Wolf on Wall Street

Tuesday, August 7, 2012

Adding to UVXY Equity position

I'm going to add to the UVXY equity position here.

Financials

Financials have been one area that seems to have held up better than other important industry groups, as a matter of fact, last Friday I said that the market was hanging on by Financials and I've been monitoring them since.

Here's the updated charts, they are, I believe, sufficiently ugly enough here to cease support of the market.

Financials didn't really break above resistance until today, there was some intraday probing yesterday, but today was the solid break-look at volume today.

The important 15 min timeframe, it's almost a crossroads in 3C analysis. We have seen plenty of smaller negative divergences send financials on volatility runs that have driven both longs and shorts crazy (throughout the market), but this is the first time we have a real deep leading negative divergence at these kinds of price levels with the "head fake " component in place. I'd dare say this is the ugliest divergence on this chart.

Intraday timeframes, the 2 min has shown several divergences moving financials intraday, again this is the deepest leading negative divergence and in flat areas each time the divergences get worse (flat areas of price action are where we often see institutional activity).

The 3 min with a relative negative at the left, a leading negative in the red box, we see some movement with price and a divergence now within the leading negative divergence.

The 5 min leading negative divergence on an important timeframe. I'd think Financials are very close to a break lower.

The ES chart

I had a feeling it would be headed in this direction, while price is pretty flat, this is a serious leading negative divergence.

ES Now making the leading lows I wanted to show...

I'd think a move has to come soon to the downside

The Volatility ETFs

VXX and UVXY (I have a position long UVXY calls) are starting to see some extreme moves as well.

VXX 5 min just blew through the local highs on an almost uninterrupted leading positive divergence.

The 15 min chart did the same thing, it seems there's activity and a lot of it as this is nearly a straight line.

The long term or "Strategic" view at 30 min leading positive.

The 1 min UVXY trend over the last several days, but look at that spike in the box today.

Even though the 15 min has been positive, again, look at the recent spike up.

The strategic view, it seems money has shifted around quite a bit since June.

DIA example

The daily DIA and the head fake aspect-the June 6 lows were a solid head fake move we saw over a week in advance, still it had to make the head fake move lower. We've been seeing pretty solid negative signals almost market wide since Friday, yet it seems we have to make the move higher-as I mentioned last night, the more longs that can be pulled in, the more effective the head fake, but volume looks like there won't be too many more.

Forget the leading negative 15 min trend and the distribution areas vs the accumulation area from Thursday and the difference in size.

The DIA 5 min trend over the last 3 days vs the accumulation period Thurs.

The 3 min trend over the last 3 days vs Thurs. accumulation.

The 3 min chart intraday with a new low in to a price pattern at the orange area that looks like a bearish ascending wedge.

MCP Follow Up

I closed the equity long in MCP for a 1 day 7% gain, if I had a larger position I probably would have phased out of the position, but it was on a spec basis.

I still think MCP looks pretty amazing, it just doesn't look "yesterday" amazing.

MCP 2 min looks great yesterday, it's getting sloppier today

Intraday it's even put in a negative divergence. I'd rather look at MCP at lower prices to start a new position than sit through a pullback.

The 5 min is close to a negative divergence.

5 min trend yesterday was very clean, today it's getting a bit sloppy.

Still, a 7% gain for 1 day with no leverage isn't bad.

SPY at new intraday leading low

ES Update

I wanted to wait a little longer to let this continue to develop, but I decided to bring it to you now. As ES has been flat and already in a relative negative divergence from pre-market, a leading negative has been building.

AAPL's price/3C action not looking good either

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.