Wolf on Wall Street

Monday, October 22, 2012

NASDAQ 30 min Futures

Take a look at what was already a positive divergence in the NASDAQ futures and specifically the last hour or so.

All I can think is, "I'm glad I added long exposure Friday", it wasn't an easy time to do so, but the best times never are.

If QE3 Can't lift the market, give it more

Are we going to get another surprise from the F_O_M_C this Wednesday at 2:15? Apparently Market Watch thinks so.

If the junkie can't get high off his normal fix, he must increase the fix. QE3 DID NOT move the markets up before the election, I can't say that is what it was designed to do, but is sure as heck wasn't to increase employment. This kind of wreaks of an "October Surprise" in politics. In any case...

Market Watch released the following read the last sentence

There are no pressures on the Fed for immediate action on these two fronts, economists said.

“I think they are reasonably comfortable with the market reaction [to QE3] and the way the economy has turned out,” said Michael Hanson, an economist with Bank of America Merrill Lynch.

Robert DiClemente, chief U.S. economist at Citigroup, noted that, in the wake of QE3, Citi’s financial-conditions index has reached its most accommodative reading since the Fed began easing more than five years ago. “At its current reading, the financial-conditions index is consistent with above-trend growth in final demand, an important prerequisite for stronger hiring and meeting policy goals,” DiClemente wrote in a note.

At the moment, the Fed is buying $45 billion of long-term Treasurys each month under its Operation Twist program, with the purchases offset by sales of shorter-term securities. Many economists think the Fed will decide to expand QE3 by that amount, and with Treasurys instead of MBS. But the announcement is not expected to come until its December meeting.

SPY/SPX close Green, Range looks different now

As I mentioned earlier, we would see bounces and declines in putting in a range and only after it is put in does it really become visible, but I said we'd look at the SPY which was down about .50% at the close to see if the range looked different.

SPX daily closing chart with a Hammer reversal candle today with its body inside Friday's body also creating a Harami (2-candle) reversal pattern.

SPY rallies in to the close, what looked like s lowing decline now is starting to take on the shape of a range.

The end of day 3C action developed very quickly and quite bullishly.

SPX/NDX 30 min Futures

I showed you these before and how there may be an even larger positive divergence in play in both, with or without the larger positive, the 30 min charts in both are looking excellent for this short period of time.

ES looking at the 30 min chart as 2 individual positive divergences.

NQ 30 min looking as either 1 larger positive divergence or the second divergence being in a much better 3C position than the first positive divergence

FAS Charts

FAS just really showed a lot of strength in the last hour or so, I decided to go ahead and open the position or at least start it.

1 min

2 min

3 min

10 min

Note the recent strength in 3C.

Starting FAS long speculative position

Very Tempted to add to TQQQ long

XIV Charts

XIV, unlike VXX or UVXY is correlated with the market whereas the others have an inverse correlation, the fact it looks good here may be some short term proof we are to see upside in the market or SPX tomorrow helping to establish the upper part of the range.

SPY in green, XIV in red.

1 min XIV 3C chart

3 min leading positive

5 min leading positive

10 min leading positive

Adding to XIV here

XIV is the daily inverse VIX short term futures, I like what I see here.

Charts coming.

QQQ Update-Q's look better on Tech rotation

As was suspected Friday Tech would show netter relative performance than Financials, as the Q's are Tech heavy and the SPX is more financial heavy, the relative performance between the two today makes sense.

All in all right now the Q's look excellent, I'm going to take a look and see if TFinancials are about to rotate or not, but this far this looks great.

Just the fact there was no follow through on the downside in the NDX today is an achievement, the daily star candle put in so far has a bullish upside reversal bias to it.

5 min ROC for the QQQ.

Note the nice tight range in the QQQ today, I can't say it stays this tight, but it's a very nice range, volume has dropped off as it should and the Q's were able to put in some nice positive divergences today in this atmosphere.

QQQ 1 min positive

QQQ 3 min leading positive, this is quite large and most of the leading component came as the Q's entered the tighter range o today as compared to late Friday.

The 10 min QQQ positive divergence is pretty impressive for this short amount of time.

We even have hints of a 15 min leading positive divergence in the Q's today alone.

I hope this illustrates the importance of consolidation and the range that comes with it.

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.