Wolf on Wall Street

Tuesday, August 21, 2012

GLD NEW POSITION OPEN

I went ahead with GLD September $160 puts as we have almost 5 weeks until expiration. This is in addition to an existing partial position (I was looking to add at better prices) of September $157's.

If that BIDU position was my only position, I'd have held it, but I had another Put position and I needed some room for GLD which I like here for a put.

I'll probably go out to October and it will be a partial position, not a full one as I already have a partial in GLD puts.

GLD breaking out of an obvious triangle.

GLD's Intraday range is very flat.

It's the trend in the intraday charts that interests me, the 2 min

The 3 min

The 5 min leading negative.

The 30 min is also leading negative.

Here's the 60 min, also leading negative.

Closing 1 BIDU Position

I'm closing 1 BIDU Put position in anticipation of an intraday correction and to finance a GLD put.

Over 100% gain on the Sept $130 Put.

Here's the BIDU 1 min chart, I'll be looking for any significant strength to short in to again, otherwise I want to take a look at a GLD put.

TLT/Treasuries Coming to life

I had a few emails asking hat TLT looked like this morning, I responded that TLT has been in positive position since it broke below support (likely head fake reversal move to the upside), but intraday it wasn't moving much, that just changed.

TLT/Treasuries would be a flight to safety trade, I like to watch them to see what's going on, but they don't have the volatility for me to trade them, but for those who asked today...

30 min long term is positive both relative and leading at the break below support (head fake moves happen as frequently on upside reversals as they do downside reversals-the entire June to present trend started with head fake moves like this).

The intraday chart was positive, but not flying earlier, now it's leading so the activity appears to be picking up on some intraday pullback/softness.

GOOG Update

GOOG was added as a Core Short to the equities model portfolio and also as a spec trade in the option model portfolio, the Put is close to green, the equity short is green as GOOG was shorted at $671.56; it' a small gain for now, but it's an excellent entry on a trade that look to have a lot of potential.

Again the concept is the same for APPL, BIDU and GOOG, price needs to give bulls confidence and break out above obvious resistance or a price pattern. I use 3C to determine the probability of the breakout being a head fake move which I want to short because of the excellent entry and less risk or whether the move is confirmed and I don't want to get involved short, nor do I want to chase it. These head fake moves have been some of the most effective short and long entries, but they go against everything that is human nature and are difficult trades to enter and stick with, but at the June lows, EVERY Equity Model Portfolio short was Green and some well over 35% in a month.

Remember I said head fake moves/reversals occur on ALL timeframes, here's one out of a triangle in GOOG on a 5 min chart from yesterday that has now broken support, the big volume adds a lot of supply to the market and you know what that does to the supply/demand price dynamic, that is one reason head fake moves are so effective.

The GOOG 2 min negative divergence yesterday.

Note the 15 min chart going negative in to the breakout and leading negative now, but this is just part of the big picture.

The 15 min chart zoomed all the way out to resistance areas in orange (2) we can see the 4 stages of a stock cycle in various places, but what interests me the most is the size of the negative divergence at this breakout move, especially compared to the size of the March divergence that turned GOOG. It looks like significant portfolio rebalancing by smart money.

The 60 min chart gives even more history, again, the main trends are what interest me the most, but you can also see how price got to where it was going and what happens in underlying trade that creates a lot of deception in price alone.

Finally the daily since 2009, and this is one reason I like GOOG as a core short, look at the 2007 top, the 2009 bottom the 2011 top and now how low 3C is at the 2012 area.

ES Update

Anyone who was here from March to May probably recalls the strange persistent negative divergences in ES, I hadn't seen them before and they came right at the reversal area every time and then disappeared.

We are seeing that same thing again, taking with the 3C charts as well as the negative Risk Asset Layout divergences, this is pretty much nearly the exact same scenario as the last 3 major reversals.

Yesterday this was the second leading negative low in to after hours.

Scaling makes it difficult to visualize, but that's the negative leading divergence leading even worse in to higher prices at the European open.

And from the European open to the US open.

AAPL Update

AAPL's recent move, which I'm virtually certain is a head fake or false breakout, also known as a bull trap, is no different than BIDU's except in scale, which makes it worse for AAPL, you know that whole, "Bigger they are, harder they fall" thing...

The point of a head fake breakout, false breakout, bull trap, is to do exactly that, find an obvious area of resistance and break out through it, thereby lifting the bull's confidence, the bulls enter the market providing the demand needed to sell/sell short in to by smart money and as the breakout fails, the string of stops set off causes a snow ball effect on the reversal as you can see BIDU is already down nearly 5% today alone, plus they make money on volume rebates. The BIDU head fake was above a resistance range, AAPL's as a market bellwether was bigger, but the same concept.

AAPL's was a breakout above resistance too, just to a new high, if that can't bring in the AAPL longs, nothing will and it moves the NASDAQ disproportionately to the rest of the market. The first high to the left is where we started core shorts, AAPL has been added to recently.

AAPL 2 min intraday looks bad, but, the trend shows the inner working of underlying smart money action in a head fake breakout.

Note resistance, note what happens to 3C after a break out above resistance, the 2 min chart is near a pre-breakout leading low.

The 5 min chart with an extremely nasty divergence as I mentioned yesterday, I saw a lot of these and you don't see them this nasty very often.

The 5 min trend and the breakout level shows the same selling in to price strength at the exact spot where there would be retail demand to absorb the offers. This is leading to a new low well below the breakout point.

The 30 min chart with accumulation or stage 1, mark-up or confirmation also stage 2 at the green arrow and resistance at the red trendline, note the negative divergence in AAPL, the yellow areas are the first core short and the add-to position.

Market Update

Intraday timeframes are falling apart everywhere...

FB Update

I added to the FB equity long position yesterday to bring it to 2/3rds of a full position size and said I'd wait for a pullback to add the last 1/3rd, that may be soon.

FB is now giving some signals that are spectacular. The first time we traded this and many of you made over 100% with calls, EVERYONE HATED FB, no one would consider going long, but we had evidence showing the underlying trade as being accumulated, now we have some new and interesting evidence in what is still probably the most hated IPO if not stock ever.

The 1 min chart shows the positive divergence just before take off and then a negative relative yesterday, for now, I'll wait to see how this chart develops before making any decisions.

The 2 min chart is leading positive

This is the big news though, at our suspected and anticipated base area, the 15 min chart is leading positive, that's not all...

The same 15 min chart since FB started trading at an all time new leading high.

BIDU PUTS Now Crushing

And to think volatility hasn't even popped yet...

BIDU Sept 130/135 Puts up 85% and nearly 23%

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.