Wolf on Wall Street

Wednesday, March 7, 2012

Oops, WMT did it again?

Keep an eye on WMT again (WMT is a short trade idea).

WMT had a few intraday head fake moves above the bear flag that sent it lower the next day, yesterday was the latest, but the close wasn't below the lower trendline. Just like looking at the AAPL intraday head fake that sent AAPL lower by -2.2% vs the GLD daily closing head fake that sent GLD lower by -5.3%, the stronger the head fake move, the stronger the reversal move. So watch for WMT to hopefully post a stronger, unambiguous move above the trendline.

And there's the market move out of the a.m. consolidation.

Reason for HGSI Trade

I'm still viewing this as a short term trade and still believe HGSI will form a larger base for a longer term trade over the weeks and maybe months ahead. For now, I'm just looking at it as a short term play and see what the market offers. You saw the earlier 5 min chart which looked like HGSI had more to offer.

Here's why I decided I wanted to place the order.

HGSI broke some morning support and then broke back above it, the 2 min 3C chart is leading on that move, so that was the positive 3C action I was looking for to re-enter on shorter calls (March rather then the April calls closed earlier today as the April Calls just weren't moving enough).

Going to Place a NEW HGSI LONG Trade in the model portfolio

DescriptionHGSI CALL 8 Mar 12

March $8 Calls, I'm looking to be a little more nimble here.

AAPL Update

AAPL has their event at 1 p.m., I would expect to see some buying in to 1 p.m.

AAPL 1 min with yesterday's afternoon positive divergence.

AAPL 2 min shows the head fake move in the yellow box with a very negative 3C divergence in to that move, and yesterday's opening positive divergence then the afternoon positive divergence. Right now both charts are in line with AAPL's morning action thus far.

The longer term or bigger picture in AAPL...

AAPL 15 mmin negative divergence and current trade is slightly leading negative

The 30 min chart shows confirmation in Green, then a negative divergence on the 15th which I think is a key date, 3C hasn't made a higher high since the 15th and has been leading negative ever since.

Market Update and HGSI plan

All the charts look similar, nice 1 min positive or leading positive like this DIA...

And then 2 min relative negatives that I believe are holding the market somewhat lateral. The idea is the 1 min strength will bleed to the 2 min chart and move the averages higher.

The same on the QQQ 1 min

And QQQ 2 min

SPY 1 min positive

SPY 2 min out of line and holding the market back a little here until the 1 min strength migrates to the 2 min chart.

Here's the HGSI 5 min, this is why I think there's more upside, but I had a decent profit in the model Portfolio and truth be known, I think the April Call was a month too far out for what I'm trying to do. I'll look at re-entering on a March Call.

Selling HGSI Call, Looking To Re-enter Today

With a 20% gain in a day, I'm not letting this slip, although I still think HGSI can move higher today, I want to look at re-entering.

Model Portfolio Call bought yesterday

The EUR/USD Vs ES

This is an oddity, I fully expected ES overnight would drive a gap up this morning, but I expected some EU rumor to do it, thereby driving EUR/USD higher as well, apparently that didn't happen so it appears it was just pure technical manipulation.

ES overnight from yesterday's close

EUR/USD overnight from yesterday's close

That explains why these dollar linked assets are underperforming...

Copper

Commodities in general

GLD

USO

SJM Trade Idea

I'm glad I took the profits on SJM yesterday as per this post...

From yesterday's post...

" Short term on the 2 min I see a positive divergence, just like USO when it broke the channel, it returned to kiss it goodbye, and that is likely what will happen with SJM so I'm closing the model portfolio trade here and looking to reposition, maybe on a straight short."

Today's chart...

SJM returning to kiss the channel goodbye. Keep SJM on your radar, if you see yesterday's post linked above, the longer term charts look bad still. Today may give you a decent entry.

Morning Gap As Expected

And the way we got there, as expected; take a look at ES overnight...

No this gap wasn't the result of US economic data or the ADP report which was virtually at consensus, the move happened as expected in ES overnight. Based on what? Well it wasn't based on the news that the Milan exchange has indefinitely suspended trading of Greek GGBs (debt) or that German Factory orders dropped -2.7% on consensus of a +1.6% gain. and it certainly wasn't the Greek 1 year bond hitting a new record yield of 1114%. Maybe it was the German finance minister and Greek finance ministry are confident the Greek PSI deal will be completed by tomorrow evening’s deadline.

More likely it's purely technical.

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.