Sticking to My Guns for Now

If this pans out the way I think and have advocated it will for the last several trading days, then we will have to take a look back and really learn something about Wall Street and just how far ahead of the information curve they really are. In this case, it seems the rally was based in large part on bets that a Senator would pass away before the vote on financial reform.

I'm still behind the positions listed in the last several days-Gold seems to be working out, some embers took the short on GLD a step further and made some money today on short/leveraged inverse Gold ETF's and made a nice gain in a few hours.

Today was a "nothing day" in my opinion, you can see the charts at Trade guild tonight.

I will just say for those who haven't taken positions but want to, our idea was to add some of these longs today on weakness-better pricing, better risk profile, but we don't want to get too aggressive until we see proof. What's proof? The SPY breaking above it's base around $108.50, certainly a move through gap resistance from the 23/24th of June around the $109 area, that would be enough for me to get pretty aggressive on filling out these positions.

Now the alternative to what I laid out on Trade Guild tonight is that the Byrd event changed the game, that it was an unknown. I doubt this to be true, I wouldn't be surprised if his caretakers were on the phone with Wall Street giving them updates on his health. So for now, nothing has changed yet and the plan remains the same, but we also have enough good trades there that I don't think it's wise to stretch the charts looking for more trades to fill out the list, although I did add a few to the list tonight-be careful as they are all in the same industry group, you don't want correlation, however a short and a long will work. If they aren't trades we are investing in or would invest in, I'm not listing them. Patience is your edge over Wall Street, it's a tough edge to take advantage of. Emotionally and logically we have the idea in our heads that if we are not working or doing something, we are not making progress. This simply is not true in the markets-it's your single greatest advantage.

Another misconception is the "I have to get a 70% to pass". Not in Trading, think of it like baseball, would you be happy with a 400 batting average (40%)?  I think so. Risk management  is so very important and it allows us to have a 300-400 batting average and still double our portfolios. Get over the "I have to be right more then I'm wrong" attitude, get over the "70% is a passing grade" and get over the "I don't want to take a loss".

If you can't take a loss, while it's small, eventually you WILL take a loss that will cost you dearly. This isn't about being right, it's about making money. So for now, observe, watch the markets, be ready to act, understand that you are not in a battle of wits with Wall Street, you are in a battle for cash and you don't have to outsmart anyone or be right more than you are wrong. Like they say, "Do you want to be right or do you want to make money?" It seems like a simple question to answer, but i think we've all been in the, "I don't want to be wrong, I don't want to take this loss" camp before. your job to be a successful market participant is to retrain your thought process, rid yourself of ego, and do the things that just do not come naturally.

As for tomorrow, yesterday's trades could be pretty nice trades, I think it won't happen first thing in the morning, but you'll want to watch for updates and add at those tactical levels I laid out above.

Finally, Welcome new members, thank you to our members that continue to support team Wolf.

Have a great day, and lets see if we can't take some money from some sheep.

Update

There is nothing new, the 1 min is in line with price for the most part and the 5-min is still showing a positive divergence. At this point I still expect to see a move higher in the days ahead.

Update

Here's the 4C chart , there was a negative divergence out of the gate, but we still have a positive divergence into the lows intact. Go easy on the longs, we are adding them cautiously right now, above the open you can be more aggressive and above SPY $109 I think you can be more aggressive in adding the long positions.

From Trade Guild Today

He had a voice that was all his own, in fact, his voice was so recognizable, it was easily identified when some government eavesdropping was discovered, ease dropping on one of it's own senators. The man who went from the KKK to a tearful champion of dogs that couldn't defend themselves. There's a lot you can say about the Senator, he was an unique man.

However, this isn't political commentary. The financial reform bill that Wall Street applauded with huge bank rallies on Friday is now in jeopardry of being 1 vote short of the 60 needed to move it through the Senate. Scott Brown who initially supported the bill is now in the "toss-up" column.

I mention these things only because 3C tracks what the market is doing, however rare events like this that can not be foretold (yesterday I read he wasn't well, but I didn't get the impression he was going to pass the next day) can change the landscape very quickly. Luckily, as I posted last night, 3C can change quickly as well (it picked up a 30-min positive divergence which is substantial in a day, almost turning on a dime). I fully expected a rally, apprently fueled in some part by the financial reform bill that Wall Street seemed to like, (as I mentioned, they may have discounted the worst case scenario and it came out of conference a lot tamer than what had been discounted).

So today's 3C readings will be important to judge the viability of this rally/bounce. Keep an eye on Trade-Guild and of course members of Wolf on Wall Street (you can login from Trade-Guild) you'll see them with any analysis and actions I feel may be prudent in considering.

RIP Senator Byrd

Up She Goes...

If you ket up with the posts late last week, you shouldn't be surprised and maybe you are even ready for a little upside rally, Friday's close and everything I see seem to indicate that's what we'll get. How high? It could build onto the right shoulder of the H&S top as they tend to be symmetrical an the right shoulder is a bit short. THIS DOES NOT CHANGE OUR BEARISH STANCE, the market simply doesn't go straight up or down and if we can hedge and make some money too, all the better.

Here are he charts that you'll see on tonight's watchlist and don't forget the other recent longs listed. See the spread sheet for more information.

Something is up in the long treasuries, this is a "W" base with great volume to confirm it. 4C is in a leading positive divergence and it looks coiled for a breakout through $100 where the volume should be enormous. The red arrow is a negative divergence and yellow are positive divergences and a leading divergence or strong accumulation.

TLT 3C 5 min chart suggesting this will breakout soon, probably tomorrow.

Here's my Trend Channel, the red arrow is the current stop on a closing basis, it has the advantage of being objective and locking in profits everyday.

I listed two other plays on the treasuries, both are low volume ETFs, UBT and TMF which are 2 and 3x leveraged respectively.

Get some financial coverage-UYG is a 2x leveraged ETF that will let you play the financials. Banks went nuts Friday. Here's a nice 10 min divergence suggesting this won't be a 1-day move but several days to a week or so.

Again, the Trend Channel. See the first red trendline was a long stop out, the yellow arrow points to the current stop level.  This one turned around fast. The banks like something in Congress's bill that is suppose to tame them down, I guess it wasn't s bad as they anticipated.

I've stayed away from gold for the most part, but this daily 3C chart has followed gold flawlessly for over a year and now it's in a negative divergence, something is up here.

GLD 1 min 4C chart, suggesting early weakness.

I started a new watchlist, Thursday night AMPL was the first stock I put on it, there was something I just liked about the chart-look at that volume Friday. This looks poised for a big breakout.

Great volume in the daily chart of LAB, a nice descending wedge which is bullish and a nice 4C leading divergence all suggest that this will end up higher in the weeks ahead.

IEC is a long now in my opinion, it's formed a nice little base, volume is beautiful. Note the resistance is coming from that gap back in May. Gap resistance must be watched, IT IS RELIABLE.

MBI should roll with the market, it has a nice false breakout going for it, yes I think these things are positive! Now look at the volume (orange arrow), it's rising. Volume doesn't need to club you over the head to be meaningful-watch for that which others miss! These patterns are prone to false breakouts so the stop is wide initially.

Finally, if you own just one, then UPRO, it'll give you broad market exposure at 3x leverage on the S&P. I mentioned using this ETF last week so maybe you already bought some?

OK, I would get busy buying if I hadn't already, hedge your portfolio and you'll most likely make some $$ on the run too, this is why we are at 50% in the core shorts, to leave room for these opportunities until the market really breaks, and even then we still leave 25% cash for the same reason.

Have a great week.

Another negative divergence

It looks like we will get the close I mentioned earlier as there's a negative divergence in the 1-min chart, suggesting a pullback into the close.

Pullback is coming

But the 5-min positive divergence is solid. This will probably end up as a doji day-open and close are nearly the same which is a typical reversal signal.

If you can, watch the market now

It's very interesting. I still feel we will see upside based on the 3C charts, but a late day support level at $107.14 (SPY) just got taken out, watch how the volume rises there as the stops that people place with their brokers (A BIG no-no) all get hit. This is a typical maneuver on Wall Street now-a-days, you might call it fueling up. They continue to prod the area and volume is falling off, suggesting they hit the stops there. Now is the time you might anticipate an upside reversal, but we shall see. It's interesting to watch how they operate and how the "tools" your broker provides are actually being used against you!

Remember, what does Wall Street produce in their factories to make money? NOTHING! Trading is a zero sum game, for them to make it, you have to lose it and a big group just lost it.

***Update -a second after I pressed "Post" the market put in a nice tall candle. Hmmmm....

morning update

It seems we'll get a small gap up this a.m. which leads me to believe this is a real move and not a false move as the false gaps tend to be bigger and for a reason, the market makers are using them to fade the gap to make money, a small gap doesn't show that intention.

A break above the $108.75 area on the SPY today would be a fairly definitive short term reversal. We are looking at using UPRO to hedge our shorts and ultimately make a little money on a counter trend move. Seeing as the market typical overshoots normal targets as part of it's shakeout maneuvers, I fell it is possible for a bounce to carry as high as the $112.25 area on the SPY which would be good for anyone wishing to go short the market. I do not think it will cross above $113.20 to make a new high. The target may be even lower and of course there's the possibility it just fails altogether. The financial reform legislation can not be a good thing for the market, except for giving individual investors more confidence, but they account for so little of the trading right now, I doubt it'll make a big difference at least on the upside, especially when compared to the downside of which will be marked by a lot of firms doing a lot of things to get compliant and to find new ways to skirt the bill.

Considering nearly everyone on Obama's team has spent some time on Wall Street, I imagine this is more bark than bite, but there will be consequences-mostly unintended as there always are when the government tries to do anything. It's all a moot point, just as long as we are on the right side of the trade.

If the market begins an a bounce, you can monitor it to know roughly when to get out by using a 50 bar simple moving average on the SPY on a 15 min chart, it seems to work pretty well. Usually I use the close as an indication of when to close out positions but intraday volatility may mean that intraday stops or scaling out on intraday breaches on the 50-m.a. may be more wise. Looking at past performance, even in substantial trends there will be the occasional break of the 50, but only for a little while and the trend continues. So another thing you may wish to through into the mix is the direction of the 50 bar average-as long as it is moving up, any break of it may be temporary. Typically it takes a little time to distribute positions and the 50 will usually go lateral to down at a trend change while momentary violations of the 50 may be false if they occur while the average is still trending up. This is why I advocate a possible "Scaling out" exit, but if you choose that, scale out on the first substantial sign of a break, don't wait for it to drop several percent as the strategy would make no sense at that point.

What is a Divergence?

A divergence in 3C is simply an indication of accumulation or distribution. We try to narrow it down using multiple timeframes, but ultimately we do not know how long smart money will be accumulating or distributing, still it gives us a much greater advantage then almost any other indicator I've seen.

Read Trade-Guild tonight. You will see that there are enough divergences to the upside in enough timeframes that we should see a bounce. The trades posted last night should work fine, or you can try out some ultra/3x long ETFs, but this is only a minor move, don't be fooled by it into thinking the market has become bullish.

I listed one new inverse (short) ETF tonight I saw on Telechart. the volume is low, but it is a textbook, picture perfect setup. While the market may bounce, it may fall and make for a good entry. Do not be surprised to see a move below the lower support line of the triangle as Wall Street shakes everything before they let it move. I'll keep an eye on it, you should too. Here's the chart-oh and UNG violated the stop by a penny, it's not a big deal in my book, but much more and I'll have to re-evaluate our position there.

Watch for a market bounce as early as tomorrow.