Wolf on Wall Street

Thursday, September 8, 2011

UNG Update

UNG has been a trade we have been following for some time because it has enormous potential, still it takes some time to set up a proper base to rally from to meet that potential.

UNG's bullish descending wedge first turned me on to the trade as well as fundamentals of NAT GAS. Typically with these patterns, we see an extended sideways consolidation/base after coming out of the wedge, how long does UNG have to go? It's still basing in my opinion.

The 1 day 3C positive leading divergence showed us UNG as a long term candidate with good potential, especially as it started to base and went in to a leading positive divergence in the white box.

The 30 min chart is very strong leading right now in the lateral basing zone.

The more detailed shorter term charts don't have the same long term impact, but tell us a little more about the base, here you can see when prices went to high, they were knocked down back to the accumulation level.

The 5 min chart showed a leading positive divergence several days ago and UNG headed higher, right now it is trading in line with no current short term negative bias, just confirming price action.

The 1 min chart though does show some negative action today. There's a bit of a gain in the trade today, I would consider at least having a stop/trailing stop as I don't think the base is finished and I don't know that it will buck the overall energy trend.

This is a longer term play everyone should have on their watchlists.

Put this in your "Wall Street Tactics" Notebook

We see this a lot more often then not, and not just with wedges, but with new highs, breaks of support/resistance and any common pattern that technicians watch-Wall Street sees them too and knows how the technical trader will react, thus we get things like this....

When you understand that Technical Analysis is the same and Wall Street has adapted to it, then Wall Street gets a little more predictable.

GLD Update

Remember yesterday I talked about GLD/gold being a safe haven trade and the accumulation seen in the afternoon which was part of the larger market analysis?

Here was the first post

And the Follow Up "What a difference 20 minutes makes...."

Here are the GLD charts this a.m.

The 1 min chart seems a little off, but we'll see if it leads to anything short term.

This may reflect some retail trade being the market was up, it's hard to say.

The 2 min chart though looks like it means business with leading positive divergences. Notice yesterday's accumulation.

The same with the 5 min, which also shows yesterday's late day accumulation.

And finally the 15 min chart which I see as being in line with the market and a market drop.

The longer term charts on GLD are still shaky and if what I think is going to happen in the next several weeks plays out, that would explain why those charts look the way they do, however they still have time to move.

Head Fake?

I posted this on the 1 min chart of the SPY in the last market update. I just had so many charts to capture and get out quickly that I forgot to comment on it.

Remember what happens to obvious patterns that technicians follow like a bearish ascending wedge?

Technical traders expect the wedge to fall straight down as they have seen in 100 books, Wall Street knows this and we almost always see a breakout in the wedge first like we did here in yellow. Note 3C was negative in to the breakout-

USO Chart Request...

USO 1 min leading negative

1 min zoomed in

5 min leading negative, with a small positive relative divergence earlier this a.m.

10 min negative

15 min leading negative.

Market Update

I wanted to give some of the longer term charts some time to catch up... I don't see any reason for the market to be up right now, so I'm assuming from the looks of the charts, we are seeing a bull trap play out.

DIA 1 min, all of the charts have the 1 min opening positive divergence

DIA 5 min is not making new highs with price

Nor is the 10 min

The 15 min is starting to lead in a negative divergence

IWM 1 min looks pretty bad here

The 5 min is in a leading negative divergence

So is the 10 min.

And the 15 min is turning negative, a pretty long time frame for a reversal, this seems to be more then just a corrective reversal coming.

QQQ 1 min is falling apart

The 5 min looks horrible in a leading negative divergence

The 10 min is also negative

SPY 1 min is starting to fall apart

5 min relative negatve divergence as 3C refuses to move higher with price

And the 10 min is quite negative, almost leading negative.

SECTOR UPDATE

Looking at TODAY'S sector rotation, Energy, Tech and Financials are still the main industry groups performing, as many others fall off. So lets take a look at their 3C charts, although it's still early, we have some decent signals.

XLE Energy

1 min chart saw a positive divergence on the open, now moving toward negative.

The 5 min chart shows the running negative divergence I mentioned last night, it is going negative here.

And the 10 min chart looks horrible, this morning it has added to the leading negative divergence.

XLF-Financals

This s a zoomed out 1 min chart showing the running 1 min negative divergence yesterday

Zoom in closer on the 1 min chart and again there was an opening positive divergence, but since it has turned negative.

The 5 min chart is in a leading negative divergence and getting worse this a.m.

That running 1 min divergence I talked about has accrued on the 10 min chart, which is heading in to a leading negative divergence

Even worse, the 15 min chart accrued as well and is in a leading negative divergence. Financials are very important, especially for the S&P.

XLK-Technology

The zoomed out 1 min chart with a running 1 min negative divergence yesterday

1 min chart zoomed in and you can see the opening positive and now it has gone negative.

The 5 min chart is in a leading negative divergence.

Here's a closer look at the 5 min chart, negative on this morning's move.

FX EUR/USD

The red arrow is yesterday's market close, the red trendline is the resistance level I was keen on watching last night in the Euro. You can see the test failed. However we are now at an area of volatility as the psychologically important $1.40 level in the Euro has been broken this morning. I expect some volatility to continue around this level for a bit.

Remember the correlation, a weak Euro lifts the Dollar Index, which in turn is a negative environment for equities/stocks.

Stops/Limit Orders?

Interestingly, this morning's parabolic peak just broke north of yesterday's high by several cents in every major average. Often the first area of resistance is the former day's highs, and thus a place stops congregate or limit orders. It seems like the market hit that new high VERY specifically before baking off.

William Poole Causing some market volatility?

With the market squarely fixated on the Fed, even a former official's words may be enough to cause some Fed speculation.

Here's the bullet points.

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.