Wolf on Wall Street

Tuesday, October 9, 2012

MARKET UPDATE

It is starting to look more and more like that flag pattern (bear) mentioned as a possible shakeout level yesterday, was hit as exactly that.

SPY flag

SPY 1 min is gaining more upside momentum

The 3 min never really went under yesterday's range and is seeing leading momentum to the upside.

The DIA was the ugly chart yesterday, it's showing the first positive divergence this week.

The IWM intraday 1 min is leading positive above yesterday's closing levels.

The IWM 3 min is doing the same so the divergence is migrating to longer timeframes.

NASDAQ futures continue to improve as well.

The QQQ intraday 1 min continues to improve

QQQ 10 min never left yesterday's range or dropped below, this is why this looks more like a shakeout.

However sentiment is definitely pessimistic and growing more fearful, I'll continue to hold open shorts and stick with the plan from Sunday, short any price strength.

UCO Took Out Gap Resistance +5.5% Today

UCO is still moving well, oil must really have been ready for a move, especially with geo-political events (Turkey/Syria), you don't usually see moves like this on a stronger dollar.

UCO powered right through what is usually resistance at the gap. Considering the size of the base, I'd think UCO has a lot more upside in the day and perhaps weeks to come. I'm thinking $35-$36

S&P/NASDAQ Futures

The leading indicators earlier looked like a selling climax was about to take place, thus far it looks as if it has.

The Futures charts for the S&P and NASDAQ are now improving.

ES/S&P futures are starting to see intraday improvement after the downside momentum was halted.

The same is true of the NASDAQ.

AAPL

I'm considering adding a small position to yesterday's already small AAPL calls...

If I see more leading intraday like this 3 min or stronger ones, I'll look at adding to that Call on a pop up/shakeout move.

UCO

UCO/USO'S BASE...

UCO this morning moving up despite what has been a strong dollar overnight and during regular hours.

UCO filling the gap, it is actually gaining upside momentum in the gap.

There's nearly perfect intraday confirmation on the move higher, now up +3.56% since yesterday's close.

And the leading 10 min divergence that has been so attractive in UCO/USO.

I'll keep this long position open for now and I suspect a while longer

AAPL UPDATE

THE AAPL H&S Top, it looks more like the symmetry is 2 shoulders per side, however I never short the initial break of a H&S as they seem to always get shaken out on a volatility run hitting short stops, but the size of the formation is just about perfect for the parabolic move up since 2012 and gives us that U-shape reversal rather than a bigger top.

In this case, the target doesn't need to be as high as $680-$690 as a 3rd shoulder isn't important, just a shakeout above the neckline.

AAPL's 10 min divergence from yesterday is still intact and in the range from yesterday, not confirming on the downside.

The intraday 1 min chart is just starting to turn up. I'll be looking to piece together a short here in probably 3 parts.

There's plenty of downside so I'd rather just get in than at the perfect area unless that is possible.

Here's what the initial downside should look like.

Leading indications Intraday

Commodities are diverging intraday from the SPX...

High Yield Credit is also diverging intraday from the SPX

The $AUD is also diverging intraday from the SPX

As is High Yield Corporate Credit.

However on each of these breaks, they are getting nastier and nastier, I think our longer term charts have been right on...

DIA long term chart-2012

QQQ 4 hr. 2012

SPY 4 hr 2012

According to these, a move like today is really nothing, there's a lot of downside in these long term leading negative divergences, this is why I want to be a seller/short seller on price strength.

Near intraday selling climax?

I think so, this is the bear flag I warned yesterday may very well see a break/stop run below the support level in the SPY.

Break below the flag ...

Intraday volume...

More charts to follow...

UCO Up +2% despite $USD

UCO was one of our long picks Sunday night for yesterday in expectations of a move higher in oil, despite some ugly Euro performance overnight sending the $USD higher, USO/UCO still manage to gap higher.

UCO gap up this a.m.

UCO vs the Euro (FXE).

Futures

The Futures market so far doesn't look that exciting, but it always seems to crank up on the US open. Right now we are set for some averages to gap down slightly and some to gap up, but all are pretty much within yesterday's range.

ES 1 min pre-market futures

NQ 1 min pre-market futures

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.