Wolf on Wall Street

Monday, February 27, 2012

VXX Update

The VXX/VIX (which have an inverse relationship with the market) look like they're gearing up for the next leg up...

There's a positive divergence on the VXX pullback from the market bounce, it looks like it's gathering steam for another push higher.

The longer term VXX chart (30 min) with a leading positive divergence at a double bottom.

Update

The German Bundestag just voted for the second Greek bailout, although I doubt this is surprising news.

The Euro's reaction thus far seems muted.

Although technically that is a bullish ascending triangle, however I would have expected more of a knee jerk reaction.

As for the averages...

The DIA

The IWM

The Q's

And the SPY...

The NYSE TICK has recently gone very negative in the -1000 area

GLD seems to be moving lower as well.

In the near term, I think the market will follow the Euro, but the parabolic gap fill doesn't look like there was any underlying strength behind it.

PEIX is up nearly 55% for us now, be advised, although the charts look good, they report after the bell and earnings are always a wild card.

Personally I favor taking a good chunk of profits off the table, trailing a stop and definitely keeping an eye on how it is trading near the close. I would prefer to have all of my original risk money out of the stock before earnings and maybe then some. While PEIX has shown us it can run 400+%, a 55% gain is nothing to sneeze at either. We want to control as much of the trade as possible and earnings are simply one of those things we can't control, we can make best guesses, but they are the real wild card.

I'll keep an eye on PEIX as the day develops

GLD Update

I can understand GLD rising on a little dollar weakness, it's looking like it is getting ready to turn down as it appears to be reacting more to the Euro's stall.

The 1 min GLD chart with a positive and now negative divergence.

And the same on the 2 min.

This may not be a bad area to try that Put options trade again, like Friday's.

Quick Update

That's one of the most parabolic moves I've seen in a while, you now how they usually end...

The market has fallen out with the Euro now that the gap is filled...

WMT's Breakaway Gap

Here's a look at WMT, it looks exceptionally weak. It also has a bearish breakaway gap pretty far away, I don't think it is likely that it gets filled.

Here's the trend which was broken viscously.

On an intraday basis...

This morning WMT is not bouncing with the market, we do have 1 higher low on high volume so it may try to bounce a bit in which case it may be a stock of interest if you can short this on some strength, relatively compared to the market, it is VERY weak.

The hourly chart and the break...

The trend of the 1 min chart has been bearish.

This close up of this a.m. shows it to be in line, not positive, but in line which may lead to a little strength, but I highly doubt WMT will be able to fill that break away gap, making this a very bearish chart.

PEIX Follow Through

So far so good for our long, PEIX which broke out Friday

As of now, PEIX is up exactly 50%.

PEIX follow through so far on great volume.

There's also good confirmation in the short, intermediate and longer term timeframes. (2 min)

15 min

60 min

At this point I would have definitely taken partial profits. Keep those trailing stops in place. If you need new stops either to tighten or widen, just email me.

Actually the averages do look a little weak on the bounce

The DIA looks as if it wants to roll over now before even reaching the gap

The IWM is not far behind...

The 5 min IWM close up

5 min IWM zoomed out-this trend has been moving like this for weeks as the IWM hasn't gained anything in more then 3 weeks.

The Q's are lagging a bit as well

The 2 min chart isn't even in the game.

No Surprises Yet

The early trade is not surprising given the market's propensity to try to fill all gaps, the bounce off the opening lows comes with a bounce in the Euro.

2 min SPY

EUR/USD

Maybe USO's early weakness is a bit interesting, there's pressure on Obama to release crude from the Strategic Reserves, but somehow I don't think that is what is behind this.

Overnight Sentiment

As mentioned last night, the early ES and FX openings showed market sentiment unimpressed with the G20 as that was the main event over the weekend, since the opening, it's been pretty much downhill all night as the G-20 did not increase IMF reserve, something that is a fairy tail we have covered so many times. The agreement to increase funding was made over a year ago, but only 19 countries in the IMF (not the G-20) have ratified the new increases, the biggest contributors have not including the US. Furthermore even if the US had, there's already strong Congressional sentiment that no more IMF funding be used in Europe. Even Geithner said after the G-20:

"We will not go to Congress to seek the authority necessary for a contribution from the United States. We don't think that's necessary or desirable."

He knows what the result would be. Furthermore last week Canada said boosting the IMF for Europe WOULD NOT be on the G-20 agenda. If this is the market acting surprised or disappointed over that point, then very few in the market have been paying attention or they are simply living on unlikely hope.

In similar news, the German Bundestag will vote today on the second Greek bailout, (remember last week all the headlines that Greece was saved?) a reminder that each of the Euro-zone creditors must independently back the bailout with their own parliamentary votes as well as the IMF in its role. Germany's Finance Minister reminder us of such after the G-20

“As the heads of government have agreed, we will make our decision in Europe in the course of the month of March. But the month of March goes from March 1 to March 31. It will be reviewed again, also in the light of the developments that have since occurred, whether the stated dimension of the mechanism is enough or not.”

If it takes until March 31^st with no bridge loan, Greece will already be in default.

Schaeuble also reminded us that we can safely assume that the Bundestag will approve what the German government has laid out which may lead to some volatility today.

The British Finance Minister reminded the EU that the IMF will not decide on its participation until they see what the EU comes up with, so as always, it seems to be a time consuming game of wait to see who will be the first to do what before deciding on anything; that is assuming Greece meets the pre-criteria.

In short, the headlines from Bloomberg and Reuters sum up the situation, the EU has been rebuffed by the G-20.

In Greek news, over the weekend, news broke that Greek officials in government have transferred more then 16 bn euros of private wealth out of the country, apparently not having much confidence in the outcome there, which has inflamed the German population as news paper editorials are making all too clear this a.m., despite this, it is still widely expected that Germany being the first EU nation to vote on the Greek package will pass it today.

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.