been showing GLD pulling back to the 150 day moving average which is what it did today.

GLD 2 min negative divergence

GLD 10 min negative div.

GLD 30, negative.

And thus far there's a small amount of accumulation on the 1 min chart. Now that we are back in the "historical buy range", we'll need to with and see what happens with 3C and GLD.

Market Update

It looks like resistance is starting to build on the intraday bounce.

DIA 1 min

ES 1 min

IWM 2 min

QQQ 2 min (the Q's may have a little more upside)

SPY 1 min

NYSE TICK Chart.

There are longer timeframes then 1/2 min going negative, I just wanted to get this out quickly.

Dr. Lumber?

Here's the ETF (thank you everyone) CUT, for lumber/timber. Here's how it compares to the SPY/S&P (in red).

Daily long term, it called the 2010 QE 2 bottom and started trending up while the market was still working on its low. In 2011 at the top, it started trending down while the S&P was still working its way sideways. Right now Cut is making lower lows/highs, implying a move down while the market went on to make a new high for the consolidation.

60 min chart shows CUT trending lower while the market was making a new consolidation high.

The same can be seen on this 15 min chart.

We'll see shortly if Lumber is the new Copper.

Market Update

Here's that intraday positive divergence mentioned earlier.

DIA 1 min-starting to show a slight negative which could just be a consolidation within the bounce, unless it continues to develop.

DIA 2 min

QQQ 5 min-relative positive.

SPY 1 min

SPY 2 min

SPY 5 min

ES 1 min.

So thus far, price is moving just as 3C is indicating.

Great Story of the Twisted Web called, "FraudClosure"

One of our members remembers that my wife and I were buying a home about this time last year and I had talked a lot about the ramifications of buying a bank owned or a short sale and I said that under no circumstances would I buy either one.

Because there were so many of these homes for sale and because owners with a clean title with a regular "arm's length transaction" were still fighting reality and listing their homes out of sync with the market (asking too much $$$) and because we were also buying a home for our dog and thus had certain standards needed to be in place (like no 2nd story townhouses, if there was a COA/HOA they had to allow large dogs, the place had to have a good size backyard, etc), it was VERY difficult to find a place which you would think would be the exact opposite, but we finally found the right place, a little more then we wanted to spend, but it worked out.

Well good thing I had the foresight to consider these things. Imagine you are this guy who bought what he thought was going to be a home, it turns out it was about as valuable as a cardboard box!

Thanks for the link Allan, it makes me feel a lot better about having spent s much time looking for the right place.

ES Futures

ES 1 min is also showing an intraday bounce off the lows.

Market Update

There's a chance of an intraday bounce, this is the start of a small positive divergence, it may get larger or it may disappear, it's just starting on the DIA/SPY.

As you will see, it's only on the 1 min charts so far, not the 2 min and is not on the QQQ yet.

DIA 1 min

DIA 2 min

SPY 1 min

SPY 2 min

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.