Wolf on Wall Street

Thursday, September 20, 2012

USO Follow Up

While USO's primary trend is still up in the air, the recent plunge has USO looking oversold and has given smart money the chance to pick up a lot of shares on the cheap if not forced them to do so as market makers and specialists.

USO's break of the channel on volume.

The hourly chart seems to support a more pessimistic longer term view of USO, but that is over many months and needs to be confirmed still with the recent QE3.

As of now, the 15 min chart is just starting to go positive.

That strength is coming from the 10 min chart that is leading positive.

As well as the 5 min chart, I don't want to be short USO here. I don't want a lot of long exposure either, but perhaps a little on a speculative trade may be worth a shot as this 5 min divergence is quite impressive.

Closing Out USO Core Short

This was a core short equity position, I'm closing it out on some positive divergences I see, plus my exposure was too heavy to Energy.

Charts to follow.

MCP on the pullback

MCP is a long idea from a week or so back, it was a trade idea in which we wait for price to come to us on an otherwise decent looking long position, thereby reducing risk and getting a better entry with higher probabilities and less opportunity risk.

Here's where MCP stands as of today's pullback of nearly -3.7%

The X-over systems short and long signals with the expected pullback to be at the $12.60 area, roughly (this may be an intraday low, not a closing level); I would set price alerts.

The 30 min chart overall shows a nice positive divergence/base in MCP, this is what we like, it also shows the probability of a pullback.

A positive divergence this big should be able to support a strong move up with some duration.

Intraday it was positive off the open, headed toward the close from yesterday and went negative and saw price follow.

The 2 min chart shows the same action today

While the 5 min chart is somewhat in line and even slightly positive in certain area, the larger theme is continued pullback. At $12.60 I would take a serious look at MCP, I'll be setting rice alerts. The 10-day ma is really the target so it could be a bit higher than $12.60

Almost as if time stood still

Looking at the charts before I had to run out and looking at the charts now, I almost though my charts didn't update, but they did, there's literally almost no change and there's no edge other than suggesting the gap is filled, nothing beyond that, it may because of op-ex / quadruple witching as we move clsoe to the pin area.

DIA 1 min in line

DIA 2 min, slightly better than in line

3 min is slightly negative

5 min is slightly better than in line, not much movement at all.

QQQ 1 min slightly better than in line

QQQ 2 min in line exactly

3 min in line

5 min in line

SPY 1 min a bit better than in line

2 min is a bit worse than in line

3 min is a bit better than in line, but nowhere here are there any real divergences. This looks like a pre-options pin.

Still no changes...

There are still few actionable changes as the market seems intent on filling today's gap.

Posting will be paused for about an hour and should resume at 12:45.

Still no changes

The 1 min charts are still leading price in the averages up to the gap it looks like, the 3 min charts, still in line.

Credit has moved a bit lower, it's not enough to be significant yet, but note worthy.

Market Update

Not much of a change, the 3 min charts are in line with price action which at this point seems like a gap fill, from here a dip to this morning's lows or lower would be the next piece of information needed to see whether there's accumulation at what would be a bit of a bigger consolidation area, a small "V" reversal off the morning lows isn't going to provide enough accumulation for something as big as QE3 if it is there.

3 min charts, looks in line with a gap fill.

DIA 3 min in line with price

IWM in line

QQQ almost in line

SPY in line.

There's no edge in "in line", however it's very early.

AAPL Update

AAPL is mostly in line with price, there are a few discrepancies, but nothing that's standing out. I'm still waiting for the 5 min chart to lead negative before I feel comfortable with an AAPL reversal.

AAPL 1 min is slightly more positive than it should be.

2 min is perfectly in line with price

3 min is a bit higher than it should be.

The 5 min is negative, but not leading negative, when this goes leading negative, I'd think all will be aligned for a high probability move to the downside.

Market Update-Charts

Very interestingly, we have strong 1 min and slightly bleeding to 2 min positive divergences, in all cases the 3 min is in line with a negative divergence from yesterday and trade this morning. So far I have to consider this typical gap filling, morning volatility, but I do want to be on the look out for any large divergences building on the positive side. This is excellent movement to collect the data we need to figure out smart money's take on QE3. This is exactly why I didn't make an emotional panic call on Thursday as QE3 was announced.

DIA 1 min is the exception to the positive divergences

DIA 3 min is negative and in line.

IWM 1 min leading positive

IWM 3 min negative and in line

QQQ 1 min leading positive

3 min negative and in line

SPY 1 min positive

3 min negative and in line

Intraday bounce coming

QQQ, SPY and IWM all have leading positive 1 min divergences, I would expect a move higher shortly... I'll get some chart up 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.