Wolf on Wall Street

Wednesday, February 5, 2014

I'm still being patient, there's no point in trading lateral chop anyway. It looks like an intraday pullback is on its way, this after the "W" pattern just completed. The pullback doesn't look like anything of much interest, although those additional leading positive divergences I'd like to see would most likely appear during a pullback, smart money doesn't chase prices higher.

SPY as an example

Yesterday we had the pattern in white, it was clear it was too distorted to be a wider "U" shape so a "W" base made sense, the yellow arrows are today's action forming that "W" base.

This is a 1 min SPY intraday that has moved up to form the "W" or complete it, there are some small intraday 1 min negatives in the area as you can see above.

The 2 min chart shows the second half of the "W" being stronger than the first half which is a normal progression for a divergence.

The 3 min chart is leading positive and looks good or off to a good start for today's action.

The 15 min chart also shows a stronger divergence today than yesterday.

The bigger picture with last week's range gives us a 39 min positive which is a pretty powerful signal and it's clearly positive, a little more on 3C and we'd have a stronger leading positive.

I can't imagine having a 30 min positive divergence and it not firing price to the upside.

The end result for the Q's also gives us a 30 min positive

As well as the IWM (15 min positive).

It's still very short term timing charts I'm patiently waiting for, I don't want to enter early and be caught in a range or worse.

Closing the AAPL $510 Put from yesterday

I still don't like the way the charts look, but I can't see this market moving up and AAPL moving down.

My initial thinking was March puts were long enough that I'd still have time to catch AAPL on the way back down after a bounce, but it doesn't make sense to me to have that opportunity cost that long so I'm going to take the -12% put loss and just close it for now.

MCP Trade Update

MCP is also getting to be very hard to ignore, it made the move this morning that I said to look for in yesterday'a post.

I suppose if you like setting limit/buys (which I never like to do, I never want anyone seeing what I'm going to do until I do it-market wise), then the $4.69-$4.70 level would probably be the area in which I'd place the buy limit.

As for the charts, you already know (see yesterday's post) that the 30/60 min are exceptionally strong, it was just a matter of linking the short and intermediate charts with positive divergences which was happening yesterday and continues to happen today.

The 1 min chart is doing what it should, but not convincing me that the timing is right to pull the trigger, but that can happen very fast, in fact in the time it takes me to write this post.

The 2 min chart looks solid, I'd like to see it lead like the blue arrow I drew in.

The 3 min chart is leading, the area in the white box is what I'm watching for an even stronger move up.

And the 5 min has been leading positive since yesterday, this is the first intraday institutional timeframe so it seems there was a lot of strong underlying trade late yesterday.

The 10 min chart is the link, it's positive, but I'd really like to see this lead as well.

MCP will likely move with the market initially, but this is a longer term trade, it is not a market correlated bounce. MCP has its own legs and I suspect it will move to a stage 2 base over the next several months despite what the market is doing.

This is one of my favorite longer term (long) positions.

VIX Update

This was yesterday's post on VIX shorts possibly coming up today and last night I showed several charts with my custom buy/sell indicator with a VIX sell.

I'm actually right on the verge of a VXX short or put, I just feel like I need a little bit more.

VXX 1 min intraday negative

3 min negative

5 min leading negative

VIX futures 1 min are in line, but ...

The 5 min have been horrible.

I'm not exactly sure what I'm looking for, usually when VIX fires a signal, it's even more amazing than some of these, perhaps the 1 min Futures going negative?

In any case, in almost any other asset I'd already be short here, but something is just telling me to be patient for a bit longer, if I miss the trade there will be another right around the corner.

Don't forget, VIX moves opposite the market so if we are seeing 3C deterioration in VIX, that's a good thing for the market, of course these are shorter term signals, maybe a swing type trade.

Quick Update

So far the area for a "W" base looks about right...

SPY "W"

QQQ "W"

Initial signals look pretty good, SPY 1m

SPY 2 m

QQQ 1m

IWM 1m

We just need to see everything solidify up here.

MCP Update

Here's MCP doing exactly what I was talking about in yesterday's MCP Trade Update.

If this gave a sharper move down and the signals stayed strong, I'd consider adding to MCP calls. I can't add anymore to MCP equity longs, but I think it's still a nice looking position for a longer trend long trade.

MCP is just breaking under that flat range I was pointing out yesterday, it hit stops as well, check the volume.

A decent entry would likely be on a move back above the $4.68 area, the higher it moves above the area the higher the probabilities, but the worse your entry. I have alerts set at each of the areas between here and $4.68 so I'll continue checking it. I'd think MCP would be ready to go about the same time as the market, keep watching for that "W" to complete.

This May Be It

The Yen is getting crushed, USD/JPY is starting to fly.

Early Update

Good morning,

So far the averages hand Index futures have a weak enough intraday start that they should be able to make it a bit lower and form that "W" base.

The longer charts are still plenty strong enough to launch them higher after that is completed, at least that's what I suspect the market is going for. Here's an example using SPX futures ...

To the far right is this morning's regular hours open with a 1 min negative divegrence and the averages have the same which should bring them closer to the "W" bottom.

At 5 min I wanted to see this chart improve and it has considerably so it looks ready to support a base.

The more important chart and you can see the "W" more clearly is this 30 min which is also strong, the averages are similar to the SPX futures as far as charts.

Currencies looked like they were about to (actually did start) to strengthen on the US open, the USD/JPY specifically, now it's kind of in limbo, seemingly waiting, but I want to keep a close eye on that as it's really running the show.

In any case, we opened at a decent spot to create that "W" base, lets see what happens, it shouldn't take much more than half the day I would think.

Tuesday, February 4, 2014

Twitter Sentiment

Our resident sentiment follower sent me a bunch of Twitter "tweets" summing up sentiment of retail that he follows for us, put it this way, "Buy the Dip" is gone, it's now "Short thee rip" which is good as retail is usually on the wrong side of market sentiment".

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.