Wolf on Wall Street

Friday, May 18, 2012

SPY/FB

Usually the market is the biggest gravitational force moving stocks directionally, today it seems FB is the gravitational force, FB today is what you would call an extreme version of a Market Fulcrum Stock; it use to be AAPL.

FB-It seems the $40 level is where sentiment shifts back and forth.

SPY compared to FB

The 1 min SPY did hold up in to that move down, the 1 min chart which is the fastest didn't make a new low, rather a higher low and is back to leading.

The 5 min chart wasn't effected at all

More on FB

First the SPY volume

First I should have noted this in the last post, we have seen it so many times I would call it a trend, a big spike in volume (on any timeframe) and a relatively bullish candle, often even without the candle, tends to lead to reversals, both up from a move down like this and down from a move up.

Why would FB be so important? Perception.

Mark Cuban said earlier that FB was the most important IPO in history because, it brings retail back to the market.

Retail has been flocking out of the market for over a year in huge numbers and nearly every week.

Whether Cuban is right or not doesn't really matter, if the market believes what Cuban believes, that's all that matters, sentiment is what moves the market.

FB?

The market didn't like something, I haven't seen news out of the EU, but here's the SPY vs FB.

FB is the red comparison symbol. That volume spike is the largest in months.

On an hourly SPY chart, that's the biggest volume Since Mid February.

The Much Anticipated Opening Print in FB

A.m. Market Update

DIA 1 min leading positive, signaling a pullback or consolidation

2 min chart not effected, still leading positive strong, I'd think the indication above is exactly what I said, a pullback or consolidation.

3 min leading

5 min leading-this is pretty early for a 5 min chart to be leading.

QQQ 1 min showing the same neg. divergence suggesting a pullback or consolidation

2 min chart is in line with price, no indication of a negative divergence.

The 3 min is slightly leading

And the 5 min is seeing that 3 min chart bleed over, slightly leading

SPY 1 min has stayed positive and in line.

The 2 min chart is nearly perfectly in line (trend confirmation)

There's a slight leading component to the 3 min, there was an early small negative on the open.

The larger view of the 5 min.

I'd say from what we are seeing thus far this is a simple pullback right now.

CONTEXT Surprising

Over this week we've seen the ES CONTEXT Model go from deep in the red (ES overvalued) to stronger and stronger ES undervalued readings. Yesterday's model looked exceptionally strong, today yesterday's strength in the model is dwarfed.

From yesterday morning to this morning...

I'll probably take an early look at the Risk Asset Layout and see what's going on internally with some of the leading indicators.

NYSE TICK

Even though it is still very early on an op-ex day, this is one of the first times I can recall in the last 2 weeks or so we haven't seen -1000 to -1500 TICK readings. All in all, there's some balance on the TICK chart, between -750 (moderate) and +750.

AAPL Update

Well the spec calls aren't green yet, but if AAPL keeps this up, they may be soon... While the Tech sector is at about a .50% gain, some of the names shown in the 3 min leading positive divergence charts from yesterday are shaping up, AAPL is up 2.25% right now.

AAPL intraday off the open

AAPL daily, a move above the tendline which was important support, should get a short covering squeeze started.

There's confirmation on this morning's move as the 1 min chart which has been trending higher is hitting a new leading high.

The 3 min chart's positive from yesterday is dwarfed by today's leading positive, this is much stronger than just confirmation.

And finally the 5 min chart comes around in a very strong leading positive divergence. The 15 min chart has been in a leading position for some time, as I mentioned yesterday, accumulation for a bounce move in a stock as big as AAPL doesn't happen in a few days, it takes more time and the more time it takes, generally the larger the move.

It's still early, but this is a nice start in the stock I expected to lead a final move higher.

Overnight

As expected, after the close yesterday Moody's downgraded 16 Spanish banks, no surprise there as they make their way around the continent. While we're at it, Fitch downgraded Greece, but what's one more downgrade at this point?

While we are on Greece, another non-surprise, Syriza leader Tsipras let the EU know what he has already hinted at, he sees little chance Europe will cut off funding to the country but that if it does, Athens will stop paying its debts. As I said, no surprise, this is what is causing all of the fuss in Europe over the elections and was suspected as early as the Sunday vote with Syriza taking second place-it's now just official.

FB-Facebook's IPO starts trading today, the IPO priced at $38 for 421.2 mn shares, making Zuckerberg the 29th richest person on earth, more than the Google founders.

Yesterday there was a lot of QE chatter, all kinds of speculation as to where and when, but I don't know if the market's performance is causing the increased chatter or if there's a whisper on Wall.

Overnight equities across the globe saw selling pressure over weaker than expected Chinese Housing Data (we just talked about this earlier in the week, soft landing for China? It looks increasingly like the answer will be no.).

Also overnight after the Moody'd downgrade of Spanish banks, the banks have asked the banking regulator to re-instate the short selling ban on Spanish banks .

News or rumors also broke that the European Commission and ECB are working on emergency plans in case there's a Greek exit from the EU. That rumor was denied, however an English money printing company, De La Rue, has drawn up contingency plans to print the Greek Drachma (The Greeks obviously can't do it as they don't even have ink to print tax forms).

Ransquak also reported there's talk of asset rotation from fixed income back in to equities-short squeeze coming?

As for the EUR/USD and ES overnight...

ES overnight bottomed out on the Chinese data about an hour before Europe opened.

The Euro since yesterday's 4 p.m. close looking very much like ES as you'd expect.

Where the Euro need to break above to get upside momentum flowing...

And the last 2 weeks in the FX pair, this is the longest semi-consolidative period.

As such, we have our minimal gap up... Should be interesting today with FB and op-ex.

Gundlach on two of our favorite trades

As you know, short AAPL is one of my favorite trades; as for the long side there's only two trades that I like, one is Natural Gas/UNG which I believe is about to enter a secular bull market for a long time to come, it is one of the only longs I would consider for the long term.

In this video from Bloomberg, at 9:38 in to the interview, Gundlach adresses both, AAPL short, Nat Gas long.

He also talks about exiting a winning trad too early, right on topic given the last post.

In case you have trouble viewing it, here's the link

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.