Thursday, December 27, 2012
The market was headed for a big fall in the early afternoon with the VIX soaring above 20 points for the first time since July. Then news of the House of Representatives coming back to the hill on Sunday sent the robots into action pushing the market back to breakeven. Any news regarding any action and we mean any action has brought on buyers. US Debt Ceiling is set to hit Monday and the Fiscal Cliff on Tuesday it appears we may get some sort of a deal if one side or another blinks. Market action on the other hand has been only helped by rumor of a deal and not an actual deal. Cash remains king in a headline, rumor driven market. Yesterday’s market action was not very bullish and while today’s intraday support appears to be good it remains to be seen. Sentiment here is very bullish with the National Association of Active Investment Manager’s survey showed 88% were allocating to equities. Mind you this was a 33% jump since November. AAII bullishness hit a 10 month high! Sentiment is hardly a precise indicator, but with many bullish it only appears “sell the news” event is the only likely scenario. Commitment of Traders tracks how long or short traders are of the S&P 500 and traders are the most long since the beginning of 2007. We have a crowded trade to the long side. We should also point out the number of bears heading into the debt ceiling debate last year rivaled that of 2007 and 2008. All this antidotal evidence does not translate into actionable ideas, but it does put into context the market environment we are in. Price action will dominate our actions and at the moment we have a very erratic market making it quite difficult to have much conviction in either side of the market. For now, caution continues to be the right course of action until something breaks. Today was close with the VIX popping, but it ultimately failed. Only two days left of 2012! We are looking forward to 2013. Cut those losses and ride your winners.
Wednesday, December 26, 2012
After a quick trip back into the NEUTRAL zone, our models all switched to BUY on Monday the 17th. Unlike the previous BUY signal in which no action was taken, this BUY signal was actionable. The move on Monday came with strong above average volume on all four major market indexes. All four indexes also produced pocket pivot point buy signals on the same day. On top of that, banks, homebuilders, and small caps led on the day. While the signal on Monday was solid, further confirmation came the following day as all indexes followed through on the gains on even higher volume producing a second pocket pivot point buy signal in a row. However, more importantly, all ETFs, leveraged ETFs, inverse ETFs, and inverse leveraged ETFs confirmed the move by moving higher on strong volume. The volume confirmation in all indexes, with bank and homebuilding stocks leading, and an improving macro environment was a good step in the right direction for market bulls. However, as we saw on Friday, it is definitely not going to be smooth sailing ahead with items like the Fiscal Cliff around to spook traders or algorithm HFT programs. Still, the intraday reversal does show that the market has some solid support in it as traders try to play catch up to the almost daily move higher by the market from the November lows. Many traders who wanted to get long but never had a chance because the market never pulled back will statistically more-than-likely due to the solid foundation of the overall market buy the dips. So is it up up up and away from here? Nobody knows because absolutely 0.00% of all human beings alive today can accurately predict the future. The fundamentals and technicals do support that thesis. Sadly, this isn’t a free country or a free market anymore. It is a manipulated economy that is orchestrated to serve the bankers and no one else. The ZIRP and QE policy that they pursue to save the most elite of the elite will absolutely cripple the poor and middle class. While this effects traders on the consumer price level we at least can mitigate the damage by being involved in the only place this toilet paper money is going to go. World equity markets. If you have the ability to trade, you have the ability to win in this game where surely many are going to lose. On that chipper note, I wish everyone a lovely holiday season. I hope everyone has a wonderful time with friends and family. Have yourself a very Merry Christmas and a very relaxing New Years. Aloha from Maui where Christmas never quite feels like Christmas. Hey, it is a little cold. Not long sleeve T-shirt cold. But it’s a little chilly. Once again, aloha. Top Current Holdings – Percent Return – Date of Signal NTE long – 103% – 8/17/12 VRNM short – 56% – 4/10/12 CSU long – 45% – 9/4/12 CAMP long – 45% – 4/26/12 ASTM short – 30% – 7/17/12
Thursday, December 20, 2012
In a surprise event 3rd quarter GDP printed above 3% above expectations. Unfortunately, the surprise to the upside failed to induce a strong response from the stock market. Initial jobless claims rose to 361,000 for the week a bit higher than expected. But, dominating the headlines was John Boehner’s plan B for the Fiscal Cliff. Volume ran lower throughout the day suggesting institutions were taking a break. Leading stocks help up relatively well while ISRG and HLF continued their declines. Financials and in particular BAC continued to march higher with Small Caps continuing their run. At the close, stocks closed near the highs of the day finishing much better than Wednesday session. Our uptrend remains intact and we’ll see how stocks react to tomorrow’s quadruple witching. News hit John Boehner pulled the vote on his Plan B sent futures MUCH lower. The Emini-S&P 500 futures dropped more than 2% in 2 seconds. The only way this occurs is with computers fighting one another. The low print was 1391 nearly a 50 point decline in the S&P 500. We aren’t about to react to the moves in after-hours session and we’ll see how we open/finish tomorrow. If we move lower and hit our exits we’ll gladly do so. For now, we’ll remain with our positions and react as our rules say we should react. There are positives in this market with small cap stocks leading the market higher. Barring a disaster tomorrow this uptrend should continue to move higher. We do have plenty of bulls in the market with the AAII Survey showing more than 46% of its respondents say they are bullish. Only 24% responded as being bearish over the next 6 months. While the percentage of bulls is not at highs it is nearing frothy levels. Remember, sentiment is far from a perfect indicator for the market. However, for the fourth straight week we have the number of bulls above 40%. Tomorrow will be fun with options in four different markets expire. Volume should soar tomorrow skewing our volume data. Price action will be pivotal given the reaction to the cancelling of the Plan B vote. There is no need to have guess work here. Stick to your plan and execute with precision. Have a great weekend and despite what many are predicting for 12/21/2012 we’ll see you next week.
Wednesday, December 19, 2012
Small caps were able to close in the green, but the major indices were unable to hold their early morning gains. At the end of the day there were some fireworks with sellers showing up and pushing the Dow, S&P 500, and the NASDAQ to the lows of the session. Perhaps the lighter volume on the day allowed sellers to have their way. Overall, a pullback on lighter volume is a good thing for this current uptrend. We’d rather not see the Dow fall 100 points. If we were seeing heavy volume selling we’d be concerned with distribution piling up and additional small caps were relatively unharmed during the late day sell off. One thing to note was the more than 11% move in the VIX showing a bit of fear coming into the market. Today was not a terrible day for the markets as it continues to keep us on our toes. The market simply cannot go higher in a straight line and pullbacks are to be expected. In our new world of forever QE it does give us pause when we can fall with relatively ease. We have moved quite a bit since last Friday and a pullback is to be expected. At the moment, it appears sellers did not bring volume to the table, but any further big price selling will concern us. It was nice to see the continued leadership from Small Cap stocks as well as the NASDAQ outperforming the S&P 500. We could have done without the end of day shenanigans. The VIX has been relatively tame since the November turn around on 11/16. We have not seen the fear index above 20 since June of this year. We do have quadruple witching this Friday as well as GDP set to be reported tomorrow morning. Quadruple witching weeks tend to see a big jump in volume as well as volatility. Without distribution piling up it is tough at this point to say today was a turning point for this market rally. Some signs of concern like ISRG getting obliterated by a Citron report and HLF getting hit by Ackman, but overall action was “okay.” A few stocks like KORS ended well off their highs, but this is normal for our current environment. However, any further weakness in leadership will be concerning as for now we are cautiously long. Tomorrow morning we’ll get our weekly jobless claims as well as 3rd quarter GDP expected to print 2.8% growth. Sadly, this is mostly due to government spending borrowed dollars. Again, price will be everything. Know your exits.
Tuesday, December 18, 2012
Once again the market powers ahead in heavier trade indicating higher prices are ahead. Homebuilder sentiment came in as expected hitting 6 year highs, but a potential deal is likely in the Fiscal Cliff saga. All that matters here is we have a ton of stocks breaking out and price action in the market supporting these moves. We can debate over what printing to infinity will do to the US Dollar, but for now we have a big uptrend in our midst. At this point, not getting behind this rally will only leave you wondering later why you didn’t get on-board. Until we get distribution piled up this market is going to continue higher. The very bullish action at today’s close indicates that this uptrend is for real despite its many flaws. The biggest flaw in the market rally is the Federal Reserve debasing the US Dollar at an alarming rate. Printing more than 85 billion worth our currency and the effect it will have on our everyday life. Japan has been doing forever quantitative easing and it has failed to invigorate its economy. Maybe it will be different this time, but one thing is for sure prices all around will go higher. Initially, this will help our market given the recent price action. The real tricky piece will be when the Fed begins its exit from its endless money printing campaign. We are seeing a tremendous amount of breakouts it is a huge positive for this market. Amazing we have yet to see a true follow-through day despite today coming very close to actually being one. At this point it is about obeying the price action and knowing your exits. There are many stocks breaking out and showing tremendous strength. Ignoring the price and volume action in these names will more than likely be futile. Even if this rally only lasts a month if you have a sound exit strategy you will be out before any harm is done. Opinions mean very little in the market and the market is always right. Believe or not we have a rally and may be we’ll only squeak out a 10% rally, but one we’ll take. Remember, knowing your exits are just as important as knowing when you get into a position.
Monday, December 17, 2012
Today we saw strong action from banks and homebuilders as the Russell 2000 led all major market indices higher. Today was quite a pivotal day with price action and volume coming together. This market still remains without a true follow-through day, but the move today was strong enough with volume to show there are legs to this rally. We may not know the extent of the money printing consequences yet (along with ZIRP), but the action we are seeing compels to act to get long the market. The market may be anticipating a debt-deal, better than expected holiday sales, or even better than expected housing data. Who knows? The fact remains we are seeing strong price action suggesting the market will continue its advance higher. Still no follow-through, but the market is doing enough to have us act on the long side of the market. The market is clamoring for a fiscal cliff deal to avoid seeing spending cuts that would immediately impact the bottom line. Sales of companies who receive orders from the Federal Government would take a hit and any deal to avoid such cuts the market perceives to be a good thing. At some point the deficit will matter and the debt will matter. At this given point in time the market does not appear to care very much about running massive deficits. The Federal Reserve has all but signaled its willingness to fund the deficits if need be. Do not let your opinions fool you from making portfolio moves. This market is poised to continue a move higher given its recent action. Missing it because of an opinion you have is not an excuse when the S&P 500 is a reaching 1500. Will it? It has the potential to, but then again do you want to regard missing a signal because of an opinion. A key component that many market pundits will leave out is when you are going to exit a position. Just because they say go long this or that they tend to leave out when to exit. We could very well move much higher, but when do you exit? Do you ride your shares through a correction? If you cannot answer your exit point it should be top priority to know when you exit. Do not waste your time and efforts looking for a fiscal cliff deal. The market is anticipating a deal and we aren’t about to wait for it to happen. If the market does roll over we have our exit strategy to protect our downside. Banks, homebuilders, and small cap stocks are leading and we are going to follow them.
Friday, December 14, 2012
The Big Wave Trading portfolio remains under a NEUTRAL signal. However, we did switch to a BUY signal for 2 days before switching back to NEUTRAL. Fortunately for us, we have already closed shop on our model for the year. After the final and barely successful SELL signal it was decided that with the current price/volume pattern in the overall market, the upcoming Fiscal Cliff drama, and the news driven nature of the current market that shutting it down for 2012 was the right thing to do. This past week proves that point. The past week saw a very noisy intraday nature to the market with a ton of stocks showing erratic to abnormal price action. Rather it was stocks like GMCR, FB, FSLR, AMCC, or RIMM going up almost every day non-stop or the reversal in price breakouts lower in stocks like SWHC, ARIA, QCOM, CNC, or ASPS that scripted what was an odd overall market. Even the big boys like PCLN and GOOG are showing erratic trading. This is a clear sign to us that trend following and stock picking the U.S. markets remain a very futile effort for anything other than a very short-term time frame. If your time frame is going to be weeks to months, on a position, we recommend waiting for better price and volume relationship to develop in this market. At this point for us we are very happy being heavily invested in cash and on the sidelines in our top systems. Short-term daytrading methodologies and very long-term methodlogies in world ETFs with wide volatility/ATR stops are the only two systems working for us now. The world ETF market has been the one very bright spot in all of this. The moves in VNM, DXJ, EWH, EWS, and EWA have been very welcome during a time when the U.S. markets are behaving so poorly. We continue to believe that over the longer-term more capital and bigger position sizes are going to be needed in these markets to return outside normal returns in the future. We are sure one day the stock market will trend in one direction or another for a period of time that will allow old trend following momentum methodologies in high quality stocks to work very well again. Until then, however, other markets should be where investors continue to look to into the future. That is unless we can get a change in the zero-interest-rate-policy, the Quantitative Easing environment, and extremely divided electorate some time soon. I wouldn’t place on hard bets on that happening for a while. Aloha and have a wonderful weekend! Current Top Holdings – Percent Return – Date of Signal NTE long – 118% – 8/17/12 VRNM short – 54% – 4/10/12 CAMP long – 48% – 4/26/12 CSU long – 37% – 9/4/12 ASTM short – 25% – 8/2/12Q
Thursday, December 13, 2012
Just the headline of a meeting between Boehner and Obama helped push the market off the lows. There is desperation for a deal for the fiscal cliff. The market for the second straight day rolled over from the morning highs. Despite doubling down on QE infinity stocks have been unable to crest above last week’s high. Volume on the NASDAQ rose giving the index another day of distribution while volume fell on the NYSE. Price action is not strong at the moment and given the lack of thrust from recent breakouts this uptrend we have been in is at risk for failing. Cash remains king. The fiscal cliff is such an interesting beast. On 11/16 we were close to getting a deal and yet four weeks later we are no nearer a decision than we were on 11/16. Our government spends roughly 25% of GDP by borrowing forty cents for every dollar spent. It is a nice thing to say we aren’t taxing the rich enough, but taxes only get us so far maybe 1/10th of the way. While we have been able to implement tax cuts we have never been able to cut spending. It is time to take our medicine and begin down the path of sustainability. This recent uptrend is still without a true follow-through day and even though we could get one tomorrow it isn’t likely it will produce tremendous gains. Days 3-7 are the sweet spot for a confirmation of a new uptrend. The lack of follow-through day simply underscores how weak this uptrend has been. Where are the stocks zooming out of bases? Sure we have had some breakouts, but they aren’t screaming higher like we normally see in a sustainable uptrend. As of now, we do not have the strength needed to continue this rally. This action is the main reason despite our model switching to a BUY signal two days ago that not one position was placed off of this signal. There was simply too much cross-currents and bad/confusing action. Our model has obviously returned to the NEUTRAL mode. No harm, no foul, this time around. Know your exits and if the situation changes be ready to adapt! Have a great weekend.
Tuesday, December 11, 2012
The S&P 500 and Russell 2000 found very little resistance at last week’s high as the NASDAQ backed away from its high of last week. Volume was strong, but the market could not find enough buyers to clinch a true follow-through day. We continue to operate without a follow-through day, but with the NASDAQ and the rest of the indexes above their respective 50 day moving averages we are back in buy mode. The move at the end of the day does bring a bit of caution and only did a few buyers at the end of the day save the rally. Tomorrow’s reaction to the FOMC rate announcement and Bernanke’s press conference will tell us a great deal about where this market is headed. We are in buy mode despite the sluggish end of day action and will look for this trend to continue. We simply cannot ignore the move in small caps today with the index lagging only the NASDAQ today. Breaking out of a small consolidation area the group pushed higher and continues to look quite solid. It is very hard to ignore the relatively strength displayed by the group and we are going with it. Focusing in on price action IWM looks poised to continue its move higher. Of course, we have an exit plan and if this move fails we’ll simply exit and move on. There is no need to guess what may or may not happen here, but for now small caps look poised to lead this market higher. AAPL continues to be the talk of the town, but it too found resistance at its highs. GOOG did manage to get above its 50 day moving average during the trading session. However, by the close the stock was unable to close above it. Bad news for the stock as it is doing a lot of work well below the mid-point of its most recent sell-off. On the bright side of things CRM was able to punch through and breakout on very strong volume. We’ll see once again if this breakout can hold. QIHU, SSYS, DDD continue to struggle after breaking out. Tomorrow brings on the Fed and the potential for a fiscal deal. It will be fun watching the market dance to the sound of Ben Bernanke’s voice.
Monday, December 10, 2012
The only excitement of the day occurred just before the eleven o’clock hour with the market pushing to break out from last week’s high. Volume was running below average, but price action appeared to be strong. However, just prior to the breakout we saw sellers step up and prevent the breakout. AMZN and EBAY were lower in higher volume along with AAPL who closed in the red for the second straight day. CNBC continues to pound on the Fiscal Cliff issue and cannot seem to move away from it. Small Caps continue to outperform and were too close to breaking out. If we are to breakout look for Small Caps to take the lead. We have experienced another dull day in the market as we remain trendless for now. PCLN suffered a big down day with volume running more than 50% above average. The stock looked poised to breakout and run despite the 50 day running under the 200 day, but today’s action is not good for the bulls. Right now the stock appears to be stuck in its range from the summer as overhead resistance remains strong. AMZN appears to be building a handle and will need to avoid any further selling on high volume. Pay attention to the stock around its 50 day as support around this moving average will be crucial for the stock. There doesn’t appear to be many bright spots in the market at the moment, but even with a dull market the environment can change rapidly. Be prepared. The market won’t get much economic news until the FOMC rate decision on Wednesday. Many will try to game the Fed and predict what the market will do. There is an upside bias on the days leading up to the FOMC rate announcement so any breakout here wouldn’t surprise us. If we do see the market breakout we’ll go right along with it, but we’ll have an exit strategy. Last FOMC meeting the market rallied on the news of QE. Unfortunately, the rally didn’t last and we saw the market sell-off. If you didn’t have an exit strategy and were long the market thru the downtrend you suffered through a nice loss. It is always best to avoid the downturns and wait for better entry points. We are waiting on the market and there are plenty of mixed signals right now. The NASDAQ remains below its 50 day and 200 day. On the other hand the S&P 500 and Russell are sitting just above it. Meanwhile, volume remains below average.
Saturday, December 08, 2012
It was a very uncorrelated market the past week with the Nasdaq falling 1%, the DJIA rising 1%, and the Russell 2000 coming in flat. Overall, nothing has changed in our model and we remain under an overall NEUTRAL condition. Despite being under a current NEUTRAL position, we definitely have a long bias currently in big-cap NYSE stocks. Low P/E stocks that pay a nice dividend that show some fundamental growth are beginning to outperform more speculative technology and small cap stocks. The biggest reason for the divergence is obviously AAPL which makes up about 9.5% of the Nasdaq. The near 9% decline this past week definitely was the anchor preventing the Nasdaq from rising. However, if you only think that AAPL is the reason for the weakness in the Nasdaq then why did the Russell 2000 lag? It’s because right now big-cap low P/E dividend producing stocks are in favor. Growth and technology is not. While there was not a ton of market moving news in individual stocks outside of AAPL, there were more oddities this week in more ways than one: 1. The constant overbought and oversold nature of stocks continued this week with some stocks seemingly up every day like GMCR and FB and some stocks actually down everyday like ONTY. 2. Continuous breakout fakeouts in stocks like TDG SWHC ACHC NCR RBA QIHU LPH EDU TOL MHO keep happening. 3. Breakout fakeout re-breakouts in stocks like GEO show up every once in a while. 4. Insane one day price moves in stocks like GRPN which retake their 50 day moving average on strong volume and end up 22% higher on the day. The bottom line is that the insanity continues and despite some pockets in low P/E dividend stocks there is not much that can be trusted or relied on when it comes to our markets. However, the USA is not the only market in the world. Thankfully, there are other nations out there that actually promote free markets and freedom. World ETFs like EWA EWS EWH EWA and ENZL continue to march to new highs. And in other South East Asia nations the same can be said from VNM, CAF, THD, EPHE, EWM and DXJ. Other ETFs hitting new highs include EWO EWN EWQ EWK EWL EWU. On top of that, India is on fire with INDY, EPI, SCIF, and PIN showing Relative Strength versus our market. So as you can see, as long as you do not focus on the US markets, you can make money trend following world ETF shares. Especially South East Asia. Remember, the world is nothing but a flow chart of capital. If that is the case, India, China, Thailand, Malaysia, China, Hong Kong, Singapore, the Philippines, Australia, and New Zealand will continue to dominate over the next decade as money leaves the United States and moves on to the next round of major growth economies. So while we may have an insane Congress with an insane Federal Reserve bailing out and taking care of insane banksters with QE and ZIRP, trend followers can pack their bags and take their money to South East Asia. This is a trend I believe we will continue to see well into the near-term and long-term future. You can’t be $16,000,000,000,000 in debt on the book ($86,000,000,000,000 possibly in unfunded debts) and expect the growth of the 80s and 90s to E-V-E-R return. Especially in a world where big corporations gladly hire cheap overseas labor and grant themselves huge bonuses and paychecks at the expense of the workers wages and benefits. It’s a different world. The manufacturing jobs that everyone keeps screaming that need to come back are N-E-V-E-R coming back. Ever. While everyone is upset about the trendless messy market we have right now, remember, on the other side of the world the trend is clear. Over in our neck of the woods we remain under a NEUTRAL condition with a bullish bias to big cap dividend-yielding low P/E stocks and a bearish bias on the overall macro economy. Aloha and have a wonderful weekend! Top Current Holdings – Percent Return – Date of Signal NTE long – 123% – 8/17/12 AVD long – 121% – 1/10/12 VRNM short – 58% – 4/10/12 CAMP long – 47% – 4/26/12 CSU long – 41% – 9/4/12 ASTM short – 33% – 7/17/12
Wednesday, December 05, 2012
A wild day on Wall Street as stocks stage an intraday reversal only to give back gains at the close. Once again the market was ready to fall apart and we were able to find buyers at the lows. AAPL tumbled hard while BAC and C raced higher. The market liked these two gigantic banks were cutting costs by eliminating jobs. Volume rose across the board giving the NASDAQ a day of distribution and stall days for the S&P 500. At one point it appeared the Dow would put in a follow-through day (and NASDAQ a distribution day), but ended the day in stalling action. We are still without a confirmed uptrend and wild intraday action. In addition, we still have failing breakouts. Adding all of this up cash is very much king. All eyes will be on the ECB tomorrow morning. Since the last ECB meeting the economic landscape in Europe has not improved, but worsen. Expectations is for the central bank to leave rates steady as borrowing costs across the continent have dramatically been reduced. More importantly, it will be how the market reacts to the central banks comments. Given the movement off the recent lows the European stock markets are expecting the central bank to produce something for them to continue their trend. After the ECB announcement we’ll get initial jobless claims and a look into Friday’s job report. Let the fun begin from CNBC and their over-analyzing the data and blaming Sandy. Market action is where our attention will be focused. There is something sinister going on with AAPL. Perhaps the rumor of a dramatic reduction in demand or some fund was forced to dump was the cause of the sell-off. To be honest, we do not care the reason for the decline and what we know was today the stock sold off in heavy volume. The stock’s trend is down and it appears there isn’t much that will stop this stock from taking out the November 16th lows. AAPL is a beloved stock and owned by many institutions and if the selling continues the exits will become very crowded. Do not be a hero. The NASDAQ remains below its 200 day and 50 day with the S&P 500 continuing to find resistance at its 50 day moving average. Until we see these indexes move above these moving averages with conviction and without a follow-through day the long side is not safe. Cash is king and we continue to tread very carefully in this market.
Tuesday, December 04, 2012
In a surprise to the market data out of ISM showed the manufacturing sector contracted waking up sellers pushing the market lower. The market gapped to the upside with the hope the economy wasn’t in that bad of shape with Europe and China’s PMI data. At the open the NASDAQ hit the high of the day and was never able to recover. SPY and DIA staged an outside reversal day while IWM and QQQs were able to avoid the pattern. Volume was lower on the day compared to Friday’s massive volume surge from end of the month rebalancing. While today wasn’t an official day of distribution it was certainly a big warning sign to longs buying has been exhausted. We still have not seen a true follow-through day and it appears after today we may not see one. Tread carefully as today was not a good day for the market if it wants to push higher. The outside reversal gets negated if the market is able to retake today’s high. Volume doesn’t matter too much, but we’ll need to see the highs taken out if this market has any chance of moving higher. The other game changer was the reversals at major moving averages. For example the NASDAQ gapped above its 50 day moving average only to cut right back under it. This is not the type of price movement you want to see from the market whatsoever. To make matters worse for this rally off the November lows is market leadership. Two stocks DDD SSYS broke out last week and were looking good until the last few trading sessions. The reversals are a clear indication breakouts are failing and a big clue to the health of this uptrend. CVLT is hanging in there and with QIHU breaking out it will be important to watch how these stocks act over the next few trading sessions. Given the market conditions it is very difficult to hang onto these stocks for big wins. Remember, have an exit plan for any trades you make and do not get caught without one. Not a good start for the bulls this week. It is best to review your trading plan and execute!
Sunday, December 02, 2012
The Big Wave Trading portfolio remains under a NEUTRAL signal, despite the strong gains this past week in the stock market. The gains from last week were very strong but it came from a very oversold condition and was straight up in a V-shaped formation backed by zero accumulation. While we are used to the stock market rallying on zero volume following heavy volume selloffs, we are at the same time still not used to it. Its a learning process adapting to the current market we have been in the past two years, following 200 years of normal price and volume relationships in equity and futures markets. Therefore, despite the strong gains, we remain in a NEUTRAL condition. This being said we do see constructive action underneath in the stock market. We had a lot of stocks fly past logical buy points that we were watching the past week. These stocks, instead of pulling back and allowing for a “safe” entry, continued to rally higher. Some examples include PRLB, FB, GMCR, and HIMX. We also see other stocks working on possible basing formations in big heavy volume leaders such as GOOG, PCLN, AAPL, and AMZN. We also see some new leadership in the form of 3D-printing stocks like SSYS and DDD. So while we remain under a NEUTRAL condition we will be more than willing to switch to a BUY mode. We would like to see the market base sideways or move lower on lower volume and then begin a strong move higher before this signal is generated. If we do not see the market pullback and instead are up 2% on lower volume Monday we will be obey the model and switch to BUY. However, we would make any position small as we are overbought short-term and simply have no volume. Historically, December is a bullish month for the stock market and it does rise on little volume most of the time. Therefore, volume is not much of a concern right now as the overall overbought condition following the V-shaped rally in the indexes. The bottom line is that while we see some constructive action in the market and it is seasonally a time to be bullish it still is not good enough to press bets here. We will continue to operate on the smallest level we have ever operated on at Big Wave Trading, continuing to keep an extremely high level of cash until better chart patterns can build in the stock market. 2012 has been the worst year ever going back to 1996 in terms of win/loss pain/gain ratios. Thankfully, due to trading small and getting smaller and smaller and smaller as the year went on we avoided the losses that the trend following wizards were dealt in the month of October and surely have been dealt in the month of November. In that regard, the past two months have been “wins.” Overall, though, losing money is never a winning situation. Still a 10% drawdown sure as hell beats a 50% drawdown. When you are wrong, get smaller. When you continue to be wrong, get even smaller. If you are still wrong, get as small as you can or do not trade at all. This has been the ultimate lesson from this trendless yet extremely choppy/volatile low-trading range market the past two years. The other lesson learned is to never overly trust one particular system. Diversifying amongst a bunch of different backtested systems that perform differently in each market and knowing how to weigh each system in each market environment has been another lesson well learned. Aloha and I wish you all the best during the upcoming week! Top Current Holdings – Percent Gain – Date of Signal AVD long – 130% – 1/10/12 NTE long – 124% – 8/17/12 VRNM short – 56% – 4/10/12 CAMP long – 54% – 4/26/12 CSU long – 43% – 9/4/12 ASTM short – 34% – 7/17/12 MAGS short – 30% – 4/18/12
Thursday, November 29, 2012
The market has become quite an interesting beast as of late with wild swings on every press conference DC makes. First Boehner’s comments sent the Dow down 50 points in a split second only to recover after Reid and Schumer respond. Nancy Pelosi was kind enough to wait for the market close to make her comments, but at the end of the day the market has moved higher again. According to Bloomberg volume was lower across the board and continues to be light overall. We are still operating without a true follow-through day, but despite the overbought conditions the short-term trend is higher. After the bell we got word the Democrats proposal would like to raise over 1.6 trillion in taxes and immediately raise spending by 50 billion. Republicans on the other hand are ready to concede the tax issue, but not the spending. For anyone to think a reasonable deal will be struck is crazy. Collecting less than 18% of GDP and spending 25% of GDP is not a sustainable model. You simply cannot overspend what you take in to eternity. It is not sustainable. We can argue over tax rates and where we should or should not cut spending, but if you can’t agree to pay only what you take in then no real solution will be had. We are now in extreme overbought territory and it would be good for the market to take a rest over the next few days. Even one day of a pull back on light volume would do this market some good. We only need to see a few days of this market taking a rest. Distribution would not be welcomed at all and we must avoid any serious price decline. If stocks are hitting buy points take the signal and have an exit plan. Hopefully tomorrow we can avoid seeing any more press conferences by any congressional member! Get out and enjoy the weekend.
Tuesday, November 27, 2012
For the second day in a row the Dow Jones Industrial Average, S&P 500, and the NYSE Composite posted another day of distribution. It is an ominous sign for a newly developed rally to post back to back days of distribution after a follow-through day. Positive economic news from Durable goods to housing did very little to help this market today. Sellers jumped aboard just before the 10am hour, but were held back by another intraday rally like Monday’s session. It appeared as if the NASDAQ and others were ready to bolt to higher ground before Harry Reid and Mitch McConnel spoke about the Fiscal Cliff talks. The market couldn’t rebound and ended near the lows of the session as volume jumped. This rally has a negative tint to it and the next move on volume will spell out the direction we’ll head in the short-term. Friday’s supposed follow-through day kicked off a new rally and the one thing you do not want to see is distribution within the first few days after the follow-through day. Unfortunately for this new rally is we have had back-to-back days of distribution. Monday’s intraday action was bullish, but still put the NYSE composite, S&P 500, and Dow into distribution camp. Today’s action was clear distribution and is not questionable. Distribution following a new confirmed market rally spells trouble for the rally attempt. I’d expect to see this rally fail shortly and we’ll be on the hunt for a new uptrend. If we move higher on strong move we’ll change our tune, but for now distribution is spelling trouble for this rally attempt. Financials rolled over today with the XLF rejected at its 50 day moving average. Retail (XRT) still is having trouble with its 50 day moving average despite the media’s attention on how good Black Friday sales were. Oil and Gas was the biggest drag on the S&P 500 followed by financials. A sign the market is on shaky ground is from the only sector higher on the session being the Utilities. If we don’t see the market improve here look for utilities to show strength while the rest of the market heads lower. If you jumped into the market yesterday or today remember to have an exit strategy. It will mean the difference when it comes down to your returns! Buying is the easy part.
Sunday, November 25, 2012
The Big Wave Trading Portfolio switched from a successful SELL signal back to a NEUTRAL signal the past week as the DJIA, SP500, and Russell 2000 retook their 200 day moving averages. The Nasdaq remains below its respective 200 day moving average but that is due to AAPL and we took notice of last Friday’s very bullish intraday reversal on AAPL coming from very oversold conditions. Overall, we see it as constructive price action in the overall market. While volume declined each day the past week, due to the holiday, it really doesn’t matter. This market has already proven that volume or no volume when the Fed is printing money and manipulating interest rates it simply doesn’t matter. Higher volume selloffs followed by lower volume rallies have been the norm since 2009. Until the ZIRP policy is abolished, we do not believe this will change any time soon. The biggest problem with the low volume rallies is that prior to 2009 low volume rallies would not cause the model to switch like it does now. This unfortunately means that there will be more false signals and thus more times when we will have to cut our losses. Instead of watching the model switch 5-15 times in a year it is now switching around 20-30 switches per year the past two years. This simply would not happen in a normal market environment where the Fed basically lets asset prices rise and fall based on where the market expects fair value. In the intermediate term we are in a seasonal uptrend cycle as we head into the final month of the year. Like always, January will be more-than-likely be the real tell to the trend of December. But being that it is December and that we are refusing to sell off after leading CANSLIM stocks have cracked across the board it means that the odds are in favor of prices rising going into the end of the year. However, if you think we have any positions based on that assumption, you are 100% incorrect. All signals are price based. If prices break higher, we go long. If prices break lower, we go short. If we are wrong, we cut our losses immediately. There is no deviation from this model based on any indiscretions we may reserve about future market prices. I hope everyone had a wonderful Thanksgiving. Aloha and have a great upcoming week. Top Current Holdings – Date of Purchase – Signal Date AVD long – 129% – 1/10/12 NTE long – 111% – 8/17/12 VRNM short – 54% – 4/10/12 CAMP long – 51% – 4/26/12 ASTM short – 40% – 7/17/12 CSU long – 37% – 9/4/12 MAGS short – 25% – 4/18/12
Tuesday, November 20, 2012
Continued positive data from the housing market helped boost the market in the early going. However, the focus would quickly turn to Ben Bernanke’s speech at 12:15. Prior to his speech this headline appeared: BN 12:15 *BERNANKE SAYS FISCAL CLIFF WOULD POSE `SUBSTANTIAL THREAT. And during his speech he stated the Federal Reserve would be unable to assist if Congress did not avert the fiscal cliff. The market did not like the sound of this and sold off as volume picked up the pace. It wasn’t before long before buyers stepped up and supported the market pushing the major averages back to flat line at the close. Volume slid on the day, but with the Thanksgiving Holiday upon us light trading is to be expected. It is hard to ignore the support we saw today and we’ll be looking for a confirmation day to switch to buy mode. The market will get initial claims tomorrow, but attention will be drawn to the European summit and black Friday sales figures by retailers. This year more roughly 45% of Americans say they would like to forgo Christmas all together this year. One would conclude with an improving economy should produce consumers willing to purchase more. Perhaps we are seeing the effects of declining real wages due to inflation caused by a Federal Reserve printing at warp speed. Will opening earlier help sales? Time will tell, but looking from the outside it does appear sales have the potential of coming in on the low side of things. Then again, the market may ignore this and move higher. Price rules above all else. A couple of big technology stocks got hit hard today. HPQ and INTC both sunk to new lows as both stocks appear to be heading into the single digits. HPQ simply cannot turn itself around in a consumer dominated commodity business. INTC announced its CEO is departing in May and the news did not sit well with the market. We know CAPEX is falling and these stocks are certainly feeling the effects of decrease spending. We await a confirmation day for this rally attempt. It may be difficult to see one with Thanksgiving on Thursday, but we have seen stranger things.
Monday, November 19, 2012
Better than expected housing expectations and existing home sales helped boost the market’s rally off of Friday’s reversal. Volume on the day was lower and below average, but we have expected that with the Thanksgiving Holiday. AAPL was the star of the session rising 7% on the day. At one point the stock accounted for more than half of the day’s gains. At the Friday low we were quite oversold and when our fearless leaders expressed optimism we saw the market rally. Given the conditions of the market last week a relief rally is not out of the question. Day two of an attempted rally looks to be okay except for we are lacking the quality setups we normally see. We remain in sell mode, but we’ll obey the market if we get strong price and volume action. The VIX closed at its lows of the session as fear continues to evade this market. It is quite interesting to see the fear index where it is when we have AAII sentiment very bearish last week at 48.82%. Bulls weren’t seen at lows, but did come in at 28.82. We could debate as to why the VIX is so low and for us to have a meaningful bottom we need to see capitulation with some fear. Friday’s low might have appeared to be capitulation we didn’t see the surge of volume we’d normally see (excluding options ex volume). Perhaps this time things are “different” and the VIX will head into the single digits. We live in a QE dominated ZIRP world where anything is possible. The big story of the day was the move in AAPL stock rising more than 7% on the day. Last week the stock simply could not find any footing until Friday’s low. At this point a move back to the 50 day (629.65 currently) wouldn’t be out of the question given its big decline from September highs. The rally would likely bring on a “death-cross” where the 50 day undercuts the 200 day moving average. The last time this occurred was during the 2008 market meltdown. We aren’t predicting a similar situation, but with the stock severely over-owned and loved anything is possible. Day two of a new attempted rally after an extremely oversold condition is not out of the question. Given the low volume for the holiday we can see this market continue to push higher. Tomorrow we’ll get some more housing data along with Ben Bernanke speaking at 12:15 pm EST. Stay disciplined and do not try and be a hero here picking a market bottom.
Sunday, November 18, 2012
The Big Wave Trading Portfolio remains under a SELL signal on all indexes. However, we do take note of the positive price action and strong volume (even though it was options expiration related) on the indexes and more importantly on the oversold beloved-stock named Apple (AAPL). Volume on AAPL was the highest since March and comes on an excellent intraday reversal. We call that positive price action. However, there is no way, based on Friday alone, to know if this is the end of the downtrend or just an oversold bounce. Some of the positives going for the market is the fact it is very oversold on the short term, the crowd is increasingly becoming more bearish, and AAPL’s price and volume move on Friday. Some of the negatives are that there is still no obvious rotation from old leading stocks into new leading stocks, most recent strong sectors (IBB XHB ITB) are starting to crack on heavy volume, and despite sentiment growing more bearish there was absolutely zero fear in the most recent pullback. Everyone truly believes Ben will save us from every big bad market decline. The only way we see it at Big Wave Trading is that you must keep an open mind to everything and anything in this new QE-fed world. There is only one two ways to trade this market: trend following signals and value investing. The old momentum methodologies that made position traders like me wealthy during our early career have been missing since the 2008/2009 stock market bottom. This is a direct correlation of a QE/ZIRP policy. So, even though it seems the market is not done selling off, you must keep an open mind in the regards that Ben will indeed come to the markets rescue any time it even attempts to move lower. We have taken notice of some stocks that made very strong moves on Friday. However, we will need to see further positive price action next week or the week after to know if it is more than a one day options expiration wonder. The social networking site FB sure has been putting in some impressive price and volume action lately. That stock is definitely a stock that should be on all trend following wizards radar. It is too much of a cult stock and has so much volume that it is mandatory active and inactive traders watch this stock for trend following signals. Overall, we remain extremely heavy cash at Big Wave Trading due to the inability to trust price and volume action in the current choppy tape. Without any spike in the VIX, it is hard to believe a real bottom is here and while we are short some index ETFs we will be ready to reverse those positions ASAP if we continue to see further price appreciation. At the same time we do know another 2010 and 2011 pullback is more than likely to happen sooner or later and we will be ready to act accordingly when the time does come calling. And come calling it will one day. You can not keep an artificial economy up forever. Can you? Maybe you can. It’s a much different world than it was before QE. Get used to it. I doubt it changes any time soon. I doubt it changes any time not too soon (4 years at least). On that chipper note, have a great weekend everyone. Surf is up on the north shore and the sun is shining. Aloha!! Top Current Holdings – Percent Gain – Date of Signal AVD long – 112% – 1/10/12 NTE long – 102% – 8/17/12 VRNM short – 58% – 4/10/12 CAMP long – 47% – 4/26/12 ASTM short – 37% – 7/17/12 CSU long – 33% – 9/4/12
Thursday, November 15, 2012
A late day push helped the market from closing near the lows of the session. Disappointing bottom callers the market was couldn’t rally and close into positive territory. Volume dropped from Wednesday’s level, but at this point we’ll need to see a heavy volume reversal to signal any sort of bottom. Financials helped the S&P 500 from sliding further as the XLF found support at its 200 day moving average. Despite the help from financials the market could not overcome the pressure put on by sellers. Our sell signal has been a big winner for us and we remain in our sell mode. Tomorrow’s option expiry should bring in volume, but it will be interesting to see how the VIX reacts to options expiring. At this point we have yet to see the VIX jump showing fear has crept into the market. Given we have yet to see capitulation it is hard to fathom we saw any sort of bottom today in the market. It was nice to see financials rally, but it was only one group to rally while the rest of leading stocks took a beating. We could be just around the corner from a bottom, but the real question will be is when we do bottom how deep will it be? Why trend following works very well is you do not need to know how deep or how high a market can go as an investment decision. A disciplined approach is how we are able to take advantage of the markets. Defined entries and exits takes the guess work out of deciding whether or not if you get in or out of a position. Guessing a bottom in the market is just silly and has yet to prove fruitful. The allure of catching a bottom is simply too much for some, but you’ll notice they never make it long term. Stick with a disciplined approach and Big Wave Trading. Have a great weekend and remember to cut those losses short.
Wednesday, November 14, 2012
Despite CSCO and ANF gapping higher the market could not overcome selling. Once again volume jumped on the day as Institutional Investors dumped stock on the market. We did see some movement from the VIX, but the fear index remains tame under 20. Selling picked up steam as Obama stepped up to the microphone after meeting with numerous CEOs. The market clearly didn’t appreciate what he had to say nor what came from the FOMC meeting minutes. More asset purchases were discussed for next year due as if the first three easing programs worked. Our sell signals remains and has kept us on the right side of the market despite the oversold conditions. There isn’t much this market hasn’t taken to the woodshed. Homebuilders and Financials were the two groups holding up and now they are under tremendous pressure. BAC had been holding up, but it too could not hold up under the tremendous selling pressure. XLF is now just above its 200 day, but all we see is heavy volume selling. It will take some time before XLF will repair itself. XHB sliced through its 50 day today and appears to be headed to its 200 day. We may be oversold, but there isn’t much signaling a short-term bottom. We could bounce into next week, but we aren’t seeing anything ready to support a significant move higher. Perhaps we get a Grand Bargain the market likes, but what we heard from Obama this is simply a pipe dream. Given the oversold nature of the market it wouldn’t surprise us to see the market try to bounce at these levels. We do not have a crystal ball, but given what we have seen from the market and with a tame VIX it is hard to believe we have found a floor. The June bottom came when the VIX nearly hit 30, but lead to a choppy bottom before we headed higher. Until we get capitulation and a VIX jumping it is very likely we’ll continue lower. Do not be a hero and try to pick a bottom. Leave that to Jim Cramer.
Thursday, November 08, 2012
Another day of selling hits the markets, but at least we did not see the high volume Wednesday ushered in. The NASDAQ dove below its 200 day moving average yesterday and the S&P 500 joined the club today. While both indexes appear to be in free fall mode the VIX index closed lower on the day. Fear seems to have sidestepped this market despite the back to back days of big selling. AAPL had an epic day of selling as more than 37.5 million shares were trading with the stock closing just off the lows of the session. This type of action occurs when you have an over-owned stock being sold and it never ends well. Stocks are hinting at worse things to come and despite QE from the Federal Reserve sellers are ruling the day. Talk over the fiscal cliff is just talk as we’ll likely see the proverbial can kicked down the road. This is what politicians do best is kicking the can down the road. The issue really is how much taxes will rise. You can bet regardless of your income levels you will be paying higher taxes next year. At this point the market is simply trying to price the affect of the fiscal cliff. Spending cuts in the bill are roughly 10% of the budget deficit and not likely to be as devastating as the rise in taxes. We talk about not going over the fiscal cliff, but at some point we’ll have to pay for our debts and the longer we put it off the worse it will be. It is no surprise to us we remain in a sell signal even if we think a fiscal deal will be struck. Price and volume action remain the key in this market. We aren’t about to stick our necks out and try and pick a bottom. Yesterday’s dip buyers were hit hard today and losses are not something we enjoy seeing. Judging by the McClellan Oscillator we are in extreme oversold territory with a reading -147 for the entire market. It is not THAT extreme, but in an area where the market is capable of snapping back. A bounce here would not surprise us in the least. However, if we are to bounce we’ll need to see this market confirm a new market rally before we operate on the long side. Guessing when the market will turn would not be a disciplined approach. Perhaps a rumor of a fiscal deal would reverse the trend here, but it is anyone’s guess. We’ll continue to operate in sell mode and stay patient. Have a great weekend!
Tuesday, November 06, 2012
The market along with the rest of the world awaits the outcome of today’s Presidential Election. Mid-Day stocks enjoyed a nice pop with volume exploding higher, but it would be all for nothing. Friday’s highs would be a big point of resistance for the market and sellers began to take over. At the end of the day the NASDAQ and S&P 500 had closed in the green but well off their best levels. Coinciding with the market rally the VIX or Fear index fell hard as investors rushed back to a “risk on trade.” The Dow Jones Industrial average lead all major market indexes with 133 point gain or up 1.02% gain. Volume was solid for gains, but the lack of ability to close near the best levels put another stain on what would have been considered a solid day. We at Big Wave Trading remain in sell mode and continue to see nothing from the market that would get us to move into buy mode. Perhaps a push above the 50 day for the S&P 500 with volume would change our tune. At this point we simply do not have enough evidence to push higher. Gold and silver along with other commodities jumped along stocks, but commodities as a whole have been beaten up so badly recently the relief rally isn’t unexpected. Two economic figures were released today, but weren’t covered by the media for obvious reasons. Coverage for most of the day was regarding the election and possible outcomes. No one person or anyone knows the future and it is entertaining to see folks continue to predict what will or won’t happen. Both economic figures were disappointing with the JOLTs Job Openings lower than expected and the ISM New York index show a contraction with a reading of 45.9. Prior reading for the ISM New York was 52.9 and when you layer on top Hurricane Sandy things will likely be worse in the coming weeks/months. At 5pm East Coast time we’ll begin to see exit polls and there will be no doubt bets made on InTrade who will win the election. Polls will close staring at 6pm and throughout the night. Let the fun begin!
Monday, November 05, 2012
Tomorrow’s Presidential and Local elections have been the dominating headline for much of the day as US Voters are set to usher in new and old leaders. The market on Friday sold the jobs report as the majority of the market closed just off the worse levels of the session. Friday’s session was quite bearish given what was to be perceived as a positive jobs report. At Friday’s close the market was in borderline oversold territory and today’s bounce appears to be a reaction to the heavy selling on Friday. Light volume ahead of tomorrow’s election is to be expected with bets not willing to be made prior to exit polling. We remain in sell mode and will continue to remain in sell mode until this market can find stable ground. Economic data was on the light side today with the ISM Non-manufacturing index was released. The service sector did expand, but at a slower pace than expected. Logically thinking would have had the market move lower, but we rallied on the news. It wasn’t until the end of the day where buyers showed up. It was on the light side as volume was well below Friday’s levels. Today’s action while in the green was not very bullish considering volume was so light. Tomorrow’s session will prove to be volatile if we begin to see exit polling contradicting the polls we have been seeing up until this point. In the end it will depend on who will come out and vote. Will it be the Democrats who outnumbered Republicans last election? Or will we see Republicans dominate the turnout? The question is why are we only stuck on a two party system? Cut your losses! Ride the trend.
Sunday, November 04, 2012
Friday’s action was quite bearish for the market, or was it? It is not a good thing to see the market gap higher then fall flat on its face. We’ll take a look at the QQQs to see what happens when the ETF stages an outside reversal day. Friday’s Chart: Crunching the numbers here is what stands out: The average return following the outside reversal: 1 Day – (.23%) 5 Day – .00% 20 Day – .68% 30 Day – .44% Comment: Things aren’t all that bad, right? The Best Performance: 1 Day – 10.42% 5 Day – 16.63% 20 Day – 12.12% 30 Day – 28.25% Comment: As you can see, if you go short this signal you best cut your losses REALLY FAST. The Worse Performance: 1 Day – (8.21%) 5 Day – (13.63%) 20 Day – (10.38%) 30 Day – (58.28%) Comment: When it gets bad, it can get real bad! Final Thoughts: The odds of this pattern working (short side) across the four time frames is 43%. I wouldn’t be all that excited, but remind you this analysis does not take into consideration if the QQQs was in an existing downtrend or any other special situation. This analysis is the 50,000 foot view of what happens when the market notches an outside reversal.
The Big Wave Trading Portfolio remains under a SELL signal on the SP500, Nasdaq, Russell 2000, and DJIA. The NYSE switched to BUY signal yesterday and subsequently re-switched to a NEUTRAL signal by the close of today’s trading. Two words can sum up this week of trading: random, ugly. Another word many traders were using this week was confusing. While we remained under the 50 day moving average on all important (I would not consider the NYSE “important” per se) indexes, the action on Thursday had the type of move that signals a short-term low has been hit. The previous three to five sessions in the big indexes prior to Thursday indicated a market that wanted to continue to bounce. However, today completely put a wrench in that assumption. The worst part of this whipsaw move the past two days is that our short ETF positions gave a partial cover signal and our exposure was reduced at the open on the gap only to see the market sell off all day confirming the original signal. It is what it is. Now what? Well, technically, nobody knows. Still, with this kind of action in the indexes, following the already in motion sell off, it can be said that based on history the market should continue to sell off. However, based on the history of the past four years, the market should establish a low around here on very little volume and then rally to new highs on even lower volume. That has been the pathetic, but real, pattern the past four years. It’s outside of anything you can backtest on USA markets but it is what we have. Our current methodology has us in a very heavy cash position, with some current long positions still working, and a couple of hedged ETF shorts to counterbalance the longs. As these longs give final profit taking or cut loss exit signals, we will increasingly become more weighed to the short side via our ETF short positions. If we do find support here, our longs should continue to work and we will exit the ETF short positions. As for current trading opportunities we are finding very few. There are a couple of recent pumps that are in shortable positions but you can’t place large amounts of capital in these cheap pumps. There are very little to zero stocks setting up in current strong technical patterns, with proper volume characteristics, that lead to high percentage breakouts. On top of that, there continues to be no trend following signals via our trend following methodology in individual stocks. We have noticed strength in a few world stock markets, particularly singling out the South East area. It will be interesting to see if the money continues to flow into these advancing nations and out of declining nations like the United States. Follow the money. The money never lies. Price is the only truth, in a world full of professional and well-payed liars. We wish everyone a great weekend. Maybe next week we can get a more trend-friendly market. The current chop of the small trends that we do get make it nearly impossible to make any significant gains as we must position size accordingly. Aloha everyone! Top Current Holdings – Percent Return – Date of Signal AVD long – 120% – 1/10/12 NTE long – 59% – 8/17/12 VRNM short – 51% – 4/10/12 CAMP long – 48% – 4/26/12 MAGS short – 29% – 4/18/12 CSU long – 28% – 9/4/12 ASTM short – 25% – 7/17/12
Thursday, November 01, 2012
Day three of the NASDAQ’s most recent attempted rally ended on a solid note with the index gaining 1.44% on increased trade. Big Wave Trading’s model has moved into neutral territory as we did see the market make solid gains. Traders in QQQs and SPYs didn’t overwhelming support the move as the ETFs showed volume come in lower. However, volume in the ETFs hasn’t mattered in determining a new market rally and today did not diverge. Banks lead by BAC continue to act well in this market and continue to get support from the Fed. Diverging from the market rally were Gold and Silver closing the day lower. Tomorrow’s job report is the highlight of the week and surely be a big focus for market pundits. The NASDAQ put in an impressive move today. Suffering on the day was the VIX or fear index. Even during the decline fear never picked up to the point where you would say investors aren’t fearing any decline in the market. Volatility ETFs were once again slammed and continue to show themselves as a very difficult trading vehicle. But, now the market will have to deal with the jobs report tomorrow and election on Tuesday. In the after-hours session plenty of stocks are moving higher. MELI and FSLR weren’t as fortunate as PCLN, LNKD, FOSL, and SBUX. Many of these stocks have been beaten up since the summer time. LNKD continues to trade higher despite sporting a PE near 200! Remember, CSCO in the 90s had an astronomically high PE and was a huge winner. PE only matters on the way down and not when the stock is moving higher. Remember, price will dictate your actions not where the PE trades. Many growth stocks are given high PE ratios by traders. It is when supply and demand deteriorates to a point where the stocks falls hard. It is only then when the PE was too high. We’ll see what tomorrow brings for these stocks, but they are performing well in the after-hours session. We are no longer in oversold territory after today’s move. We are back to neutral in our model and will await a confirmation day. Friday represent day 4 of an attempted rally for the market. Remember, cut your losses. CORRECTION: WE REMAIN UNDER A HARD SELL SIGNAL ON THE DJIA/SP500 BUT ARE NEUTRAL ON THE NASDAQ, RUSSELL 2000, AND NYSE. OVERALL, WE ARE NEUTRAL, WITH A TINY HEDGE REMAINING IN THE SPY/DIA. WE WILL DELETE THIS SMALL REMAINING HEDGE IF WE SUBSEQUENTLY CLOSE HIGHER ON FRIDAY.
Wednesday, October 31, 2012
Two days of trading were lost due to the storm, but the aftermath for many remains a daunting task. We at Big Wave Trading hope those who were affected by Sandy return to a sense of normalcy soon. The Russell 2000 led all market gains today, but was the lone bright spot in the market. AAPL’s management shake up weighed heavily on the stock as it dragged down the technology heavy NASDAQ with it. At the open stocks enjoyed a lift, but it was a negative Chicago PMI figure that soured the mood of the market. PMI figures showed a contraction for the first time since late 2008 as many continue to fear the fiscal cliff. Big Wave Trading is still under a sell signal and today’s market did very little to help reverse our course of action. Price and volume are not favorable here and until it improves we’ll continue to operate under our sell signal. All eyes will be on the ADP and jobless claims report tomorrow. Friday’s non-farm payroll figure is set to be released and it will be an important to Romney and Obama. Gary Johnson the Libertarian candidate can too use this to show under freedom and his leadership we would be able to build a more stable system. For Romney and Obama it will be a fight over the same system we have in place today. Of course, the mainstream media will do its best to spin it positively for Obama while Fox News will do the same for Romney. In the end, we care about our leading stocks and market direction. As the market goes we shall go too. The leading sectors today were the utilities, consumer goods, and financials. Oil and gas along with Technology stocks were the groups weighing on the S&P 500. Financials continue to be the stocks leading this market and we aren’t surprised. How can you not do well when you have a buyer willing to pay top dollar for a junk asset? Continue to keep an eye out for emerging winners because this market can snap back on a dime. It is good to be back in the saddle. Cut your losses short.
Friday, October 26, 2012
The Big Wave Trading portfolio remains under a SELL signal that was triggered on 10/19/12. It was another down week for the overall stock market and it was another above average weekly volume sell off for the Nasdaq composite. This now brings the total of above average volume weeks on the downside this year to 6 vs. 0 up weeks on above average volume. Despite the constant distribution that we have seen the past four years, it simply has not mattered as we are in a QEn environment. This means that despite the weak action in the overall market, and stocks following earnings lately, it would be unwise to assume that the next rally attempt, if it does come on lower volume, will fail. We have seen time and time again how higher volume sell offs are supported around the 200 day moving averages on lower volume and then the next thing you know we are hitting new highs on below average volume. Therefore, despite being under a SELL signal with short positions in the DJIA and SP500, we have an overall neutral/cash bias at Big Wave Trading across the board. We are prepared for the market to find support here and rally and we are ready for the magic bullet of QE to finally run out of firepower. Either way, we are ready. The most telling issue in this downtrend is two fold, for us. One, we still have long positions that were initiated in the previous uptrend that continue to trend higher above key short-term and long-term moving averages. If more of our longs were outright breaking down on huge volume, we would be more “worried” about falling prices. Second, we continue to receive zero extremely high reward/low risk ratio short signals. Without these “screaming” shorts, we find it best to stay neutral on the overall downtrend taking only the 50 DMA trend following signals in the market indexes. Since June we have not had a single stock produce what we would call a 10 out of 10 long or short signal. The new signals that generate, since June, have at best been a 7 or an 8 out of 10. This is not terribly surprising considering the magnitude of this artificial low volume stock market rally the past four years. However, it is annoying as it prevents us from making any substantial money to the upside. Until we receive these “near-perfect” signals, we will continue to operate on a shoestring basis giving preference to trend following signals in high priced stocks, extremely high quality CANSLIM stocks, and index ETFs that trade significant volume. If the market finds support around the 200 day moving averages of the major indexes and we can rally back above the 50 day moving average, obviously the SELL signal will be negated and we will be back looking to operate on the long side. However, until we start to rally on higher volume, sell off on lower volume and then rally on higher volume, on the market indexes, there is no way we will even think about increasing our size. That is unless that 10 out of 10 shows up but it is hard to believe they will when the overall market’s volume is artificial. Low volume rallies followed by heavy volume sell offs that are then followed by more low volume rallies do not produce the quality chart patterns that we require (along with growth in the fundamentals) before going heavily long in any one position. For now, we remain under a SELL signal and will operate accordingly. Cash is king, right now, for those with a time horizon longer than one day. Aloha and have a wonderful weekend everyone! Top Current Holdings – Percent Return – Date of Signal AVD long – 143% – 1/10/12 NTE long – 59% – 8/17/12 CAMP long – 56% – 4/26/12 VRNM short – 46% – 4/10/12 MAGS short – 30% – 4/18/12 HEB short – 29% – 9/24/12 CSU long – 29% – 9/4/12 SHF long – 28% – 8/1/12 TAYC long – 26% – 6/15/12 ASTM short – 26% – 7/17/12
Thursday, October 25, 2012
Another day and another rally attempt failing to hold the morning gains as stocks close just off the lows of the session. Oversold conditions can produce multi-day rallies, but today ahead of AAPL and AMZN the market was unable to hang onto gains. Jobless claims and new home sales weren’t overly inspiring, but weren’t awful either. During the session as stocks sold off a rumor surfaced Fitch was about to downgrade the United States, but was untrue. How this country will pay off this debt without making a sacrifice is beyond me. How any agency would have our debt rated AAA is baffling. At the end of the day the market as able to close in positive territory, but tomorrow’s GDP report looms over the market. During the after-hours session the two big stocks the market was looking at was AAPL and AMZN. Both stocks have taken a beating prior to their earnings report. First up was AMZN and at one point was down below 208 a share. It closed the after-hours session above 220. The move off the lows of the after-hours was quite interesting considering AMZN continues to disappoint. AAPL reported earnings and the reaction to the news was less dramatic than AMZN. Whether or not we feel the earnings was bad or good tomorrow’s reaction will be the most important piece for us. Tomorrow’s GDP report will be the highlight of CNBC’s morning. There will be no doubt an endless discussion on what it means for the market and of course the economy. Remember, one week from tomorrow we’ll get the October jobs report. Third quarter GDP is expected to be around 1.8% any number not reaching that potential will be a big disappointment. One can conclude a bad number would be bad for the market, but we know this may not be the case with the Federal Reserve printing money. How the market reacts tomorrow will be very important. As of late, earnings have not been too kind to many stocks and we continue to see a lot of Revenue misses. Earnings are easily “gamed” whereas revenues are not. There were many who were expecting big moves out of AAPL and AMZN. EXPE and PCLN made the big moves higher! Earnings continue to produce wild moves! Stay disciplined and have a great weekend.
Wednesday, October 24, 2012
There wasn’t much anticipated from the Federal Reserve today, but there was hope something may hit the wires impressing the market. New Home sales were slightly better than expected reaching a new high. However, nothing impressed the market at all and was unable to hold the morning gains. It is pretty pathetic when the market is unable to hold gains for one day. We remain very weak and in a sell signal and technology earnings continue to disappoint. Despite Buffett’s cheer leading for buying on the dip we continue to remain in weak price action. The fiscal cliff is just one issue facing this country. Many will point to the spending cuts and tax increases causing short-term pain for a fragile economy. However, the short-term view versus long-term view should be discussed. How long can we kick the proverbial can down the road? At some point we’ll need to have revenues exceed expenditures to pay off the debt and it won’t be fun. Another issue is capital expenditures or CAPEX. CAPEX spending continues to decline as the view of the future continues to be clouded. Firms are not spending their cash because they have zero visibility due to the current market environment. The Consumer is still deleveraging and corporations aren’t spending will not spell out a pretty picture for profits. Volume ended the day higher on the NASDAQ as the index continues to struggle. On the bright side of things the index remains above its 200 day moving average. Tomorrow the index will have two big components report: AAPL and AMZN. Both stocks do not look healthy at the moment and have pulled back from recent highs. We are not about to guess how these two stocks will react, but we do know when they do will affect the NASDAQ in a big way. AAPL is one of the most over-owned stocks. Many mutual funds and portfolios in general have large positions in the stock (12-13%). The exit door will be mighty crowded if holders begin to flee. Tomorrow is a new day, but what we know now is a very weak market action in the 4th year of a bull market (March ’09 – Now). Cash is king.
Tuesday, October 23, 2012
More selling hits the street despite yesterday’s end of day rally. The 200 day provided the NASDAQ with some support, but the index failed to put in a big turn around day. Earnings continue to pour in and are only helping a few stocks. FB reported after-hours and is seeing a rush of buyers into the stock, but FB is not the norm. Volatility spiked closing above its 200 day moving average for the first time since the beginning of June when our most recent rally began. Fear has once again crept back into the market, but we lack the panic we normally see in a market bottom. Price action continues to be weak with volume still big on the downside and we remain in sell mode. Earnings season has crushed many growth stocks, but they continue to pile up. BWLD is just another victim to the earnings disaster. FB and PNRA are two bright spots, but they are the exception to the rule. NFLX was hit hard again in after-hours as the company failed to reach its user target. The stock had seen some life, but for a little over a year has been taken to the woodshed. CMG is in the same camp. The ultimate growth stock AAPL reports on Thursday and after failing to rally after its announcement of the iPad mini Thursday’s report will be important to the stock. AAPL has touched its 200 day, but has yet to top out since the 2009 bottom. More than 3 years later the stock has had a tremendous run and Thursday we’ll see if the stock can find the juice to resume hitting new highs. Commodities continue to pull back as crude oil briefly hit an 85 handle on the day. Gold and silver continue to pullback after their run up from the announcement of QE 3 or what we call QE forever. The market has now pulled back roughly 6% (NASDAQ) from the QE announcement. The market dropped roughly 3.5% from its peak from the QE2 announcement. At the moment we have support at the 200 day for the NASDAQ while the S&P 500 has yet to reach its 200 day. The election is two weeks away and it is bound to have an affect on the market. The most recent pullback has not been kind to leading stocks and it appears we’ll see this continue given the reaction to earnings as of now. Have a plan and trade. Cut losses and ride your winners. Volatility is finally showing some fear in the market and will at some point signal a possible bottom. Cash is king for now.
Sunday, October 21, 2012
THE COLUMN BELOW WAS A PREMIUM MEMBERSHIP COLUMN PUBLISHED ON FRIDAY FOR BIG WAVE TRADING MEMBERS. ANALYSIS SPECIFIC TO TRADING POSITIONS HAS BEEN REMOVED. Happy anniversary of the October 19, 1987 crash everyone!! Well, well, well. It sure was an interesting day to say the least. Today’s option expiration was nothing short of exciting as stocks sold off on heavy above-average higher-than-the-day-before volume. Stocks and stock indexes didn’t just sell off, they cratered. The weakness in the Nasdaq and Russell 2000 finally spread over today into the SP 500 and DJIA thrusting all four major indexes into a SELL signal on our market trending model. The Nasdaq and Russell 2000 were currently under a NEUTRAL signal and the SP 500 and DJIA were under a BUY signal but today’s sell off was confirmed everyone thus switching everything into a SELL. It doesn’t matter where you look. The indexes, futures, the options chain, ETFs, or inverse ETFs. Wherever you look, volume exploded higher. What didn’t explode higher but finally moved was VIX. VIX has finally begun moving in the direction those of us at Big Wave Trading believed it should have started moving in on 9/25. While the move came on convincing volume, and the CBOE reported the highest weekly trading volume ever in VIX futures, a BUY signal was not triggered in VXX/UVXY/TVIX. [MEMBERS CONTENT ONLY]. [MEMBERS CONTENT ONLY]. Getting back to the overall market, it was the fifth time this year that the Nasdaq has closed lower for the week on above average 50-week volume. As just mentioned, this now makes it five times that this has happened versus 0 times the Nasdaq has closed higher on above average 50-week volume. 5 – 0. For the year, the NYSE is actually up 1 vs. 0 times down. But the NYSE is not where you find your dynamic exciting technology based growth stocks. Those are found on the Nasdaq and Russell 2000. When you consider the volume pattern of the Nasdaq and then take a look at the recent slope of the Relative Strength line of the Nasdaq and Russell 2000 compared to the SP 500 you can see that we have a potential problem brewing here. The Relative Strength line of the Nasdaq is simply imploding here nearing the December 2011 levels. Meanwhile, price is nowhere near those lows. If this trend continues, watch out! The Nasdaq and Russell 2000, in healthy uptrends, lead the market. The Nasdaq and Russell 2000 start to lag the NYSE when a rally is on its last legs. The Nasdaq and Russell 2000 lead the market down when a downtrend is starting in the stock market. What stage are we in now? You are correct. This obviously means that now is the time to be cautious. This is especially the case when you look at the recent action in AAPL, GOOG, AMZN, PCLN, and LULU. After taking a look at those, take a look at the big giant bellweathers like IBM, INTC, MSFT, SBUX, MCD, and GE. Notice the same bearish action? Then take a look at your leading biotech stocks like ALXN, BIIB, VRTX, and PCYC. Is there anything surviving? Of course. The bank stocks like GS, BAC, and JPM are acting like there is nothing wrong and of course for the master criminals that run these banks and the USA there is not. On top of that, they need to make sure real estate prices go up so that all their real estate holdings continue to make them wealthier and wealthier (If these sociopaths CREATED their own businesses this would not be a problem. They didn’t.) on the backs of the middle class. On that note the XHB is fine. HOV, TOL, PHM, BZH, MTH, MHO, LEN, KBH, etc. all look like they were completely oblivious to the carnage gripping the market today. If you see the big banks (KBE) and home builders (XHB) start to roll over, then you can be sure this uptrend is finished. To me, it already is, as I follow the Nasdaq/Russell 2000 as market leaders. However, if these stocks continue to rally, show no damage, and we begin to find a floor to this selling, I would expect that the uptrend could definitely continue. I mean, it is a Fed based QE driven stock market. When stocks sell off, they step up to make sure their jobs are safe for now. I am sure one day this will stop working. Until then, the theme don’t fight the fed still rings loud and true. No one can predict the future in the stock market. I will not try to either. While it looks like we are about to crack wide open, we could easily find support and rally higher on no volume. Hell, we did it in 2009, we did it in 2010, we did it in 2011, and we did it earlier this year in 2012. Why not a fifth time? [MEMBERS CONTENT ONLY]. [MEMBERS CONTENT ONLY]. It looks ugly but it has looked ugly before. Let’s see what happens next week. Have a great weekend everyone. Aloha. [MEMBERS CONTENT ONLY]. Top Current Holdings – Percent Gain – Date of Signal AVD long – 139% – 1/10/12 NTE long – 62% – 8/17/12 CAMP long – 59% – 4/26/12 CLGX long – 52% – 6/19/12 SVNT long – 44% – 9/10/12 VRNM short – 39% – 4/10/12 CSU long – 32% – 9/4/12 MAGS short – 31% – 4/18/12 SHF long – 28% – 8/1/12 ASTM short – 26% – 7/17/12 HEB short – 25% – 9/24/12
Wednesday, October 17, 2012
IBM weighed heavily on the Dow Jones Industrial Average today helping keep the index in negative territory while the S&P 500 and NASDAQ close in the green. Volume on the exchanges was heavier across the board thanks to earnings trading from INTC and IBM. Both stocks were able to find buyers, but failed to get back into positive territory. More trouble for leading growth stocks in the after-hours session with MLNX and ALGN disappointing the street. Banks and homebuilders continue to be the leading sectors of this market in our new uptrend. We have mentioned before with the Federal Reserve propping up the mortgage market thru its mortgage backed QE forever program it is going to help the banks and homebuilders. While this may be good for banks and homebuilders leading growth stocks continue to get hurt. MLNX and ALGN are just two examples where growth stocks are simply not in favor in this market. AAPL a bellwether growth stock remains below its 50 day moving average. A new iPad Mini may help sales, but for now buyers aren’t jumping head over heels for the stock. QE trading is supposed to lift all boats, but for now just the banks are benefiting from the program. Today marked day 3 of an attempted rally. BWT Model is back in buy mode after Monday and Tuesday’s action, but for those who follow IBD methods we have yet to confirm a new uptrend. Thursday will mark Day 4 when we would see the market confirm a new rally. We’ll need to see volume swell above the previous day and strong price action. Despite the lack of IBD confirmation we are paying close attention to the stocks that are leading. Leading growth stocks are having their trouble here and it is a sign slower growth is upon us. Stick with stocks that are leading.
Tuesday, October 16, 2012
Back-to-back Accumulation Days has the Big Wave Trading model switch back to BUY mode. The NASDAQ still remains below the 50 day moving average, but the S&P 500 continues to act strong on the back of bank earnings. Technology earnings are now in focus and during the after-hours session INTC and IBM reported earnings disappointing the street. Both stocks will be putting pressure on the market during tomorrow’s action and it will be important to see how both stocks respond tomorrow. Given the past few days price action is strong and what we needed to see this market to move back higher. Tomorrow can bring on a different market and it is why we have a stop loss strategy. We cannot blindly go long or short without knowing our exits. Risk control is a must as tomorrow may bring on intense selling, but there is no way for anyone to know what tomorrow will bring. Of course there are many opinions, but are these opinions always right? What happens when your opinions are wrong? A disciplined mechanical approach to the market is far better than forming an opinion and trading by the seat of your pants. Earnings season continues to benefit banks and with support from the Federal Reserve it shouldn’t surprise those many banks are reporting good earnings. INTC and IBM were hit hard today along with APOL and ISRG. INTC had previously warned and it couldn’t impress the street with the previous warning. As we move forward with earnings expect a bit more volatility as companies report. Be aware of when your stocks are set to report. Know where your exits are and make sure you are using proper position sizing. Cut your losses short and we’ll see if this market can build upon Monday and Tuesday’s action.
Monday, October 15, 2012
The market finally bounces from oversold conditions as volume ends mixed. Volume rose on the NYSE and NASDAQ exchanges, but SPY and QQQ volume remained light. Retail sales jumped more than expected helping set the tone early on. Sellers got the upper hand on the NASDAQ, but were quickly turned away as stocks zoomed higher into the close. Price gains were solid and although we did not see the overwhelming volume associated with institutions supporting the market. Today was day one of a new attempted rally on the NASDAQ lead by banks. Banks lead the market today on the back of Citbank’s earnings with the stock gaining 5.5% during the market session. WFC continues to suffer from its earnings report, but other big banks continue to act well ahead of earnings. GS, BAC, and JPM continue to act well and are poised to move higher. When the Federal Reserve will be buying mortgage securities from Banks it is hard to fathom the Federal Reserve will pay anything but the highest price possible. So far, the only group to benefit from QE Forever will be the big money center banks selling mortgage securities back to the Federal Reserve. We were bound to bounce from the selling we saw from last week. The NASDAQ was down 6 days straight and it is quite normal to see the market rebound. There is no way to know whether or not this will turn into a new uptrend or a one day wonder. We’ll need to see confirmation of a move higher before we get excited over one day’s action. We remain in neutral mode and until price action and leading stocks say anything different we’ll remain neutral. There is just 22 days left to the election is over and it cannot come soon enough. As soon as the election ends the fiscal cliff topic will be one in focus and one the market will grapple with and hopefully produce a trend. Today concluded day one of an attempted rally and we’ll be waiting for confirmation one way or another.
Sunday, October 14, 2012
The Big Wave Trading Portfolio is currently under a NEUTRAL condition. The model switched from BUY to NEUTRAL on Tuesday due to the Nasdaq closing below the 50 day moving average on average volume. Our model expected this switch to occur after Apple (AAPL) closed below the 50 day moving average on strong volume on Friday October 5th. On September 24th Apple began to sell off on above average volume and continued to do so for another four sessions before finally breaking down on October 5th. Another problem we started to also notice was the overall lagging of the Nasdaq’s Relative Strength line compared to the SP-500′s Relative Strength line. While the Nasdaq was breaking out to new highs in September, its RS line was severely lagging no where near its previous March highs. In recent weeks we have seen the Nasdaq’s RS line simply implode compared to the overall market. This RS lag is even more severe in the Russell 2000 full of vibrant young growth stocks. This RS lag is overall problematic for a variety of reasons. You normally want to see new exciting growth companies and revolutionary technology companies lead a market. Not stodgy old safe dividend producing large capitalization stocks. While a trend is a trend, the strength of a trend is directly correlated to what type of stocks are leading a market. Another problem we have witnessed during this switch to NEUTRAL is that we have not seen a rotation from the leading growth stocks that have come under some intense recent selling into new leading growth stocks. On top of that, we noticed that WFC and JPM are putting in low-volume breakout high-volume fakeout reversal moves. GS and BAC appear to want to do this too. As the rulers of the world go, so will go the stock market. If the Lords of Finance sell off, the market is going to sell off. So we have a market under heavy distribution, leading stocks like AAPL and PCLN possibly rolling over, banks (KBE KRE) putting in breakout fakeout moves, and an extremely low VIX on top of all of this. What does all this point to? A high probability that we will enter into a SELL signal at some point and will begin to rework the short side/long put side of the market. However! However. There is always the Fed and Ben Bernanke. They have already intervened during every single one of the last market pullbacks. What is to say this will not be any different? They have already screwed the poor and middle class over with their “zero-percent-CDs-forever-policy,” allowing the folks that do not have time to invest in the markets no chance what-so-ever to get ahead. They have already bailed out failing corporations effectively killing free markets. They have continued to print worthless dollar bills at the push of a button for years now, effectively destroying its purchasing power thus causing massive inflation that hurts the folks that can’t save money in the first place due to the low interest rates. So do we think that an actual prolonged downtrend will start thus allowing a new fresh crisp batch of leaders to rise from the ashes when the market is ready to move higher again? Nope. We sure don’t. We can only hope that one day the Fed decides to let the market do what the market needs to do but we are not going to hold our breaths. The first area of support we are looking at is the 200 day moving averages on all leading market indexes. The bottom line, for right now, and I mean right now, is that we are NEUTRAL. We will take long and short signals as they arise. We are extremely picky here and if it is not perfect or near perfect for the reason we want to conduct the trade, we will not take the trade. On a final note, speaking of perfect, we did not have one technical/fundamental or even technical alone “perfect” chart setup during the entire uptrend from June to September. This was the first time since the 2009 uptrend which only produced CANSLIM quality long signals and zero “perfect” CANSLIM/”perfect” chart signals. To me that tells me all I need to know about the quality of the uptrend itself. Aloha everyone and have a wonderful and profitable week. Top Current Holdings – Percent Return- Date of Signal AVD long – 136% – 1/10/12 CAMP long – 61% – 4/26/12 NTE long – 57% – 8/17/12 SVNT long – 53% – 9/10/12 CLGX long – 53% – 6/19/12 VRNM short – 39% – 4/10/12 PRXI short – 37% – 3/30/12 SHF long – 35% – 8/1/12 MAGS short – 31% – 4/18/12 CSU long – 30% – 9/4/12 ASTM short – 25% – 7/17/12
Thursday, October 11, 2012
A much better jobless claims figure helped set the early tone of the market. Unfortunately, it would not last as sellers continued their relentless pursuit. It certainly didn’t help that reports of the jobless claim figure being falsified by a large state not reporting its quarterly figures. At any rate what is important is how this market is acting and how weak leaders are performing. Is it finally AAPL’s time to undergo a big correction? Time will tell, but what we are seeing now is some big league weakness. Heading into the weekend it will be interesting to see how we close this troubling week. AAPL is a big concern due to its overall size in the market not to mention its weighting in mutual funds. Growth funds have feasted on AAPL and who can blame them with its ability to produce. However, with the stock over-owned and a LARGE part of numerous portfolios any correction could bring on disaster for those left holding onto AAPL. While the company may be cheap to growth when sellers want out the flood gates will open and when they do look out. The VIX continues to remain suppressed showing the market really isn’t fearful here. Perhaps many still believe QE forever will save stocks. This is where we get SOS – Save Our Stocks program from the Federal Reserve. There are still many market pundits hoping for the S&P 500 to finish the year above 1500 topping out at 1550 for the year. Bullishness among II survey respondents continues to be very high and with bears nearly extinct. It is easy to see why the VIX remains around the 16 level as market participants are very bullish without fear. We are no longer in an uptrend and must be vigilant by staying nimble and cash heavy. If this market turns around we’ll go with it, but for now we are in dangerous territory. Have a great ending to this week and enjoy the weekend!
Sunday, October 07, 2012
There will not be a weekend update this week. We apologize for the inconvenience. Top Current Holdings – Percent Return – Date of Signal AVD long – 145% – 1/10/12 CAMP long – 72% – 4/26/12 SVNT long – 61% – 9/10/12 NTE long – 60% – 8/17/12 CLGX long – 58% – 6/19/12 VRNM short – 36% – 4/10/12 PRXI short – 36% – 3/30/12 SHF long – 35% – 8/1/12 CSU long – 30% – 9/4/12 MAGS short – 28% – 4/18/12
Thursday, October 04, 2012
Stocks got a positive boost off the first Presidential debate, but for technology stocks it wouldn’t’ be enough. Financials continue to be leading stocks in this market and today once again the group leads the market. But, once again the market is looking ahead to Friday’s job market. In the final hour buyers stepped up and began to push the market above the morning lows. Unfortunately for longs it wouldn’t last as stocks pulled back into the close. Tomorrow’s Non-Farm Payrolls will be the talk of the town and how the market reacts will be what we’ll be focused on. Volume ended the day mixed with volume on the NASDAQ coming in lower. Technology stocks continue to lag the broader market despite GOOG hitting another fresh new high. Banks have been the leading stocks as they will be the greatest beneficiary from the Federal Reserve’s mortgage-backed security purchase program. The Federal Reserve will be purchasing less than high quality securities from Banks improving the quality of assets on balance sheets. It is almost a no-brainer these stocks will benefit from the program. While we would love for the NASDAQ to lead this market given the situation we’ll more than likely to see the S&P 500 as our leader. Stick on leadership and leave the laggards for the birds. Tomorrow will likely be a big day for the markets. Let the fireworks begin at 8:30am EST! Have a great weekend.
Wednesday, October 03, 2012
Heading into the first debate of the 2012 Presidential Campaign was led by the NASDAQ despite a faltering Semi-Conductor sector. Small cap stocks struggled as well with the Russell 2000 closing down 20 basis points. Volume expanded on the day, but with back to back days of subpar volume on Monday and Tuesday it was inevitable volume was going to increase. This morning’s ADP Employment change report showed 162,000 jobs were add in the month of September coming in slightly above expectations. In addition to the ADP report, a better than expected ISM Non-Manufacturing reading showed the service sector expanding in September. Not terrible news from the economy, but focusing on the price action we saw the market notch a day of accumulation. We still have not broken out from our recent trading range, but price action continues to be favorable to bulls in this uptrend. It appears the market is waiting on the debate tonight and Friday’s job report. Friday’s jobs report will more than likely disappoint not because of we don’t like the current administration, but the past few reports have been disappointing. In any instance other than the unemployment rate falling below 7% the Federal Reserve stock market put will more than likely dampen any bearishness related to the report. Anything is possible in QE trading. Look at crude falling more than four points today. Commodities are perceived as a good investment with the Federal Reserve printing presses running at full tilt. So while conventional thinking is a fun cocktail party discussion only price matters in the market. Whatever the market will bring we are going to be prepared. Tomorrow at 2 pm we’ll get the minutes from the latest FOMC meeting where Ben Bernanke announced QE3. It will be interesting to see how the market reacts to what the FOMC discussed during the meeting. Tomorrow should be a fun day with the market reacting to the first debate as well as the FOMC meeting minutes. Who knows we may even get a Spain bailout rumor. There is always something the chew on when it comes down to this market. Actions however, are governed by the price movement of our stocks. Enjoy the debates, but remember to cut your losses and there are other candidates then just Obama and Romney.
Tuesday, October 02, 2012
The markets experienced a low volume session ahead of tomorrow’s economic data. ADP Employment and ISM Non-Manufacturing index are set to hit the wires tomorrow morning. For much of the day’s session sellers had control over the market as AAPL touched its 50 day moving average. While the market as not heading for a day of distribution price action was not looking too kind. A close at the lows would have been on the bearish side of things, but the late surge by buyers helped take the bearish tint off the market. This uptrend continues to remain intact and our current consolidation continues. Aside from tomorrow’s economic reports is the first of a few presidential debates. At the moment, according to InTrade Obama will be the next President of the United States. We can debate polls, but money speaks and it is saying Obama wins in November. Tomorrow night’s debate may very well solidify Obama’s lead or swing the vote to Romney and it will be interesting to see how the market trades off the debate. For those who believe a Romney victory will lead to a rally do not count your chickens before they hatch. Anything is possible and opinions are often wrong. Capping the week off will be Friday’s job report. Given the weak PMI figures and uninspiring economic data it is hard to believe the economy has grown enough jobs to make a difference. On the surface we’ll get a peak at what the government calls unemployment. Real unemployment is much too scary of a number to report so we get an adjusted figure from our government. The Federal Reserve has now pegged Quantitative Easing infinity to the jobless rate and now this figure has become even more watched. Is it important, perhaps, but to for our purposes it always boils down to price and leading stocks. The Federal Reserve is here to stay and print, but it all comes back to whether or not we are in an uptrend or downtrend. After a quiet two days to start the week perhaps we’ll get a bit more action tomorrow. Keep those losses small.