Wolf on Wall Street

Tuesday, August 21, 2012

TLT Flight to Safety Update

Earlier I posted TLT, "TLT Treasuries Coming to Life" because of several emails I had received, I said TLT was in good shape big picture and it looked like it was seeing strong accumulation intraday in to a soft patch or intraday pullback, now take a look.

Longer term big picture, the break below support (head fake move?) shows a strong 30 min positive divergence.

Earlier the 1 min chart didn't show much until around 11:30 as it pulled back, it went leading positive and now we see confirmation as price joins 3C.

Not Great Evidence

Who knows, I could be totally wrong, it just seems to me there's a lot more volatility they could create, I wouldn't close any shorts based on a gut feeling, but just keep an eye out in case there is one and you may want to use it to your advantage to get better positioning.

As for the averages...

This 1 min DIA positive could or may not be anything, there were others that were just noise today.

On the other side of the coin, keeping the bearish momentum nailed down even if we do get a "gut Feeling" bounce, the 5 min leading deeply negative, even at the highs today.

The 30 min is also turned down sufficiently to act as an anchor to prevent any bounce to do much.

The QQQ 3 min is the best evidence i have found for my gut feeling.

Holding down the other side of the equation, the 15 min leading negative and especially today, in other words, if we do get the bounce I had a git feeling about in the last post, it looks like you'd be well served by using it to short price strength as the downside turn looks locked in.

SPY 3 min is similar to the Q's

The 15 min is also similar with a strong leading negative divergence today.

Commodities haven't sunk like the SPX today, that's a short term hint.

Yields ar about in line.

Longer term they are negative.

The $AUD is not as negative as the SPX

Yet as I posted yesterday, the $AUD is already signaling market trouble and the 3C chart for $AUD signals even more.

The Euro also is not seeing the downside momentum the SPX is seeing, short term there could be some reversion to the mean.

Longer term, it looks like the reversal is locked in.

I'll keep looking.

Gut Feeling

I think today was an important break, but I am leaning toward thinking the psychological warfare isn't over; most traders think this is a pullback and many are buying in to it, a move up would suck many more in as confirmation. I get the feeling we will see upside before the next significant break down. I'm going to look around to see if there's evidence of such, if so, this would be a golden opportunity to position yourself in shorts you like on some price strength, a second chance if you will.

I'll report what I find.

GLD Update

I'm just reiterating, like yesterday with BIDU, GLD looks really nice here for a short or Put, I really like it here.

Market Update - A Different Perspective

I've mentioned that recently we've had some pretty extreme moves in everything, not just the averages, but I'll stick to those for now. If I wasn't aware of trend classification by price, I'd swear by the looks of the 3C charts, that we had entered the first stage of a real bear market at the May 1 top and the ride up from the June 4th lows was nothing more than a counter trend bear market rally, which is exactly what I suspected and still believe the BIDU move was. Obviously the market's price trend doesn't look like BIDU's, but the underlying trade looks exactly like a counter trend move just like BIDU.

From left to right, BIDU Primary Uptrend (actually part of a stage 3 top), the area we shorted BIDU for the core short position ON A HEAD FAKE MOVE , Primary Downtrend starts, counter trend bear market rally, next: resumption of the Primary Bear trend.

While price in the averages makes it impossible to label them the same, the 3C underlying trade looks like that's exactly what is happening, this was our 3rd and final trend assumption; after a strong move up and head fake/bull traps were set, we'd move in to a primary downtrend or bear market.

I'll be showing you a lot of different timeframes, trends and activity (the actual flow of money in and out of an average during a head fake move-the mechanics of it) at highly probable bull-traps.

DIA 1 min saw 1 leading negative divergence from the 16th/17th, today's is at a higher price and a deeper 3C low, making this an extreme move in 3C and a bearish one at that.

2 min DIA Trend above a resistance level and at this morning's intraday highs, a sharp leading negative divergence in to price strength. This tells us what the move up was being used for by smart money.

DIA 3 min at the same area, this is an EXTREME move in 3C, you don't see these often.

DIA 5 min 3C leading negative today to a new low.

DIA 15 min chart with relative negative divergence at today's highs, followed by an almost uninterrupted, vertical leading negative divergence on a pretty long timeframe that doesn't naturally or typically move that fast.

DIA 4 hour, note resistance and the accumulation on Aug 2nd (this was seen everywhere we looked that day, it was market wide), the accumulation pushes price above resistance and from there 3C starts to go negative and then leads negative on a VERY long timeframe.

ES 5 min showing the persistent negative divergence since yesterday as well as one of the sharpest moves I've seen in ES today , leading negative and to new lows.

ES 30 min with a very clear leading negative trend and right where the break above resistance would be .

ES 60 min

ES 4 hour, shows the March-May negative divergence, the June lows positive divergence and the current negative divergence.

ES Daily-confirmation of the uptrend from 2011 in to early 2012, negative divergence at that top where we entered core shorts and the current negative divergence in a leading negative position.

IWM 1 min deeply leading negative, look at the 3C trend and the break above resistance.

IWM 2 min , again note the trend line (white) and the negative 3C trend, no where near confirmation, as price passes the resistance area.

IWM 3 min, confirmation with the Aug 2nd accumulation, a negative divergence in to the breakout above the IWM range/resistance.

IWM 3 dy is pretty far out, but besides the smaller divergences and the larger calling the 2007 top, the 2009 bottom, the 2011 top that lost -20% in a blink of an eye and the current leading negative position, it's lower than the 2009 bottom! That's an extreme chart.

QQQ 2 min leading negative and deeply today

QQQ 5 min trend, note resistance again and the deep change in character, also remember how bad the NASDAQ Advance /Decline line has been in the same area from my breadth post.

QQQ 15 min, same concept above resistance. Today's 15 min move is very sharp as well

QQQ 60 min, downtrend confirmation, June low accumulation, uptrend confirmation and resistance broken with a leading negative divergence.

QQQ daily, I don't think this needs an explanation.

SPY 1 min with an extreme move the last several days.

SPY 10 min with an almost uninterrupted leading negative move today.

SPY 2 min also with a nasty trend and a deep leading neg. move today alone.

SPY 60 min , pretty self explanatory.

GLD NEW POSITION OPEN

I went ahead with GLD September $160 puts as we have almost 5 weeks until expiration. This is in addition to an existing partial position (I was looking to add at better prices) of September $157's.

GLD Update

If that BIDU position was my only position, I'd have held it, but I had another Put position and I needed some room for GLD which I like here for a put.

I'll probably go out to October and it will be a partial position, not a full one as I already have a partial in GLD puts.

GLD breaking out of an obvious triangle.

GLD's Intraday range is very flat.

It's the trend in the intraday charts that interests me, the 2 min

The 3 min

The 5 min leading negative.

The 30 min is also leading negative.

Here's the 60 min, also leading negative.

Closing 1 BIDU Position

I'm closing 1 BIDU Put position in anticipation of an intraday correction and to finance a GLD put.

Over 100% gain on the Sept $130 Put.

Here's the BIDU 1 min chart, I'll be looking for any significant strength to short in to again, otherwise I want to take a look at a GLD put.

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.