Stay Updated!

Sign-up for free email updates!

Posted by Brandt Hackney


Publisher of Trade-Guild.net & member site Wolf on Wall Street, equities/options trader 13 yrs., 4 yrs teaching, won multiple awards for trading & indicators.

Wolf on Wall Street Trend Analysis

by Brandt Hackney on October 18, 2013

in Options, Stocks, Technical Analysis

Today alone was a very interesting day, far more than meets the eye and from what I’ve seen from twits, bulls have been too busy patting themselves on the backs to take the time to look in the areas that tell you what’s coming instead of what’s happening.

Perhaps I’ll get in to a few of the numerous events today that suggest something big is about to come out that the market is not going to like (I could care less either way, as long as we are on the right side of the move).

While I can’t post everything here as there are typically about 15 regular hours market updates as well as after hours wrap up and late futures, I’ll have to give you a synopsis, but ig you pay close attention I think you can find some useful insights, indicators and concepts.

First before the upside reversal off the October 9th low, we were looking for a strong move to the upside, below you’ll see excerpts from Wolf on Wall Street posts/analysis as to how those expectations developed and how we were ahead of the curve.

This daily chart of the IWM gives you dates as reference points.
IWM Daily chart with October dates.



Bernie Didn’t Help
From Wednesday October 2nd…

I’ve had a pretty good look around and I’d be wrong to say that today doesn’t have a distinct feel of distribution. There are few bright spots, there are many transitory assets (between trades) and all in all, it’s what I’d call ugly. Hit the panic button, load up on shorts ugly? For the day, it kind of looks that way, but I’ve seen the market flip in a half day so many times that I’d just say, “A day a trend does not make”.



Therefore, I’ll sit pat, I was hoping to have a decent trade for today like TLT Tuesday and MCP today just to keep some income flowing, but as I said, a lot of assets are in a transitional stage.”


The TICK tells the story for the day, it’s bouncing back and forth between + and – 1000, that’s not an EXTREME, but it’s indicative of a lot of movement and to me it looks like a lot of indecision, when there’s indecision most pros will reduce their risk so that may be why today is uglier than yesterday.

The one thought I keep having centers on the IWM. We had two good days up and not the kind of breakout that it needs to get retail pumped. I’ve seen this a lot of times, it’s kind of like trying to get a car out of the sand in which you have to generate momentum by putting it in reverse and then drive and then reverse again to get a head start on the next swing forward.

To me, it looks like the IWM needs to put it in reverse before it can make another shot at forward or up in this scenario.

  It’s just kind of hard to believe that Wall St. would give up all the goodies just above right now”


As you can see, the distribution we saw on the second did lead to the downside in the IWM we had been expecting, but that downside was, “

 like trying to get a car out of the sand in which you have to generate momentum by putting it in reverse and then drive and then reverse again to get a head start on the next swing forward.”

VIX Futures Apathetic
From Friday October 4th


Most of you know that the VIX moves opposite the market, if there’s fear in the market of a sell-off, VIX futures are bid for protection, if there’s complacency VIX futures are not bid, when this happens the assumption is (by traders) that higher prices are coming or will continue.


For us though there are two different forms of VIX information, the price itself which is all most people see and the underlying trade (Our 3C indicator) which is in my opinion, a far better indication.


For the VIX piece to fit the puzzle, first we have to understand what expectations are which are based on a number of individual data points, not a guess or gut feel and expectations are still for the market /  IWM (I use this as a standard because of its resistance area that would represent a breakthrough and because it’s a leader of risk on moves) to make a move higher.

So far today we have the same signal suggesting (if it closes like this), that the VIX sells off and the market bounces which is in line with out expectations.

This is the most important to me, it’s the 15 minute ACTUAL VIX futures chart and as mentioned, underlying trade is apathetic by way of a leading negative divegrence. To me this suggests that smart money knows something that most don’t, especially with protection not being aggressively bid in to an unsure weekend.

As far as I can see, the VIX is confirming both expectations, the strategic and tactical.”



Hedge Strategy / Market Trade Duration & Probability Analysis

From Sunday October 6th

“This is the video I wanted to get out this weekend to better explain what I’m seeing in numerous assets and I use GOOG as this is where I first brought it up. This makes a trend and increases the probabilities which already fit both trend expectations as well asvery near term analysis as posted late Friday .

Whether and actual hedging strategy is incorporated or not is a personal choice, if there’s a good set up for it, I’ll likely try it with a few assets with the ideal outcome being short term long trades using leverage hedge long term trending shorts which will not only hedge the long term trade, but should raise gains via the short term leveraged traded functioning not only as a hedge, but as a trade in itself and protecting a higher, long term probability position.


This video is about 8 minutes, while it covers GOOG, GOOG is also being used as a proxy for the market and our expectations. There’s an embedded video player below and a link to the video on YouTube.”



EOD Odds and Ends
From Monday, October 7th

“The market is well within the reversal process range. To the left you can see an abnormal “V” reversal or an “Event”, this is the F_O_M_C Knee jerk reaction I always warn of. Otherwise, the SPX is still within a reasonable range.
SPY 60 min chart

The new week just started, but for the new week we are ranked 10th of 758 competing portfolios, but more importantly our relative performance vs the SPX is about 700% here.  These are almost all core shorts so the SPX being down 0.75% (there’s a slight delay) and our core shorts on average being up 7.25% is an excellent sign for when the market really takes a licking, it shows we are entering the right positions at the right time with the excellent risk:reward ratios.”

Leading Indicators Improve
From Tuesday October 8th

Today there’s noticeable improvement, in fact so much so it makes today look like a final flush before an upside move.  Sentiment today has improved noticeably. Yesterday we saw the first positive Yield dislocation pretty much since this range started, with today violating the range, but the Yield indication being a lot stronger than yesterday and if you recall, yields tend to attract price (SPX in green) toward them.  HY Credit has held up well too overall. Commodities improved yesterday, even more so today. Finally and most importantly, the institutional asset, High Yield corporate Credit which is used in a number of algo-driven arbitrage trading black boxes, held up fantastically today. Whatever the market is feeling today, HY credit is not worried about it. As a result, SPY Arbitrage is being moved to a positive/supportive position. HYG credit is definitely the surprise that I’m glad I saw today.”

In fact, one of the many very interesting developments was once again in High Yield Corporate Credit, although with a slightly different twist, but that’s another post.

Bounce/Trading Positions
From Tuesday October 8th

“I was going to cover several different assets each in their own post, but they’re all moving so fast I need to put them in one post.

These all look good for at least a leveraged long position and they may in fact be position for a much wider move.

Here are some examples:  FAS (3x long Financials- I already have a trading position opened here). 

XLK or the Tech sector, TECL is a 3x leveraged long ETF for TECH. AMZN looks interesting. Goldman (GS) looks like it has a good bounce in it. URRE on a longer term is looking really strong on this 30 min chart, I don’t want any kind of leverage , just URRE long. *URRE was up +20% the next morning.  The SPY 5 min is now seeing positives, so positions like UPRO (3x leveraged long SPY) might be an option if you prefer to stay away from options.


I think I have enough short term long positions to hedge any draw down in the core shorts, but I may add to the short duration long positions if I have room, if the signal is really attractive and feel it’s not excessive risk.”

Daily Wrap
From Tuesday October 8th

“Also suggesting the market is nearing an upside reversal (beyond today’s exhaustion or capitulation move) is DOMINANT PRICE / VOLUME RELATIONSHIPS AMONG THE AVERAGES.

HERE’S WHAT THEY TOLD US ABOUT TODAY…

 Of 500, 372 SPX component stocks finished the day with a relationship of price down and volume up, THIS IS USEFUL BECAUSE IT IS DOMINANT AS ARE THE OTHER AVERAGES.

 25 OF THE 30 DOW-30 FINISHED @ PRICE DOWN/VOLUME UP.

And 96% of the NASDAQ 00 finished lower on higher volume.

Of the 4 possible relationships, today’s dominant relationship was a lower close on increasing volume which is actually the second most bullish of the 4 relationships as it represents short term capitulation or a selling / exhaustion event.”



Daily Wrap
From Wednesday October 9th

After looking at just about everything I need to look at (except futures, as you know I like to give them a little time), I feel pretty good about today’s decision and the reason why.


Here we can clearly see what I was talking about as far as a “larger footprint” in the reversal process.

 
This is very much in line with the kind of pullback that gives us more of a “U” shaped bottom and should give us stronger positive divergences on the upside as pullbacks are expected to be accumulated.

Almost every asset I looked at had this same intraday behavior including the market averages.



Earlier there was a negative divegrence which I used to open a VXX put which is already at a double digit gain today, but I think we get another chance tomorrow as short term trade would suggest some upside here (downside in the market), however…

The longer 5 min chart has so much damage that I doubt any intraday upside can sustain itself, leaving the VXX / UVXY open to being shorted again and the market putting in that larger rounding reversal process.

Also suggesting the VIX has had it, my Custom DeMark inspired buy/sell indicator gave a rare signal today.

This is my Custom Indicator based on DeMark Principles, this was only the second VIX signal this year, both were effective.

You can see the last buy signal to the left and today with a long upper wick candle, a sell signal on the VIX which trades opposite the market.

 There was a lot of volatility in the TICK today from about +1250/-1250, The EOD or last 2 hours show a clear downtrend. However if we look at my Custom TICK Indicator vs the SPX…

The overall trend for the day is positive suggesting short term down turn which should do something like I suspected in this last post and this larger trend signal should bring us back up just as the longer UVXY chart suggests as well as the longer 3C charts in most assets and averages, it’s almost universal in every asset I looked at.

We can even look at the VIX futures and get the same feel…

This is in a leading negative divergence and has much higher probabilities for the longer term, so taking both in multiple timeframe analysis along with other assets, the implication is the market pulls back a bit, but in a healthy way and finishes strong.

 The probability of that upside turn went way up as the 30 min SPY chart locked in a positive divergence today, this is a very meaningful signal.
SPY 30 min 3C chart with a leading positive divergence (accumulation). Every single asset or indicator above all suggest the exact same thing and I could give you 50 more right off the top of my head.

As you can see below, October 9th, with our custom indicators, 3C and our VIX Sell signal, was the turning point for a move we had expected on the upside, while many were expecting the D.C. drama to take the market much lower. I find the GOOG example video used as a proxy for market action, but with GOOG analysis as well suggesting a move higher to be a timely and interesting call. However all of our calls are based on objective data, not gut, instinct or CNBC.


For more information on our members’ site, 


Just click the link above.



Previous post:

Next post: