Wolf on Wall Street

Thursday, December 30, 2010

EOD ramp

Not sure if this end of day ramp in the averages is going to hold. The Q's are confirming, but the SPY and DIA are bot negatively divergent.

DIA 1

QQQQ 1

SPY 1

Last night I went through a laundry list of negative events in the market, as they say "it's not the news, but how the market reacts to the news. The point being last night, sentiment has reached an extreme and extremes in the market have a tendency to revert back to the mean, actually they tend to swing way too far in the opposite direction as it takes extremes usually to turn things again.

Today the Chicago PMI came in very bullish, you can get a synopsis of the report HERE from ZH.

I'm not sure if the volume is too low or it's just machines trading algorithms right now, OR if sentiment has reached such an extreme that it is in the process of shifting. Either way, the market didn't have much of a reaction to the unexpected strong report. Then again, this isn't the most useful economic indicator and it's a drop in the bucket.

Cats and Dogs Trades Results This Week Thus Far

THIS WEEK UNDER THE CATS AND DOGS TRADES, WE'VE HAD 17 TRADES TRIGGER AS OF YESTERDAY'S CLOSE.

Of those 17 trades, 10 have offered gains , 6 have had losses and 1 is around break-even. Where you entered and exited is a function of your particular % P/L. A lot of you have contacted me for 3C intraday charts to gauge where the trade was and some of you have had excellent exits. I'm not aware of anyone who has given up a gain for a loss. As far as losses, we've talked about risk manageent on these trades so whatever the actuaul trade loss, no losses should have represented more then 2% of portfolio and as I have stated for trades like these, I prefer to keep the 5 risk of portfolio between 1-1.5%, it makes taking the trades worthwhile and with a majority having offered gains, it's a good strategy to keep losses minimal while being able to hit some big winners.

We started off the Cats and Dogs trades last week with a 4-day 215% gain in XOMA.

This week thus far ( gains /losses were compiled this morning ) looked like this:

CRIS +8% intraday as high as 12.5%

DSCM +3%

OPXT +14% as high as 16.7%

URZ Up to +15% 1 day gain

WEST Up to +10% gain

CFW +24% 1 day gain, as high as 26%

XING As high as +85%

EEE +27% 1 day gain, up to +35% intraday gain until present

ATEC +8% 1-day gain

FBP which was an earlier trade- the only person I know of I believe exited yesterday as there was a loss of momentum. FBP offered gains of +60%

STEM was at last check trading about break-even

As for signal trades at a loss we had 5 under a 2% loss and one at a 6% loss.

The trades that triggered today have not been figured in as of yet.

XING

Know when to hold and fold, this is a personal decision, but XING , a trade that triggered Monday, just added another 16+% today. Right now it's up about 74%

GAZ LONG TRADE

This is along the lines of LNG as LNG is a Natural Gas company.

on an hourly chart we see a double bottom, volume is perfect for the pattern, light on the second test of support, then it broke above a resistance zone moments ago. This looks like another high probability trade, this isn't quite a Cats and Dogs trade and may offer a little longer term horizon.

SLV-FALSE BREAKOUT

REMEMBER, I'M NOT OPPOSED TO A TRADE IN SLV ON THE LONG SIDE, JUST NOT BEOFRE IT CAN BREAK THE RESISTANCE AT $30 I'VE BEEN TALKING ABOUT ALL WEEK.

HERE'S THIS MORNING'S ATTEMPT TO BREAK RESISTANCE AT $30, A QUICK MOVE ABOVE AND THEN ONCE AGAIN T IS FORCED BACK DOWN.

Financials Update

I've been dying to bring you these trades as I've watched 3C signal them, but as always, price is the final arbitrator in the market.

Here's XLF-the ETF representing financials.

XLF has broken the first line of resistance, as I write this, it just broke the second line as well.

3c 5 min negative divergence

3c 10 min negative divergence

3c 15 min negative divergence

3c 30 min negative divergence

3c 60 min negative divergence

All of the 3C timeframes have lines up showing distribution in the lateral movement the last few days.

Above is the 15 min 3C chart for FAS-Ultralong financials, it looks just like XLF 15 min

Above FAZ-my favored trade here, ultrashort Financials (you buy this long), the 15 min 3C is showing big accumulation here, the mirror opposite of the Ultralong

Here is BAC, remember I said it was going to have a difficult time breaking resistance at $13.40 and hold it on a close, it has not been able to do so. This is another possible play short.

JPM broke out of a trading range, but the last few days have set up a reversal signal to the downside and if it breaks support near $41.50, then it's a false breakout and JPM should fall quickly toward the $36 area initially.

If you like any of these trades, I'd not waste too much time. It's been awhile since anything other then Cats and Dogs trades have lined up so well, and even better in 3C.

LNG Trade Triggered

LNG was added to the list yesterday, this morning it has triggered a long trade.

UTX and MRVL Trade Ideas

I've had both on a watchlist and they both just triggered levels I consider to be important. Both are short trades as well.

UTX is breaking down out of a wedge like pattern. The initial breakdown and period just after can be volatile so if you enter the trade, I would give it room on the upside for the stop as a false upside breakout is not out of the question. Initial target of at least $74.

MRVL short, has also broken support, this is a small rectangular top and the distance for a 2nd test of resistance wasn't as far to go as the first, that was the first failure, the lack of even an attempt, then the break of support, I like this trade a little better of the two, but there in totally different industry spaces so they offer some diversity.

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.