Wolf on Wall Street

Friday, June 17, 2011

Member Success Story

Last night I published my target for the SPY's closing trade today, as you know.

I encourage and try to help members find trading strategies that are a fit for risk tolerance, trading style, portfolio size, time you can commit to the market, etc. It's very important to take the ideas here at WOWS and make them your own, I'll always be available to help.

I post a lot of different ideas and information because we have a lot of different traders. One of our members sent me this email after the market close today.

"Hey great call on the SPY!!!!!!... after reviewing what you had said I found it to be very logical. I set up an Iron Condor 127/128 and monitored all day. Came close to the lower limit but still far from break even!! You just made me a cool $1000. Have a great weekend Brandt!!!"

I'm not a huge fan of trading options, but this member saw an opportunity in the information and applied it to his style of trading and I hope he'll celebrate and have some fun with the money this weekend. More importantly, I didn't make him the money-HE MADE IT and should be proud.

This is a perfect example of what I envision for all Wolf on Wall Street members. While I offer trade ideas and other information, I don't want to be a crutch, but a vehicle that helps you transform your trading to not only be profitable, but exciting and fun.

I guess it's best summed up in you can give a person a fish or teach them to fish. I hope you find in your experience here at WOWS that you come away with a better understanding of the markets, some good insight and ultimately that you make these trades and ideas your own.

In that post I was trying to convey how Wall Street manipulates markets and burns a lot of option investors, but our member took the information and used it to take some money out of the market-WITH OPTIONS! I'm really happy to hear it and all of your success stories.

In the end, we are a pack of students of the market, adapting and moving forward. I'm here for you any time, but I love to hear when you make the trade ideas your own.

Congratulations CM-a very well played trade!

And There You Have It!

Last night I posted this "$127.25 Just About the Perfect Close For Tomorrow?"

So I was off by $.20 cents, but the effect was the same (see the linked post above)-The $127 puts which had the highest open interest were pinned and expired worthless as the SPY closed at $127.05.

The $128 calls, and today we hit a high of $127.94, also with the highest open interest, expired worthless.

How was that for a prediction?

As I've said many times, I only prefer options for short term trades and this is exactly the reason, most options will expire worthless.

Looking ahead to next week, we still have some very strong positive divergences and I've sen them in quite a few stocks. If the Greek debacle on Sunday doesn't explode, the market stands a chance of finally bouncing now that OPEX is behind us.

Did you see that end of day recovery in URRE featured today in the afternoon? It was down 6% and closed in the green!

You know me, my work is just beginning. I have a lot of internals and charts to look at plus some scans to run so check back for updates. Otherwise, everyone have a great weekend.

Going in to Monday

Today's trade is about what I expected yesterday, it looks like a lot of options will be pinned as is usually the case.

I see some strength in various stocks and averages and am looking at cautiously going long today in the following ETFs until we see if the bounce takes hold and where it appears the drive will come from, I suspect financials will be important.

FAS-3X Bull Financials NOT FAZ!

TQQQ Ultrapro NASDAQ 100

UDOW UltraPro Dow-30

UPRO UltraPro S&P-500

I like these for broad coverage and they are meant to be shorter term trades so if the bounce materializes, I have a day to figure out what sectors look like they'll lead.

As I said, I urge caution -this is no time to swing for the fences with the Greek/Sunday event which is a coin toss, but these ETFs have been looking good and any bounce that takes place, should be pretty decent in size and time so I don't think I'll be left behind by being a bit cautious.

One To Watch

URRE is engaged in mining of Uranium ; their primary customers are utilities that use nuclear power.

After the Japanese earthquake, URRE took a big hit.

Since then, the daily 3C chart has been very strong. I don't think the world is just going to stop using nuclear power and this reaction to Japan might be creating an opportunity in URRE. This is a very strong daily chart.

Today URRE broke support, we see this a lot (false breaks) before a reversal.

The hourly chart is positive.

The 15 min chart is positive

And the 1 min chart on the break today is positive, suggesting the break of support may be under accumulation.

This is another stock that I would set an alert on, maybe price passing above $1.47-$1.48 might make for an interesting entry in URRE.

It's a low priced stock and thus speculative, but volume is pretty decent and its optionable.

Beyond Coincidence?

As you know, I've been thinking today would be a pretty rangebound day, causing a slew of options to expire worthless. The reasoning continues that early next week we could finally see that bounce with OPEX out of the way.

This morning it's reported that Germany's Angela Merkel essentially caved in to French and ECB demands regarding the voluntary restructuring of debt as to not give rise to a "credit event", this was a major change of heart for Germany.

Papandreou announces a reshuffling of his cabinet.

Now this just breaks on Reuters...

Essentially the new finance minister tells Reuters that they have an austerity package that has passed committee and is expected to pass parliament. There are some major changes in the package and Greece is expected to seek EU Finance ministers approval on Sunday.

If the EU caves into the new Greek austerity measures, then the former seemingly impossible impasse, may just make it through. Wouldn't that be something to hear Sunday that the Troika accepts Greece's new plan and a deal is essentially done.

It would seem unlikely given the demands of the Troika, but there seems to be too many coincidental moves in play. It's certainly eyebrow raising and it's hard to imagine a cabinet reshuffle one day, a plan that will pass Parliament the next day and Greece seeking the approval of the EU on Sunday, of course before the market opens.

GOOG and OPEX

Personally I don't like trading options unless they are for short term moves.

Looking at the GOOG chain for calls, with the largest open interest at $510 and then $500 with big volume in the $500s today, is it any wonder GOOG is trading like it is?

Current price-$489.59-both the $500's and $510's are smoked.

Market Update

DIA 1 min

Continued negative divergence in the short term 1 min 3C in the Euro

QQQ 1 min positive divergence-this one looks the best for a possible quick intraday trade up.

SPY 1 min

All in all, I expect the market to remain choppy today. With pressure still on the Euro I don't see any of these divergences as carrying the averages too far. If you are trading intraday, it's going to be a tough market with the choppiness and the OPEX.

EEE Trade Idea (Long)

This is a speculative trade, but EEE can move. The last run on a positive divergence was in December of 2010 when it ran over 700%.

Volume is low now, but during that run it was hitting 9.6 million shares a day.

Here's the triangle with a slight break, usually a good timing indication.

On the daily chart, this is the first positive divergence of the year, you can see the 2010-2011 run to the left.

On the break below the triangle it looks like there's some accumulation in the white box on the 5 min chart.

The 10 min chart shows the same.

Still, this is a speculative trade and I want it to show me something before I get too deep into the trade. I'll be setting an alert for a breakout of $1.90.

If you don't have a charting platform that allows you to set alerts, check out www.FreeStockCharts.com ,
the data is true real time there and it's totally free.

FSIN Follow Up

FSIN drops another 9% today, bringing the trade to a gain of 39% in a couple of weeks.

I'm tightening up a stop for taking some partial profits, this is the Trend Channel set to 60 mins with a current stop around $4.90, it should keep tracking lower, but I think partial profits on an intraday stop of the Trend Channel make sense as FSIN is reaching oversold levels.

GLD Update

I mentioned the volatility squeeze in gold yesterday, but also warned to beware the first move out of that consolidaition. 3C 1 min has been negative on GLD all morning, as of now, GLD has retraced 50% of today's move up.

I don't think longer term conclusions can be made at this point, but this is a 50% retrace of today's move in GLD. Whichever way the market ultimately takes gold, they are still going to play the game. We should have better visibility within the next trading day or two as the 3C charts catch up to the changes from yesterday's margin reduction and today's "Safe-Conflict Free Gold" provision.

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.