Wolf on Wall Street

Monday, February 25, 2013

Early Look at Our Leading Indicators

It doesn't take much to figure out what the market is following and that is the same thing that moved it last night and that's currencies, specifically the EUR/USD and specifically related to the Italian elections, however the Yen is playing a role as well. I'm less interested in the fundamentals and more interested in the market's reaction to them.

Looking at leading indicators so far (this is a bit early in the day), they seem to confirm the same sentiment I posted earlier.

The CONTEXT ES model...

ES as usual recently is rich to the CONTEXT model, that may moderate a bit based on some early indications and of course the market filling most of the gaps.

High Yield Corp. Credit is holding on better than the SPX in this early snap shot (1 min chart) which suggests that the market bounce off the gap fill, still the longer term view here is of severe dislocation in credit, the bigger picture not being good for the market.

Junk Credit is also doing better than the SPX this morning as of this capture.

The SPX and Euro moving nearly tick for tick as Italian election results come in.

The $USD moving nearly tick for tick in their inverse correlation as the gaps are filled.

The Yen also moving right along with the SPX or the SPX with the Yen according to their correlation.

I'll show you futures next.

Market Update

In the last post I said the following...

"After a quick look around at some of the averages, some of the core short positions, etc. I certainly think the near term doesn't look good, but there are a lot of gaps that look like they will see ugly trade as they are filled, what is holding me back from entering any shorts, puts, add to positions right now is the question, "What happens after the gaps are filled?".

We are still very early in the day and I'm not convinced that the gaps are filled and the market keeps moving south, I am fairly well convinced that the back of the uptrend is broken, but there's still a lot of opportunity for whiplashing and it's the position of some of the charts in timeframes just beyond the gaps that have me concerned not about the market's disposition, but rather timing in negotiating those whiplashes.

I think patience is still probably the best posture right now."

Now we are seeing exactly that, this is the first part as the gaps are filled or thereabouts, the futures and leading indicators will round out the rest. "If" I was extremely aggressive I might play some calls on the Q's, probably the SPY, maybe the IWM, but I do not think this is ideal territory for trading, I think it's ideal territory for being patient, taking some notes and putting some pieces of the puzzle together to move toward the high probability trades.

Here are the intraday charts doing what I thought they'd do.

DIA is positive from last Friday which is why we thought (at least is one reason why we thought) the market was higher early this week, the gap up saw intraday distribution filling it with a positive divergence just after it was filled.

The IWM looks a bit different, but is the same exact story.

The Q's have been more in line this morning, but are moving to an intraday positive position.

And the SPY is like the DIA/IWM, negative in to the gap up, positive as the gap is filled, this is why I'm urging and trying to stay patient, so far the market is acting as suspected and I suspect there's some upside, but I don't like the risk:reward profile as of now in chasing after that, we have had much stronger trades by being a little patient.

Quick Market Update

After a quick look around at some of the averages, some of the core short positions, etc. I certainly think the near term doesn't look good, but there are a lot of gaps that look like they will see ugly trade as they are filled, what is holding me back from entering any shorts, puts, add to positions right now is the question, "What happens after the gaps are filled?".

We are still very early in the day and I'm not convinced that the gaps are filled and the market keeps moving south, I am fairly well convinced that the back of the uptrend is broken, but there's still a lot of opportunity for whiplashing and it's the position of some of the charts in timeframes just beyond the gaps that have me concerned not about the market's disposition, but rather timing in negotiating those whiplashes.

I think patience is still probably the best posture right now.

QQQ/IWM Fill

Well as near as I can tell these are the correct fills, as you know I like to close these weeklies on momentum, as soon as momentum starts to fade the profits fade even with higher prices (although I am having some trouble this a.m. with quotes).

In any case, it looks like this was still a worthwhile quick trade.

Nearly 44% and 40% for about a day and a half.

I still like these Gold March and April calls.

As for the market, the TICK is not all that impressive, this is the open or early action we expected Friday, I do think the weekly put options will line up as the next trade, but I do want to look in to some of the longer term positions as well and see what may be looking good at the moment, but as you know I prefer to let a.m. trade burn off, especially after a weekend.

Leaving GLD Calls in Place

GLD Calls are in the green, but I don't see any reason to close them yet, these are the March monthly calls.

GLD 2 min leading positive divergence

GLD 5 min leading positive divergence

GLD 10 min leading positive divergence

GLD 30 min leading positive divergence

ES and NQ

I'm a bit nervous to open puts this early in opening market action, I wanted to see what the QQQ/IWM looked like and I'm still on the fence, but I'm considering a partial position that I might be able to add to later, I will of course let you know as well as the fill on the Calls just sold.

Here's what the NASDAQ and SPX Futures 1 and 5 min charts look like.

ES 5 min is getting very close to a short signal

ES 1 min

NQ 1 min

NQ 5 min is close, but not quite where I'd like to see it for weekly puts.

I think either a small phasing in or some patience is the right course here, I'll stick with patience for the moment.

Closing Both QQQ and IWM Calls from last Thursday

As a matter of fact

I'll be looking early to open some weekly puts, I'm not sure where yet, of course I'll let you know.

Still on Track

I'm not exactly sure what caused the EUR/USD to surge after midnight, but if drug futures up with it and filled in the signals from Friday (when we expected a higher open early in the week to sell our weekly IWM/QQQ calls) as we also expected last night so the cycle remains intact, I don't care why, we'll just be looking for the next move.

Have those calls ready, the market moves fast and oddly on the open.

Sunday, February 24, 2013

Pretty Quiet

I don't think my opinion of early this week has changed much since Friday, the Futures and "most" FX pairs are pretty flat. Notably the JPY/YEN is one currency that has made a pretty significant move upon the opening of the FX market for this week. Apparently the next BOJ governor looks like it is going to be super-dovish, Kuroda who is very much in the same camp as the P.M., Abe.

Kuroda has supported pumping massive amounts of money in to the economy, of two other posts to be presented to Japan's parliament this week, Iwata will be presented, he's an academic who has been very vocal about aggressive monetary expansion is likely to become the Deputy BOJ governor. In light of all of this which is really no surprise considering Abe, the Yen has moved fairly aggressively on the open whereas everything else is pretty much as stated, flat.

Also just coming out, HSBC's FLASH PMI for China hit, not pretty. The HSBC Flash PMI index for February missed expectations of a 52.2 print, dropping from the final January print of 52.3 to just barely above contraction territory of 50.4.This print seems to put an end of the contraction to newly expanding PMI, this could have a big effect on Central bank policy worldwide if the Chinese official PMI comes in as bad or worse.

For now, the market is flat, the only thing worth showing is the Yen vs the flat open of the rest of the market.

The EUR/USD, very flat on the open this week.

The EUR/JPY, not so flat as the Yen takes a dive on the BOJ news.

So as I said, I don't see any reason so far to change the positioning from Friday with the QQQ/IWM weekly calls open over the weekend and looking to close them out early this week, I have a feeling it may be tomorrow.

Until pre-market, get some rest, this should be a fun week.

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.