Wolf on Wall Street

Thursday, March 15, 2012

AAPL moving toward 5th test of support

AAPL at a +0.25% gain vs the SPX at +0.57%, the Dow at+ 0.33%, the NDX-100 at +0.43% and the IWM at +0.78%

Care to venture a guess why the IWM is stronger today and has been playing catch up the last 7 days (5.44% vs the DIA at 3.7%)?

USO Event

Members who have been here for several months know that I've been bearish on USO and thus have kept the short position open in the Model Portfolio, despite the recent bounce.

USO in yellow did not react to a lot of geo-political news about Iran, it seemed as if someone knew something. In red USO started trending down and in green we saw a strong move up, which I have thought to be a shakeout as the move was blamed on geo-political tensions, even though USO didn't react to them and even started trending down over the course of 3 months. The talking heads line, "This spike is because of Iran" didn't make sense.

On the 60 min chart you can see the trend down to the left and the move up (shakeout) at the green arrow. The last time I did a full update on USO I noted the head fake move in yellow, which is usually a sign of a reversal and USO started lower from there.

The daily min 3C chart went negative at the consolidation, the trend down and again on the move up, it was leading negative at the trend down.

Here you can see the head fake move from the move up in yellow and how that sent USO lower on a 3C negative divergence.

The same is seen on the 15 min chart.

Take a look at the intraday chart...

And why? The US and UK just announced they will release strategic oil reserves.

I'll keep my short in place on USO as it has always been meant to be a longer term trade, however, this should be interesting as the USS Enterprise is now about 4 days away from the Iranian theater of operations, joining two other US aircraft carriers, which is strange as their are never more then 2 on station in the 5th Fleet AOR.

Are we about to hit Iran? All I now is the market does not like uncertainty.

AAPL's influence

We had a negative divergence at the last update, actually we still do, but watch what happens when AAPL touches support at yesterday's close...

The red arrow marks the area of the negative divergence in the market, we are looking at AAPL intraday and the SPY in white, the decline from the negative divergence started and AAPL touched support at the trend line which bounced AAPL and the market.

After reading last night's breadth post, one of our members sent me this chart which I decided to post in light of the subject of this post.

Back in 2007, GOOG was one of the market fulcrum stocks...

This chart compares GOOG from 2007 to AAPL now, I thought it was interesting since AAPL is the fulcrum stock I've been talking about the last week and a half, looking for a strong head fake move in AAPL...

WMT Update

On this daily chart of WMT you can see a bear flag at the red trendlines (hopefully you can see the trendlines, if any one has trouble seeing them let me know and I'll change the color-you can always click on the chart for a larger view as well), in this trade idea, we were specifically looking for a breakout above the bear flag as technical analysis is so manipulated, the days of bear flags just breaking down without a shakeout first are long gone. We have sen that shakeout move since. The question is now of tactical entry.

While there are several options depending on your trading style, a break back inside the flag was one option, a break below support of the flag was a second option, but we are so close to a natural tight stop, it almost seems a waste to wait for such declines. WMT did break the "shakeout" uptrend line today in the red box, however I have another option...

My Trend Channel in blue is on a 60 min chart, it has held the entire shakeout move, a move below the Trend Channel at the white trend line would be a nice compromise, it would also allow you a pretty tight stop just above the recent highs at the yellow trend line.

The hourly chart still looks great with the shakeout showing a negative divergence.

The 15 min chart shows the same, note the flag was in confirmation until the upside shakeout, that's where it went negative. Traditional technical traders will short a bear flag, a breakout above the bear flag will trigger their stops causing them to buy to cover, that buying allows Wall Street to sell short in to the buy to cover orders, and thus the reason you see a negative divergence at the shakeout.

Quick Market Update

ES wasn't the only one with a negative divergence...

ES since the last update a few minutes ago...

DIA

QQQ

SPY

ES Update

ES didn't see a positive divergence off the lows, so the move is suspect. There's a negative divergence forming now, 3C is a bit higher then the yellow area, but so is price, it is still negative from the same divergence at 8:30 a.m. that sent ES lower in to the open.

FED Philly Survey

Released On 3/15/2012 10:00:00 AM For Mar, 2012

	Prior	Consensus	Consensus Range	Actual
General Business Conditions Index - Level	10.2	11.5	6.7 to 16.0	12.5

The Survey is a headline beat, but looking further in to the report...

-Slowing in orders is the key signal, first from the Empire State report and now from the Philly Fed where the new orders index for March slowed by 8.4 points to 3.3, still above zero to indicate monthly growth but not much above zero. Slowing in new orders is a negative for unfilled orders which are contracting this month in the region.

After the Empire State Mfg. Index, it seems we have confirmation of a probable squeeze in profit margins.

EIA Nat Gas Report

Released On 3/15/2012 10:30:00 AM For wk3/9, 2012

	Prior	Actual
Weekly Change	-80 bcf	-64 bcf

Highlights
Natural gas in storage fell 64 billion cubic feet in the March 9 week to 2,369 bcf. A withdrawal of 60 bcf was expected.

UNG's reaction initially,

EIA Nat Gas Report Out in 15 Minutes

Take a look at UNG this a.m.

Here's UNG intraday filling a gap down this a.m. quite quickly.

The longer term daily chart seems that UNG has made a transition from a down trend to a base, even volume is out of character recently. The yellow area, I have suspected to be a shakeout of the base. Here's why...

The red trend line is the base's support, notice 3C since the move below the red trendline, a very strong positive divergence (leading).

Just yesterday UNG pulled back in to a positive divergence (buy low and sell high is not just a slogan, it's how Wall Street trades and they use obvious support/resistance against traders).

This is this morning's action alone on a 2 min chart...

And a very strong early leading positive divergence this a.m. on a 1 min.

We'll see what inventories does shortly.

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.