Wolf on Wall Street

Friday, March 23, 2012

Quick Market Update

AAPL w/ a very small negative 1 min divergence and 3C now in line with the decline.

The DIA has put in the worst short term intraday divergence thus far.

QQQ 2 min has gone a bit negative here.

As has the SPY

ES as well.

I think the near term market direction will be dictated by what AAPL does at support

And Here's the first move...

My take on this, after seeing AAPL hold support a couple of times, bulls bought the triangle, they are being shaken out now, not the increasing volume as price moves below the triangle's apex

Suspicious AAPL Triangle

Not too long after the BATS hoopla with AAPL, it forms a very visible triangle in the most watched stock in the market and just above support.

Not a perfectly drawn triangle, but a clear triangle, look at volume.

As much of yesterday, 3C is inline with AAPL's price, which in itself is strange, these in line sessions don't usually last very long, it did catch the spike as negative in the yellow box, but since then, pretty much in line with price.

The same with the 2 min chart (green arrows denote in line trade or trend confirmation).

And the 5 min.

For me this is all more just academic curiosity, my position has been clear on AAPL for some time and AAPL hasn't disappointed yet, however these little market manipulations are always interesting and are great to learn from. I suspect we'll see at least 1 if not 2 or more head fakes from this triangle.

Some Flash Crashes on the BATS Exchange

Earlier today I partially read a WSJ article about the SEC looking in to HFTs (High Frequency Trading) on the premise they have an unfair advantage. Does the SEC really need to investigat to figure out if they have an unfair advantage? The HFTs have become the go to provider of liquidity, knocking specialists and market makers out of the game, with the one tiny problem. When a market crash occurs, the HFTs are not required to provide liquidty and can simply step out of the market, the now much marginalized traditional liquidity providers, the market makers on the NASDAQ and the Specialists on the NYSE may not have enough liquidity in stock being they have been so marginalized, they are the ONLY ONES by law who have to provide a bid and ask at all times at market.

I suppose it's a bit ironic then that on the day the SEC investigation is announced, AAPL sees one of these mini-flash crash tades on the BATS exchange, dropping to $548.50 nd halting the stock for 6 minutes.

Here's the mini-flash crash which some people think is the HFT's testing the market and others believe that the crash quote is where the market is headed, the predatory HFT programs do have a tactic called "Pinging for Icebergs", essentially looking for large institutional orders by a series of small pings at different price levels until they uncover a large order which they then front run. Whether this had anything to do with that, I don't know, but here's the action this morning in AAPL

The trade was at $542.80 seen above.

Next, BATS which went public today and only trades on the BATS exchange saw an even bigger flash crash from $15.75 to $0.038 !!!

It appears BATS has now requested order flow be re-routed, bypassing the BATS exchange.

Blame it on the SEC I guess!

Quick Market Update

The IWM, along with the SPY, DIA and QQQ all broke support this morning, as usual, we almost never see a clean break anymore and instead a volatility shakeout, they are pretty easy to identify as you'll find a bullish candle on increased volume like the one seen above (not very bullish, but a long lower wick).

Since the 21st, the longer term charts have been deteriorating in to a worse and worse leading negative divergence.

The short term charts have been frustratingly in line for the most part as can be seen here.

ES is still giving some decent signals, but I've noticed the positive divergences now are not carrying the market as far as they were say 3 weeks ago and this trend has been accelerating. Above in pre-market ES, there was a negative divergence sending ES lower, then a positive divergence that only halted the decline briefly, upon the break of support this morning around 10 a.m. we see another positive divergence which is to be expected as we almost always see that volatility shakeout on the break of some important support.

New Home Sales, the Latest Miss

The only economic data out today, New Home Sales, just missed.

Released On 3/23/2012 10:00:00 AM For Feb, 2012

	Prior	Consensus	Consensus Range	Actual
New Home Sales - Level - SAAR	321 K	325 K	315 K to 345 K	313 K

It not only slipped from the prior, but missed consensus, coming in below the lowest estimate in the consensus range.

In addition, January's .9% fall was revised to a whopping 5.4% M.o.M decline, the worst decline in 13 months and the biggest downward revision since 2009.

I don't know what most people know about the propaganda machine's take on the economy, better known as CNBC, I only know what I heard after the last F_O_M_C announcement when I was too busy to run in the room and turn off the TV after the announcement. What I heard on that particular day was how great the economy is, things are roaring back to life, etc, etc and they made some comment about an economic report (I don't recall which one, but I posted my disdain that day upon hearing it) that came is "very strong, stronger then expected" earlier in the day, the particular report was at consensus, it was at what was expected, it was stronger then expected.

We know have 12 of the last 14 economic indicators at a miss.

From David Rosenberg yesterday,

"It is truly amazing how many people out there believe the economy is improving just because the S&P 500 managed to get to 1,400 this past week. The market doesn't always get it right.

But a look at the data flow suggests that beauty is in the eyes of the beholder.

Much emphasis is being put on the employment data. Outside of that, only auto sales really managed to surpass expectations regarding the U.S. data flow that has been released since the start of the month.

Meanwhile, personal income, consumer spending, ISM, net trade, NFIB, IBD/TIPP economic optimism, industrial production, NAHB, housing starts, University of Michigan consumer sentiment, and now, existing home sales, all came in below consensus estimates. So 11 indicators have missed, just 2 have beat, and supposedly we have some sort of nifty growth spurt going on. Incredible."

AAPL to take another shot at support?

AAPL a 3rd shot at support?

Since the 21st's divergence, AAPL has been roughly in line with 3C, which means trend confirmation and the trend hasn't been all that bullish. There have been a few minor divergences on the intraday charts, but nothing large like the 21st as of yet....ON THE SHORT TERM CHARTS

AAPL intraday 2 min chart, again, mostly in line with trade.

However the longer charts starting at the 5 min has seen deterioration.

The 15 min keeps adding to the leading negative divergence. Even if AAPL can manage a bounce on the short term charts, these longer term charts are more influential as to the trend, it's like "Rock, Paper, Scissors", the short term charts are paper, the longer term charts are scissors.

AGQ Follow Up

AGQ is another I've been expecting a bounce in, it's off to a good start today up 2.88%

AGQ's gap up

The 15 min chart positive divergence

Yesterday's gap down seems to have been accumulated.

GDXJ Update

GDX and GDXJ (gold miners and Junior Gold miners) were two others I expected to see a bounce from, both are off to a decent start today.

GDXJ is now up nearly 2% and GDX about 1.3%

Again, the underlying support for a move similar to GLD's

GDX is approaching some resistance.

GLD Off to a good start

GLD gaped up this a..m. to a +.75% gain. As you can see, yesterday GLD was one of the better performing commodities and vs the SPX.

The 5 min chart has shown underlying support for a move in GLD, I have not expected this to be a big move, but along the lines of a swing move.

There was a positive divergence on yesterday's gap lower, thus far the short term charts are confirming the gap up.

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.