Wolf on Wall Street

Tuesday, March 13, 2012

More on the knee jerk effect

Talk about initial knee jerk, the TICK Index doesn't lie...

The TICK Index is all of the NYSE advancing issues minus the declining issues, since the F_E_D, the index has hit +1000 and -1000

Dow Vs the Dollar Index..

As you probably know, there's an inverse relationship between the market and the dollar.

Dow in green, $USD in red... I'm going to look at the dollar a little closer.

The Knee Jerk...

It never fails and we may not be done yet...

In 15 minutes, the DOW gained 25 points and then gave them back

AAP Update

I'll show you the longer term view and shorter term view, I didn't annote the charts, I didn't think it was needed.

AAPL 5 min since the bounce started-longer view...

AAPL 5 min intraday close up

AAPL 2 min long view...

AAPL 2 min intraday

AAPL 1 min long view...

AAPL 1 min intraday.

And AAPL volume since the breakout...

Remember -2:15 p.m. EDT.

As I have every F_O_M_C / F_E_D statement for the last 4-5 years, I always warn about initial knee jerk reactions. I've seen too many of these and there's a definite trend toward an initial knee jerk and then a reversal of that, sometimes the same day, sometime a few days later. I have no idea what it will be or if it will be as the last F_O_M_C didn't produce a very strong knee jerk as it was a snoozer statement.

VIX Hits 4+ year new low-What's wrong with this picture?

I saw earlier the VIX hit a 4 year new low...

Unless I missed something, 6/20/07 was the last time the VIX was lower, nearly a 5 year new low.

Like one of those "Where's Waldo" pictures, what's wrong with this picture?

The VIX is in green, the SPY in red...

Here's a hint...

One other thing...

Several years back when there was still money in the market (unprecedented amounts have fled the market the last year or two), a move like this would be a 3+% move, while the Dow is under 1% today, if that's not parabolic, I'm not sure what is. Just to be fair, I've been suspicious of parabolic moves up and down, not just up. Too many times I have seen how they end.

With the VIX looking the way it does, I can't wait for tonight's CBOE update of the SKEW, which is interesting that it shot up that much yesterday on Op-Ex. Week.

PCLN

I think I'm going to be patient with PCLN, I'll show you why...

This 60 min chart leading negative is the only reason I considered PCLN as this is a stock that doesn't seem to be effected by gravity. I like the continued weakness in this chart...

The 30 min shows the same weakness, but intraday I''m not sure about that white arrow considering the price pattern. The short term charts are in line with price.

There's an obvious triangle in PCLN and it's a widely watched stock, so even if it is going to meet gravity, which I suspect it will, I would think any move down would first see a shakeout from this triangle. I think it would be best to wait for that probable shakeout.

Also looking at Adding to PCLN PUTS

This is and always was meant to be a short term trade, I don't trust PCLN beyond that. I'll post an update on PCLN soon, but it hasn't done much today +.17%

Pulled The Trigger on VXX April $21 Calls

VXX didn't move to a new low as the market just touched a new high and I like the 3C charts. I decided to go with 1/2 the intended position in the options Model Portfolio and will see if 2:15 volatility offers a better entry.

DIA/SPY/VXX

Last week I put on a small VXX position (Calls) and said, I didn't mind if I had to wait a few days (for a breakout) and I'd likely add to the position then, I'm itching to add right now and may do so momentarily.

DIA 1 min close

DIA 1 min zoomed out.

DIA 2 min close up

DIA 2 min zoomed out

DIA 5 min close up

DIA 5 min zoomed out-the white is the positive divergence that began the bounce.

SPY 1 min

SPY 2 min

VXX 1 min

VXX 2 min...

I'm a bit conflicted on the timing, it would make sense for the market to rally in to the F_O_M_C at 2:15...

I'd prefer to wait for the 2:15 volatility, but I may add a small bit before then.

I am cutting this post short to get it out...

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.