Wolf on Wall Street

Wednesday, October 26, 2011

More News out of Europe

So far it's not shaping up well and what smelled like amateur hour Sunday is now being confirmed.

EU Official Says Bank Heads Won’t Be at Summit Table Tonight
EU leaders may frame agenda for more bank talks on bondholder losses in 2nd bailout
pkg for Greece.
Says IIF doesn’t entirely represent private bank

Says Greek debt swap would take several weeks

How can bondholder haircuts, one of the centerpieces of the "Save Europe Summit" be decided if the banks refuse to come to the table today?

We have been led to believe that the IIF represented the banking interests in these bondholder negotiations. This second headline sounds a lot like some banks (who knows how many) may have been represented by the IIF until talk of bond holder haircuts (and they are a large section of the bond holders) started drifting higher then 21% to 50% and now announced today 65% or more. It sounds like the banks are saying, "We will not do this voluntarily, let a Credit Event be triggered!"

The last point sounds like they are just buying time on the previous point.

What have the Finance Ministers been doing over the last 2 years? It seems like nothing has been considered until Sunday night.

US Housing Data

The median US home price just saw its biggest 3 month decline EVER! This is the lowest number in 2011 and just above the decade low.

USO Update

Oil is down on the Wednesday Inventories report, remember who oil was tracking out of sync with the Euro/Dollar, it was strange. You can check out yesterday's late morning post on USO and see what I am talking about

Any way, look how much 3C damage was done especially late yesterday to USO.

I've highlighted this 5 min chart only with the leading negative divergence from yesterday.

The same with the 10 min chart

And the same with the 15 min chart, look how bad USO looked in to the close.

hmm?

The averages are all over the place

Except for the Q's they all opened at about the same relative level, however the SPY is +.32$ the DIA is +.80% the IWM is +.28% and the Q's are -.35% while the FXE/EUR is -.30%

So much for Dow Theory today.

Volatility

As I said yesterday, today and tomorrow's Bank of Japan meeting will be volatile, tomorrow is almost a guaranteed bad day for the Euro and thus the market as Japan is expected to try to save their currency.

Early this morning trade was flat and boring until the German Bundestag gave Merkel the authority she needed to negotiate in Brussels today sending the EUR and market higher on news that was priced in days ago.

The short lived lift to the EUR came as the world of finance realized these talks are nowhere near complete and they are still at an impasse over Greek bond-holder haircuts.

EU TALKS WITH BANKS ON GREEK BOND LOSSES SAID TO BE DEADLOCKED
EU TALKS 'PAUSED' ON A DISPUTE ON INSURING RISKS OF NEW BONDS
EU official says dispute centers on insuring risk of new bonds.
Involuntary Greek haircuts can’t be ruled out
EU Said to Consider Limits on EU-IMF Loans in 2nd Greek Rescue

Expect there to be a lot of these news items today and thus a volatile day.

Here's the Euro's reaction to both events.

Tuesday, October 25, 2011

AMZN Earnings

We have at least 1 winner!

Earlier I posted AMZN's 3C charts going in to earnings, they looked really bad except the 1 min chart, which is the only thing that kept me from calling it an earnings trade, but one member ignored that 1 min chart and jumped on board and made 12+% in a few hours!

Still think insider trading and leaked earning are just Wall Street fairy tales?

XLF-Financials Update

Yesterday I said, "Watch XLF, it is likely to lead the market down". And as the market is making new lows, XLF is one of the biggest losers at -3.20%

XLF about ready to break another support level.

2 min XLF yesterday with a bad negative divergence into resistance-currently leading negative.

XLF 5 min also warned yesterday and is in a worse leading negative divergence.

And the hourly has now fallen apart. This is not good for the S&P.

Something Strange is going on

After almost an entire year of ever increasing correlation between the Euro and the market to the point where it has been at a 1.0 relationship, today it's off and not by a little.

I used the QQQ (green) vs the FXE/Euro (red) because the Q's are the first t really break the morning lows to hit new lows at a -1.73%. Look in the white box, the correlation is perfect as it has been, then look in the blue box and note how far apart the correlation is, almost as if it doesn't exist anymore. I know we also saw it in USO and we have the Thursday BOJ currency intervention that should send the EUR lower, but a day before the big meeting, it seems more like a pure risk off environment. We'll find out soon enough and hopefully this non-sensical correlation finally passes.

AMZN Earnings

AMZN reports after the close, this isn't an earnings call because of 1 chart.

Until today, I would have said AMZN misses or doesn't do well on earnings, but today's 1 min hart is out of place.

The 15 min chart would otherwise have me say they won't do well.

The same goes for the 60 min.

EOD Market Update

These captures are a little old for such short term charts, but they are relatively unchanged. There are some 2 min positive divergences of varying degrees-this is the SPY

The QQQ

The DIA-They suggest a late day bounce effort.

The 5 min chart zoomed out is very negative and leading negative which is the strongest divergence.

The close up also shows leading negative so it doesn't seem like any bounce at the EOD will get too far.

The 10 min chart s leading negative-this is what I like to see, multiple timeframes aligning at the same time.

The long term 15 min chart showing a large amount of accumulation going in to this rally and a leading negative divergence now.

The 30 min chart goes back to June before the crash, you can see the warning signs of the crash at the left, ever since, this entire consolidation has registered as a negative divergence and now leading negative.

The 60 min chart is also deep leading negative, at each top there's a white arrow, not one showed even a slight negative divergence on this timeframe, so to have a leading negative is pretty bad.

Here's the 1 min ES Futures showing an earlier negative divergence and an inline status now.

The 5 min shows a slight leading positive divergence.

The 15 min is very negative and leading.

As is the hourly

This is the 4 hour, also fallen way out of line and leading negative.

In short, I wouldn't be long this market for any reason.

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.