Wolf on Wall Street

Tuesday, September 21, 2010

Here's today's price action. Note that we drifted lower in the a.m., this I attribute to retail being cautious ahead of the Fed meeting, at least that is what I'd think. Remember the update today about the market's initial reaction to the Fed policy being turned around, here's a great example of that, a big rally up and then the market gives it all back to end basically at "indecision".

Today was not a bad day, actually it wasn't bad considering the concept of follow through. A strong day like yesterday (price wise-internals were the weakest I've seen) should be followed up with another strong day-that's follow through and confirms there's real conviction on the art of the buyers. Well the buyers got what they wanted on a big rally and they weren't willing to step up to bat.

The last post I pointed out apparent manipulation between the smarties on Wall Street and the SEC-probably through the entire Treasury Dept. in there too. I told you it was real, it is real. The game is either changing very fast or we just made a bunch of new discoveries. While others can speculate and write about it, we have the goods right in front of our noses.

The one thing about 3C, I've used this indicator through one of the heaviest manipulation points in time, during the first quarter of 2009 and guess what, 3C still worked, it still made the right calls. So as long as those negative divergences persist or until something else tells me otherwise, I'm sticking with the analysis and saying I'm still expecting the drop.

We've been waiting for the drop for awhile and the fact is 3C has been right about it, it's September now and we are just finding out what appears to be SEC intervention to cause a short squeeze. Devoid of that intervention, August would have likely been our breakdown month. I don't know what the plan is as far as the smarties are concerned, but I'm going to start making some adjustments and give us new tools to work with.

For 1-I'm going to put more emphasis on individual trades rather then market moves. Two I'm going to constantly remind you about risk management, I'm going to ask you, beg and plead with you to please contact me regarding your situation so we can tailor a risk management plan that fits your style. We are going to be using shorter term swing trades of several weeks to a month until we clear this trading range that has persisted much of the year. And finally I'm working on new indicators, scans and sorts starting tonight. I've got some ideas. One is to try to determine roughly the size of positions the smarties put on and at what average price. The other has to do with ideal times to buy and sell. Through a backtest I ran this weekend, I found, without optimization that I could increase results by about 20% by entering the market at low volatility moments and exiting and staying out of the market at high volatility moments. Remember when I said tops are like meat grinders, well there's a volatility component there and we can optimize that. And lastly, finally :) there are going to be a core group of stocks that I know or discover to give excellent 3C signals with high Beta and those are going to be stocks we specialize in. So look for these changes, I'm working every night and on the weekends because I'm excited about these ideas.

As for tomorrow, what I don't want to see is a new high, if that comes to pass, I personally will be reducing exposure, not cutting it off, but reducing it. I want to see a new low , but until we figure out what the deal is between the SEC and the market, we want to tread a little more carefully. Honestly, the more they manipulate this market, the worse it's going to be for their "good intentions" in an exponential way. QE doesn't work, there's no proof that it does, so another round, mat be the last and not for good reasons.

Today's trading was interesting as "flight to safety" assets did well, that doesn't bode well for the bullish scenario. The Patron Saint of the Market, AAPL put in a "Shooting Star" candle today. An easy way to remember the significance of a shooting star is the Japanese saying about a shooting star, "There's trouble overhead". GOOG put in the same. MSFT closed down over 1%, VOD put in a bearish Harami, CSCO closed down, ORCL was down 2.44% (look at this chart-this is typical of a parabolic move that almost always sell off), QCOM put in a Shooting Star, AMGN put in a Harami reversal with a hanging man candle-double bearish, and AMZN out in a Harami/shooting star-only INTC closed up. THOSE ARE THE TOP 10 NASDAQ STOCKS-the ones that would be used to manipulate the market and almost all put in reversal patterns.

So for now, it's stick with the plan and move forward with new plans.

I hope you are finding your experience here at WOWS enlightening, I know some of you are finding it profitable, hopefully this week everyone will be profitable.

It Wasn't As Wild A Ride As I Suspected...

And while it wasn't a downside reversal, at least not of any magnitude, the initial bullish enthusiasm right after the statement quickly reversed as I told you is often the case. We may see more as it is analyzed for every jot and tittle, but on balance, I feel today wasn't bad. I'm breathing a little easier as the market did NOT follow through on yesterday's move, although the price/volume relationships yesterday did foretell a weak breakout.

The S&P-500 was a few cents away from a Harami Reversal.

The Dow put in a narrow range day forming a Star candlestick, which is a bearish reversal sign when it comes after a prolonged uptrend like we have seen.the long upper wick shows us higher prices were tested and failed to hold.

The NASDAQ 100 put in the same Star with a little more bearish bias.

The Russell 2k put in what would be similar to a Harami downside reversal, the body of the candle was a bit too big to qualify, but the implications are similar especially considering it closed near the lows of the day-almost at them

The Nasdaq Composite did put in a Harami reversal (bearish).

The only index to close up was the Dow-30 by +.09%
The Russell had the biggest decline of -.75%

As of now the market is trading down a bit in extended trading.

So, I'm going to take a little break as this has been an intense day, then back to research and tonight's post. I have a few new ideas that we'll be looking into.

Bear Flag

There's a pretty obvious bear flag on the SPY, it's already well formed so there's a decent chance of an intraday breakout above it. This is information more for short term traders

The Market's Patron Saint

This would not be a good close for AAPL. Looking at the candles on this chart, today's carries with it an ominous connotation -"Shooting Star" Reversal

Treasuries-the flight to safety

Treasuries-whether 20 year, 7 or 10 year are all up. A Flight to safety....hmmm

Update

The Q's are in leading negative divergences on all 3 3c versions and on all 1 and 5 minute timeframes.

The SPY is the same as above with the exception that a few divergences are relative and not leading.

The DIA is negative in 4 of 6 of the above, the other two are simply in line.

The red volume has been moderately high.

Judging by former moves,I would call this one fairly muted. There seems to be some hesitancy to take prices higher, especially where you would look for upside confirmation after yesterday's breakout. Considering the amount of volume since 2:15, volume is rather low.

If we close where we are right now, we'll have the first 2/3 of a reversal candlestick formation, especially strong or stronger in the NASDAQ and the S&P.

Cramer

When ever I hear Cramer aggressively pumping, I think back to a lot of trades like oil that he pumped the week it collapsed. In any case, when I hear him pumping, I immediately think Goldman Sachs is selling.

Here are the current 1-5 min charts-you've seen the 10 min

here's the 1-5 min charts, by the time I've captured and posted, the 1 min may have changed.

DIA Confirmation

5-min long and short-both in negative divergences

1-min on Q's negative

5-min Q'snegative

SPY 1 min slightly negative

5 min SPy negative-leading divergence

Nothing to be learned yet... except this

Currency trading is highly leveraged, fractions of a penny can create substantial profits. Interestingly, UUP showed a negative divergence here today and broke support minutes before the Fed announcement was released. I'm sure I'll find more.

Interestingly

Considering the Fed effect, we do have some 1 min positive divergences, but the 5 min divergences are leading negative for the most part, there are negative divergences in all of the 5 minutes. I wonder if the initial move is going to shoot up and then see a decline?

Just thinking out loud

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.