Big Wave Trading Portfolio Update And Top Current Holdings

The biggest cause of trouble in the world today is that the stupid people are so sure about things and the intelligent folks are so full of doubts. — Bertrand Russell

It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change. — Charles Darwin

The Big Wave Trading portfolio remains under a BUY signal.

There are concerns with the current condition of the rally but nothing internally is moving our model away from the BUY signal. The most problematic issue is that new longs are simply not performing well. New longs continue to give us small cut losses or small gains. The only two areas not doing this are our IPO and Medical/Biomed/Drug stocks. They remain a high reward/risk win/loss ratio play. This has been one of the strangest uptrends we have seen at Big Wave Trading since my career started in 1996.

For the first time ever, during an uptrend longer than three months, the Big Wave Trading portfolio is lagging the overall stock market. This is more than likely due to the slow steady nature of this uptrend, the lack of volatility, and the lack of explosive moves on explosive volume. Big Wave Trading normally will purchase 5-20% of the strongest CANSLIM quality stocks with the best chart patterns in the stock market, when an uptrend is strong. When we make these purchases and they show low reward/risk win/loss ratios we reduce position size and spread out into more speculative names with higher quality chart patterns to reduce risk. These stocks are not performing like they have in the past. Past rallies from 1996-2000, 2003-2007, 2009, and late 2010 were extremely profitable using this methodology (see Past Big Winners on this website). During this current uptrend, that is not the case.

Our market model methodology using the TQQQ long and short is crushing our current returns with a YTD gain of 33% (without the March shakeout gains would be 60%). This methodology continues to be superior to our stock picking ability ever since the 2011 top. Eventually, our stock picking methodology will come back into favor. For now, however, it is clear that using the 3x ETFs is where the majority of our capital should be deployed.

If the market refuses to selloff this year, we expect that a potential large rally may be around the corner. If that rally comes, just like in most longer-term uptrends, the large gains in individual stocks should follow. Following the 1998, 2002, and 2009 lows, this was the case. We do not expect an explosive uptrend to begin here, though we realize it could, due to the Nasdaq price being so far extended from the 200 day moving average. It would be very beneficial to the market for the price to continue to work its way lower and consolidate so that the 50 and 200 day moving average can tighten up to the price. As long as we remain extended, a risk of a pullback remains very high.

We continue to hedge our long side positions with shorts in speculative stocks with no earnings/sales growth or paid promotional manipulation pump-and-dump stocks that have made extended/parabolic moves in short periods of time. When these stocks reverse hard off their extended runs on huge volume, we take short positions. So while Big Wave Trading remains under a BUY signal we clearly recognize the fact the VIX is low, sentiment is too bullish on the Investors Intelligence survey, and the price and 200 DMA of the Nasdaq are too wide for a significant move up here.

As always, we are ready for anything and everything that the stock market can and will produce. It is the only way to play the game. The most important rule remains to always cut losses immediately when we are wrong. Big Wave Trading never holds a losing position. If Big Wave Trading purchases a stock or ETF and it does not move in our direction immediately we begin to scale out or get out immediately. No questions asked. It either works or it is removed.

Top Current Holdings – Percent Gain (non-margin) – Date of Signal

SWHC – 72% – 1/3/12
KORS – 66% – 1/17/12
AVD – 50% – 1/10/12
RF – 45% – 1/5/12
LNKD – 37% – 1/19/12
BVSN (short) – 36% – 3/16/12
EPAM – 36% – 3/1/12
LHCG – 32% – 1/19/12
CIS – 29% – 3/12/12
CCU – 28% – 12/21/11
SUNH – 26% – 3/9/12
CERS – 25% – 2/10/12

Stocks Erase Early Losses as GDP Disappoints

The big economic news story of the day was the announcement of GDP leaving weekly jobless claims on the back burner. Disappointing at a 3% reading GDP failed to inspire the US has been chugging along at a good clip. Jobless claims fell more than expected, but remains well below the -400,000 mark. An early morning jolt was met with sellers pushing the market to the lows of the session. The market hung out at the lows for quite some time before late day buying picked up. Buying volume picked up as the NASDAQ found support at its 10 day moving average. Volume slipped on the day avoiding another dreadful distribution day. With that said, we were able to grab a bullish day despite the amount of distribution days piled up on the S&P 500.

Ignoring distribution for a moment, the way Small Cap stocks having been acting is quite peculiar. The last two times they have tried to breakout gains have quickly evaporated. It appears as if the market doesn’t have the appetite to support higher prices here. It certainly is something to look out for in the coming trading days.

The McClellan oscillator is quite oversold at this point in time and it does lend one to think any downside from here is limited in the very short term. Markets can always stay well overbought or oversold for long periods of time. However, short term conditions can evaporate very quickly. At today’s lows the market appeared as if we were going to remain very weak. However, buyers were able to find footing and step up their market operations. It shows there might be some juice left in the tank.

Leading stocks continue to hang tough in this market. AAPL held up well today considering the run the stock has been on! Looking across the market itself many leaders are holding up okay and aren’t screaming “look out behind you!!!” The real caution is coming from the S&P 500 whose distribution days have piled up quite a bit over the last few weeks. On the other hand, the NASDAQ only has 3 such days. If there is further selling in the NASDAQ on volume it will be our clue to steer clear of the market. For now, we are cautious and will operate as such.

Enjoy the weekend ahead! Next week we have a holiday shortened week, so get out and enjoy life a bit.

Nice Late Day Rally But Distribution Days Are Piling Up

A lighter than expected durable goods figure didn’t help out the market to begin the day. Sellers stepped up their operations just after the 10 o’clock hour. Intensifying just after 11 the selling continued pushing the market to the lows of the session. Volume jumped on the day but was below the 50 day moving average suggesting institutions didn’t sell heavily. Late day buying did take the sting out of the early morning action, but was unable to save the market from a distribution day. Distribution has piled up on the S&P 500, so much so the market is under a yellow caution flag. The day’s action certainly has us cautious.

A positive on the day was the NASDAQ was able to hold onto its 10 day moving average. I am not sure how much that says for this market after its incredible run over the last few months, but at least it’s a positive on the day. Another striking aspect of this market is the spread between the NASDAQ’s 50 and 200 day moving average. The last time the gap was this wide (to the upside) was last March and April when the market began to top out. By no means am I guessing we have topped, but it does appear a bit of rest for the market is not out of the question. Caution is the key here.

Perhaps another element to be cautious on is the jump in the Intelligent Investors survey of investment advisors. Bulls jumped back above 50% a clear sign bulls are back in control. Bears fell again and are very close to taking out the 20% level. The lack of bearishness in the market does not bode well for the market overall. Sentiment is a slippery slope to run up, use it as a secondary indicator. Bulls tend to be dominating this market and we’d rather be cautious.

Tomorrow’s GDP report will certainly get the market excited. It appears the consensus is around 3%. How the market reacts and trades throughout the day will be a key sign for how we’ll trade for the next few weeks. Weakness in the market will certainly foreshadow continued weakness. Enjoy the market fireworks tomorrow!

NASDAQ Stalls Out with Small Caps Leading the Market Lower

Just when you think the market is about to bust higher it stalls out on us. Today’s market action while not entirely bearish certainly throws a monkey wrench into the mix. NYSE volume was lower giving the S&P 500 a nice day of consolidation. It was late day selling putting the NASDAQ into a tail spin. Once again this market finds itself in a precarious situation and for us we are looking for distribution. Not that greatest of days, but we’ll need to see this market rebound higher.

All over Big Wave Trading we have been making reference to this uptrend as going to be very difficult to manage. At many points it has flashed potential sell signals, but only to reverse higher. The best course of action is to simply not give into every little hint the market may have topped. Giving away potential big gains to pick a top is where most will end up at. We rather let winners run and run, not cut them short.

AAPL once again hits a new 52 week high, in part keeping the NASDAQ from further damage. CMG is another long term winning stock hitting a 52 week high. The stock reversed from the high, but it is hard to argue with the stock’s performance since December. CMG has been quite consistent and very unique and you can bet your bottom dollar many are trying to pick the top of CMG. They continue to be wrong. Picking tops and bottoms is a fool’s game and only leads to losses.

Have a game plan and stick to it.

Stocks Race Higher; Volume up but Below Average

The one thing lacking was above average volume, but that didn’t stop the bullish action on stocks. Leading stocks were quite bullish today a very healthy sign for the market going forward. The S&P 500 and the NASDAQ both saw volume come in below average suggesting institutions weren’t out in full force today. Perhaps this is a negative sign for the market, but price action continues to be strong. Another excuse would be today is a Monday and not known to usher in big volume. However, on the other hand volume did surge above average on the Russell 2000. Institutions were certainly engaged in small caps. Today was filled mostly with positive signals for the market and Big Wave Trading continues to reap the benefits.

Gold and silver snapped back today reversing a bit of a hellish slide as of late. While the damage was down over the past few weeks the bounce today was significant. Both precious metals benefit when the printing presses are hot. Big Ben Bernanke signaled today growth needed to pick up in order to support higher job growth. If that wasn’t a signal for further money printing (QE) then I don’t know what does. All the Federal Reserve knows is money printing and artificially keeping rates low and high. When we should be relying on the market for rates we let a small group control the nation’s money supply and interest rates! Fortunately for us trend followers we can simply ride the wave higher and get off when it breaks.

The most encouraging sign is seeing leading stocks perform like they did today. IBD’s 85/85 index roared higher by more than 2% with volume coming in very hot. I can’t think of a better signal than leading stocks pushing the market higher. It has been awhile since we have had such power shown by leading stocks and its about time with this market looking like it was ready to pull back further. It goes to show you opinions mean very little in the stock market.

Big Wave Trading continues to operate under a buy signal and today was just another great day for us. Cut those losses short and your winners run!

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Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio’s Market Model remains under a BUY signal. However, during the week, evidence started to mount that turned the model from leaning BUY bullish to BUY neutral. This means that less capital is being deployed in new long positions and the requirements for actually becoming a new long position in the portfolios is raised. There are various internal indicators we use to confirm price action on any individual stock. We now must see all of these line up confirming the move to become part of the portfolio. The BUY neutral stance will switch back to a full BUY signal if the market can break out here. If the breakout comes on higher volume, capital deployed in the new long positions will be increased significantly. If the breakout is on lower volume, capital will be increased only slightly. In saying this, the Big Wave Trading margin and retirement portfolios are nearly fully invested already. However, there is still 10-20% cash on hand due to new high quality longs failing. Recent longs in high quality CANSLIM names like RRTS VHS HEES FTK TLLP left us with cut losses and thus have us holding some cash on hand. Recent CANSLIM longs (four of them) the past two days are holding up very well but are not exploding higher immediately. This action in high quality longs is the biggest reason, besides the low volume on the indexes, we still lean heavily neutral until we see a breakout on the indexes. Big Wave Trading is also actively working on the short side of one of the biggest pump and dumps on the Nasdaq in years. We continue to short one individual stock (we currently have gains ranging from 4% to 27% under our operation) following any consolidation after a breakdown. The insane criminal practices going on with this stock by promoters and huge potential reward has left us with no other choice than to profit off the greed and evil of some horrible human beings. One final note: If the stock market does not breakout this week or next week and we begin to roll over, you can be 100% sure the Big Wave Trading Model will switch from BUY to NEUTRAL and then position itself accordingly as price and volume action on stocks, ETFs, and the indexes roll in day by day. Aloha and have a wonderful weekend.

Top Current Holdings – Percent Gain (non-margin) – Date of Signal

SWHC – 73% – 1/3/12
KORS – 67% – 1/17/12
AVD – 43% – 1/10/12
RF – 42% – 1/5/12
LNKD – 34% – 1/19/12
LHCG – 30% – 1/19/12
CERS – 28% – 2/9/12
ULTA – 26% – 1/17/12
CRMT – 26% – 11/30/11
CPWM – 25% – 3/13/12

A Tale of Two Tapes, NASDAQ Continues its Outperformance

The S&P 500 and other NYSE indexes were hit with a day of distribution while the NASDAQ was able to escape. Euro contagion continue with a focus on Portugal seems to be the flavor of the month. If the market hasn’t figured it out now all the Euro nations will have to face the music at some point. Fears over continued lag in the European nations weighed on investors mind. To make fears worse China’s slowdown continues to be front and center. Its PMI continues to be weak and below 50 showing a contraction. While it is too difficult to say China is either going to land or soft the fear in the market is certainly real. A late day push off the lows of the session certainly helped out the market and this uptrend. Again, today shows this uptrend is not going to be easy and will continue to frustrate investors.

Once again the McClellan oscillator has moved into extreme oversold conditions. Remember, oversold and overbought conditions can last much longer than you anticipate. At this time, being at an extreme certainly limits the very near term downside risk. That being said, we’ll still need to stay on our toes and take our signals. A one day bounce may just be a head fake for lower prices. Stick to the game plan for now and seeing where we are at I’d expect to see the market to react to the upside in the short-term.

One positive sign on the day was the relative performance of a few leading stocks. For the second straight day we did see some bright spots from leaders. Even AAPL after posting some big gains has held up relatively well the past few days. PCLN continued on its war path pushing higher once again and the same goes for CMG. CMG is just one amazing stock. The market liked what it saw out of LULU and rewarded the stock accordingly. In after-hours NKE announced a share buy-back program boosting the stock another 1%. It would be nice to see some of the newer leadership type stocks to explode higher and produce massive gains. We have yet to see massive runs during this most recent uptrend (thanks ZIRP).

Cut your laggards and always cut your losses. Have a great weekend and stay safe.

The Market Stalls as Late Day Sellers Sour the Market Mood

End of the day action was the story of the day as sellers knock down stocks. At 3:30 in the afternoon the market appeared to be heading towards a solid day. Unfortunately for those who are long the market sellers had a different idea. Negative economic news from existing home sales certainly didn’t help the market during the early part of the day, but wasn’t the primary driver for the afternoon sell-off. We can certainly blame the turnaround in bonds or slowing China growth. Very good arguments there, but the real matter at hand is the price action of the market itself. Today’s action constitutes has a stall day and we’ll need to avoid any distribution if this market has any chance of continuing its uptrend.

Some positive news on the day there were some stocks holding up. The steady Eddy of the group (Leadership) is CMG. The stock continues to march higher, forget what you have learned from any other chart pattern. CMG is in a class of its own. PCLN is another leading stock that continues to push higher, but the stock is too far extended for entry. A few other stocks held up okay, but the late day selling does cast a least, for now a cloud of doubt.

The most recent II sentiment survey shows a big bounce in bullish investment advisers. 48.4% of respondents were bullish up from last week’s, but what is striking is the number of bears dropping off. While not near March 2011 lows, we are getting real close with only 23.6% of investment advisers are bearish. Don’t get me wrong, continued fiscal policies by the US Government will at some point impact the market. However, we trend followers know price will always be our guide.

For this uptrend to continue we’ll certainly need to avoid distribution over the next few days. Any distribution would like signal further pullback. Let the market come to you, guessing we have topped here is no way to invest. Proper discipline and prudence is the best course for success.

Volume slides NASDAQ erases losses

The market avoided a day of distribution despite early morning losses. A negative housing report soured the morning mood as sellers dominated the morning trade. Buying kicked in just afternoon time as upside volume begin to emerge. The end of day action wasn’t ideal as a slight pull back from the day’s highs was a bit disappointing. However, the support at the lows is something unmistakable as this uptrend continues to prove to be unstoppable.

At some point, yes this uptrend will cease and we’ll get a correction. No one can predict when we’ll get a correction. Distribution count on the S&P 500 is 4 and the NASDAQ sits at just 2. While the S&P 500 distribution count nears an area of concern the NASDAQ remains in the clear. Of course further selling on volume would change this, but we’ll wait and see.

AAPL was a big part of the market’s rise from the bottom. Early morning sellers were eager to take down the stock after it closed above $600 for the first time. Closing near the session highs on above average volume was a clear sign institutions stepped in and supported the stock. One thing to note, the stock closed again at another all-time high. Tough to be bearish on the stock right now, unless of course you like to pick tops and in this case you have been wrong quite often.

Another big winner on the day and for BWT members was KORS. KORS had a bit of trouble during mid-day, but buyers jumped in and pushed the stock higher closing just below its high of the day. The company raised its guidance and the market rewarded accordingly. KORS a recent IPO, continues to show strength and is a staple of the BWT portfolio.

In earnings news, ORCL posted better than expected earnings. The stock rose 1.5% at the close of the after-hours session. The stock was up more than 3% during the after-hours session, but was unable to hold onto its gains.

This uptrend remains tricky and will continue to frustrate investors. Stick to a disciplined approach and BWT. Cut those losses short.

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Major Indexes End the Day Higher as AAPL Closes Above $600

Late day selling did put a damper on the day’s action, but small caps and NASDAQ shine. Volume ended lower, but coming off the quadruple witching Friday it would have taken a miracle to eclipse Friday’s trade. By far the biggest story of the day was AAPL issuing a quarterly dividend and a share buyback program. Perhaps just as big of a story, but will go somewhat unnoticed was the big time reversal BAC ended the day with. At the end of the day the Russell 2000 and NASDAQ lead the market higher and we continue to push higher within this uptrend.

AAPL continues to be a monster stock and the”top” calling continues. It could be a top here, but given its ability to grow and accumulate cash it is hard to believe the stock has put in a top here. Sure, the stock has been on a tremendous run and is more than likely due for consolidation. I wouldn’t jump on the short/top bandwagon just yet. It would take a fundamental shift for the company to take a turn for the worse and we’ll get its clue by the price and volume action of the stock.

BAC was another story stock today as the stock hit the $10 mark for the first time since last year. By the afternoon the story wasn’t as rosey. Sellers took to the stock knocking it off its high of the day in massive turnover. The current figure available to me BAC traded 658,840,199 shares the most since August 25th when it traded 860,000,000 shares. Today was a clear sign the stock has hit overhead resitance and needs time to rest.

A headline that crossed over CNBC’s website was the market was going to run into a dismal earnings season. Here is the headline: “Market’s Next Big Worry: A Dismal Earnings Season Ahead.” Perhaps Jeff Cox (CNBC.com Senior Writer) is right the market may get a very bad earnings season. Anything is possible, but we don’t trade on guess work. Reaction to the market’s price action is much more of a reliable way to trade the market. Guess work doesn’t work and you need to leave it to amateurs.

Another story that will play big headlines is the continued surge in bond yields. TLT is a good barameter of Bonds and its breakdown below its 200 day moving average is something to take notice. The stark reality will be higher bond yields will translate to bond fund losses. Will investors stand to lose money in Bond funds as they have with equity funds? Are investors willing to tolerate bond losses and an equity market pushing into multi-year highs? Big questions to be answered and the stock market will answer them. The key will be finding the clues in price and volume action. We’ll be on top of it, will you?

Cut those losses short and have a great week.

Big Wave Trading Portfolio Update And Top Current Holdings

“The whole secret to winning and losing in the stock market is to lose the least amount possible when you’re not right.” — William J. O’Neil

“It is when the unimaginable occurs that the systematic trader remains calm, presciently knowing when to buy, sell, or adjust their exposure.” — Mark Abraham, Quantitative Capital Management, L.P.

Following last weeks switch from BUY to NEUTRAL to partial SELL to NEUTRAL, the Big Wave Trading Portfolio switched back to a full BUY signal on Tuesday. New longs leading up to Tuesday and new longs following Tuesday continue to act very well indicating that the rally has a high chance of continuing on the short term. The most unfortunate part of this entire uptrend has been, once again (as has been the case following 2008), the lack of new long positions immediately exploding and producing 20% gains within 2 weeks or 50%+ gains in 2 months. The lack of huge upside moves in individual stocks continues and does not appear to be in any hurry to change in the new QE environment we find ourselves in. Chart patterns that produced explosive gains from 1982-2007 simply do not produce the same huge moves (study my past big winners from 1998-2008 to see the evidence). This remains the one unfortunate problem with the new uptrend. The good news, however, this year, is that individual stocks move less with the overall market and finally have a mind of their own. It appears, during this uptrend, forcing yourself to be long leveraged index ETFs is not the only way to make money for the first time since the 2009 uptrend started. Overall, there was not much action out there following the BUY signal and that is an overall positive. It would have been much better to follow-through on the gains immediately but the indexes across the board are a bit extended away from their 200 day moving averages and history tells us huge moves are not going to happen when the indexes are around 10% higher than their 200 DMA. Some sideways consolidation would be a very bullish situation here. Especially with the upcoming Facebook (FB) IPO. A black swan event could happen at any moment so we continue to be completely ready for the uptrend to end at any day. Picking a date, however, would be foolish. We will let the price action of the indexes tell us when the uptrend is over, instead of our flawed egos. Have a great weekend everyone. Aloha.

Top Current Holdings – Percent Return (non-margin) – Date of Signal

KORS – 64% – 1/17/12
SWHC – 50% – 1/3/12
RF – 41% – 1/5/12
LHCG – 40% – 1/19/12
AVD – 38% – 1/10/12
CERS – 28% – 2/10/12
CRMT – 26% – 11/30/11
SUNH – 25% – 3/9/12

Stocks Climb Higher but Volume Ends Mixed

Market pundits continued to focus in on Goldman Sachs and bond yields. Volume was below average across the board, but higher on the NASDAQ. While there is a lack of above average volume price action remains positive. The day’s gains were solid with small cap stocks leading the market higher. While the NASDAQ and are at multi-year highs the Russell 2000 continues to remain below its multi-year highs. There are negatives to point out, but the market remains in an-uptrend and at multi-year highs.

An interesting development is what we saw from sentiment indicators this week. The development there is the big disconnect between the two. Respondents to the AAII survey were more bullish than last week ending at 45.61% bullish. Bears edged lower coming in at 27.2%. On the other hand the number of II bullish respondents (Investment Advisors) dropped to 43.6%! Bears remained flat at 26.6%, but the real story was the number of bulls jumping ship despite the market being at multi-year highs. Sentiment is very hard to trade off of, but it is clear the crowd is NOT widely bullish here.

Fighting the trend is something MANY try to do yet continue to fail. We see all over facebook, twitter, and other mediums traders and investors alike are trying to pin the top of the market. We will not do that here with our trading. Now, we can guess whether or not there is a top and debate our points for fun. There is zero chance we’d ever allow ourselves to “pick” or “call” a top as no one knows when an actual top has occurred. It is a game no one has mastered and the greatest traders of all time did not make a living “calling tops.”

It is a bit concerning volume had a tough time climbing above its 50 day volume average. Even though volume was higher than yesterday it certainly doesn’t feel like the market is real active. The market is giving off the feeling it is going to fool quite a few folks and force them to sell their holdings way too early. I could be wrong and we reverse tomorrow and head into a new downtrend. For now, there certainly is a feeling the market will continue to move higher methodically forcing scared traders selling too soon. Using a disciplined, rules based system allows us to remove the emotion from our trading. Rules keep us out of trouble and ready to ride big gains!

Enjoy the rest of March Madness and do remember to cut those losses!

Bond Yields Head Higher Despite Successful 30 year Auction; Stocks Ride Intraday Roller Coaster

After hitting multi-year highs the stock market went into a volatile intraday session. Volume ended lower across the board, but it was bond yields continuing to push higher that were the talk of the street. TLT dropped more than 2.5% on the day as sellers of bond hit the market hard. Perhaps it’s a view of future inflation, but the move in bonds certainly appeared to cause the stock market to gyrate in wild fashion. Buyers at the end of the day were able to take the sting out of the wild day. Lower volume across the board was a welcome sign avoiding a stalling day. Not a typical consolidation day, but this market is anything but normal.

The close was very important as it did save us from significant damage. Interestingly enough the McClellan Oscillator, a measure of overbought/oversold conditions turned lower near oversold. Given the most recent move off last week’s lows not in overbought territory certainly helps the case to continue higher.

One hiccup to the rally may be what happens with bond yields. Since 2009 money has poured into bond funds and the trend continues. However, if bond yields continue to rise the situation will become very dire for bond funds. Higher yields means lower prices for bonds crushing the NAV of bond funds. It may take some time, but holders of bond funds will not be happy when they see significant losses in their portfolio. Even short duration portfolios will see damage, where will investors seek shelter? Will equity funds come back in favor? Anything is possible, but it is highly likely flows will favor equity funds in the future.

Despite the intraday action we remain in a full buy signal and appreciate the “pause.” Now, over the next few days we’ll need to find further power like we say during Tuesday’s market. Always cut your losses short!

Federal Reserve and Banks Give the Market a Big Boost; Small Caps lead the way

Market Timing Model switches to Buy Mode

Economic news was thrown aside today as the Federal Reserve and banks spark buyers to come back into the market. Advance retail sales figures came in line with expectations and didn’t provide much of a spark for the market. All eyes were on the FOMC meeting and its subsequent rate decision. It wasn’t until 3pm after the rate announcement did the market find buyers. JPM announced a share buyback program and a boost to its dividend. It was all the market needed for buyers to rush in and buy up stock. Small caps lead the day with more than a two percent gain showing risk on is back. Volume was up across the board showing institutions were back buying shares. We are back in buy mode as today was precisely what we needed to see to keep this uptrend alive.

Last week’s action in the market is a mere blip on the radar screen and is in distant memory. It is quite funny how things can change in one day! Today was a clear signal there was a thirst to buy up shares in a big way. S&P 500 volume was above average thanks to banks like JPM and BAC. JPM got the ball rolling announcing plans to buy back shares and boost its dividend. Subsequent bank stocks announced similar plans, but it was JPM starting it all.

After JPM announced its plans there was a headline the Federal Reserve was going to announced its stress test results after the bell. However, looking at an intraday chart, buyers began their operations just before the 3pm final hour. Did someone leak the positive stress test results? It is quite odd the market took off slightly before the JPM announcement. I am sure the SEC will be investigating.

More importantly we have a slew of new long candidates! It is always a nice confirming signal when the market blasts higher and we have new quality longs. We’ll continue to stick with this uptrend and let others fight the trend.

Stocks stay quiet ahead of Tuesday’s Federal Reserve FOMC announcement

Greece triggering ISDA’s rules of a credit event was a non-factor today. There was very little carry over from Friday’s event and the action resembled a good day of consolidation. Volume was light across the board as traders await tomorrow’s Federal Reserve rate decision. There weren’t too many exciting moves today except for JVAs post earnings move. All in all today was a good day for the market as tomorrow will bring on a slew of economic data and the Federal Reserve’s rate decision.

What will dominate the pundit talk tomorrow will be retail sales. The big excuse for whatever the numbers will be gasoline prices. Gasoline prices are, obviously a big component in discretionary spending. You can imagine the spin that will take place when the number is released. Trend following does not require us to guess or anticipate how the market will react to the news. We see the action and react according to our rules. It may sound simplistic, but when followed religiously it will produce substantial gains.

It would not surprise me to see a bit more volatility this week with Friday being a quadruple witching Friday. Volume should start to pick up and the Federal Reserve meeting will certainly help usher in volume. Surprisingly the VIX is not at 52 week lows despite the market being at 52 week highs. The 52 week low for the VIX is 14.27 and with the index at 15.64 it would signal we may not be at “the top.” It would be helpful if the market could continue to work sideways and continue to consolidate gains. However, with 6 distribution days on the NYSE, 4 on the S&P 500, and 3 on the NASDAQ one or two more days of distribution would certainly spell trouble for this market.

It is good to be back in the saddle for the week. Always remember to cut your losses in your trading as it is your insurance policy for your portfolio!

Big Wave Trading Portfolio Update And Top Current Holdings

“The elements of good trading are: 1, cutting losses. 2, cutting losses. And 3, cutting losses. If you can follow these three rules, you may have a chance.”

“Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed.”

–Ed Seykota

The Big Wave Trading Market Model switched twice this week. Once from NEUTRAL to SELL and quickly back to NEUTRAL as the market rallied on lower volume above where the SELL signal was generated. While the market has rallied following the sell off earlier this week, internals are much weaker following this rally.

Our model tracks internal technical indicators that track volume and price action over various time frames. These models show this rally is a low volume rally that has a very high chance of failing. If the rally continues and volume returns to the upside then our model will switch to a BUY signal. However, without a powerful 1.5% higher day on very large volume on the move, the BUY signal would not be a “full” signal.

We have noticed multiple problems lately with this rally. Our new long positions are not working right away like they did from December to February. Coming into this past week, Big Wave Trading saw around 11 sessions in a row where new longs did not perform immediately and thus were sold off. Current longs with large gains began showing signs of distribution or price pattern breaks with many giving either partial or full sell signals the past week. A few true gems like KORS ULTA LULU remain but many leaders have suffered some hits to their once well-formed pretty chart patterns. The past few sessions, while the market has rallied, defensive sector stocks have shown up in force in my long scans (indication of rotation out of growth into defensive stocks). Aerospace/Defense, Food, Beverage, Utility, Medical, and Drug stocks dominate my scans. In December and January various growth industry groups, retail, tech, biotech, and small caps led. Two key internal technical indicators we follow on a variety of indexes, ETFs, and inverse ETFs show extreme negative divergence and have shown this since February 2nd (ten days before the Russell 2000′s recent top)! These indicators turned higher in December well before the full BUY signal was generated on January 5th. On top of this we are seeing a lot of pump and dump stocks being promoted by horrible human beings. Sentiment in the AAII and Institutional Investors survey continues to be very bullish, even after the small recent pullback.

This is why last week our BUY signal switched to a NEUTRAL signal as soon as the Russell 2000 began to selloff. The only way to get another BUY signal right here is to have the indexes either immediately blast off 2%+ on much higher above average volume or consolidate for a few weeks and then have a 1.5% gain in volume higher than the day before. Until we see this and see more well-formed “pretty” charts with the proper price and volume pattern set up, we will remain in a NEUTRAL stance weighing to the downside. A selloff here on any increase in volume that would see leaders like PCLN AAPL or ISRG break with it would definitely throw the Big Wave Trading Model back into a SELL signal.

We remain agnostic here but our scans and internal computer system indicate that the next move will be lower. We do not place “bets” on this data. We simply take the data and use it when the next break higher or lower happens. The biggest hint something is changing is my long scans. On Friday they were dominated (10 different scans) by defensive sectors with each scan having different stocks from these sectors. That is what we call confirmation of a rotation from growth stocks into defensive stocks. Going all-in on margin here thinking the market is clear for take off is a very dangerous proposition to consider here. Aloha and have a wonderful weekend.

Top Current Holdings – Percent Return (non-margin) – Date of Signal

KORS – 76% – 1/17/12
SWHC – 54% – 1/3/12
AVD – 36% – 1/10/12
RF – 28% – 1/5/12
LHCG -29% – 1/19/12
CRMT – 27% – 11/30/11

Russell 2000 and NASDAQ lead the market higher as Greece fears subside

A slightly disappointing jobless claims figure dampened the mood pre-market. Sellers quickly took hold and pushed the market to the lows of the session. It didn’t take long for buyers to step up and reverse the market’s fortune. It appeared the fears over Greece’s debt deal were overblown and after the market closed news came out 95% of Greece’s creditors agreed to the debt swap. At the close volume was higher on the NASDAQ, but slid on the NYSE. With Greece behind the market for now all eyes will be on tomorrow’s jobs report.

Today’s move removed the short-term oversold condition, but the rebound over the past few days has been mixed. The NASDAQ is certainly in better condition than the S&P 500 as volume is more favorable. It is anyone’s guess where the market will go next, but we’ll have a plan of attack for whatever the market has in store for us.

Sentiment has come down this week aided by the sell-off occurring in the middle of the week. AAII bulls dropped to 42% while bears were rose slightly to 29%. Not quite the drastic move, but with only a 3% drop in the NASDAQ this little drop was not that surprising. Further consolidation here would do the market some good before moving higher. Given the jobs reports tends to provide the market with wild swings it would be nice to see the market rest a bit prior to moving higher. The market will give hints as to where it wants to head next. You just have to listen.

The Big Wave Trading market model is back to neutral after two days of a rebound. Any further selling on volume would certainly bring on another sell signal.

Get out there and enjoy a nice weekend!

Stocks rebound off oversold conditions but volume falls

Coming off extreme oversold conditions the market was able to find support. Volume came in lower on the day giving the indication institutions weren’t in a rush to get back into stocks. Greece was still in the forefront as Thursday’s deadline for bondholders. Small cap stocks lead the way with the Russell 2000 closing higher by 1.13%. It was the first time the Russell 2000 showed relative strength. AAPL’s even caused quite a stir with the stock creating intraday volatility. The first rebound attempt for this market wasn’t too impressive and we’ll need to see some further power to erase the damage over the past few trading sessions.

Leading stocks have been largely okay throughout this rally. Stocks like KORS have been big winners, but we haven’t seen the multitude of 100% or more winners. Normally, in an uptrend like this we see the market produce many of these winners. Perhaps in the massive Quantitative Easing world we are going to miss out on having multiple BIG winners. It will take much more skill to find and hold onto the winners the market is producing for us.

Tomorrow I will be able to get the AAII survey, but the most recent II survey has the number of bulls dropping below 50% to 47.9%. Last week the survey sat at 51.1% clearly the most recent sell off had some effect on weak bulls. The number of bears didn’t increase dramatically moving up just slightly to 26.6%. It appears all we got from the past few days was to shake out a few weak bulls. Perhaps further downside will take care of that. Anything is possible and why it is important to have a game plan for the market.

Yesterday the McClellan Oscillator sat at -321 which is an extreme level. It was clear the downside was a bit limited in the very near term. Oversold markets can become more oversold, but at yesterday’s level a bounce certainly was very likely to occur. Today the oscillator sits at -186 and it won’t take much further upside to clear any oversold condition. Remember, this is not a substitute for price and volume, but merely a secondary indicator aiding your ability to analyze the market.

Friday we get the jobs report and it should provide us with some fun talking points. Will the unemployment rate rise, fall, or stay the same? It doesn’t matter to us, we simply care about the price and volume action. Stay disciplined and cut those losses.

Big Wave Trading Market Model Hits Sell with Stocks Falling in Heavy Trade

Renewed Greece fears hit the market hard today giving institutions reason to sell stock in mass quantities. For the second straight day the NASDAQ put in a big day of distribution. One positive in the day was there seemed to be buyers supporting the NASDAQ at 2900, but the negatives far outweigh the positive today. We now find ourselves with 4 days of distribution on the S&P 500 and 5 on the NYSE composite. Today’s selling did quite a bit of damage and caution is certainly warranted.

Only 23% of stocks are over their 20 day moving average, just one month ago this figure was over 80%. At the lows today the NASDAQ was only down 3.3% off its most recent high. I suspect a reaction to the recent sell off would be in-store for us. Natural reactions occur all the time to big moves and they tend to be big signals as to where the market is heading. July ’11 we saw the market trip up and fall quickly after the long run up from June ’11. The reaction to the sell-off was quite weak and on very low volume (removing options ex). This time will not be any different, the reaction to this selling is important and a big signal to the direction of this market.

Greece is at it again spreading continued (pick an adjective) worries about its debt situation. Simply using arithmetic one can deduce Greece will have to write-off/liquidate majority if not all its debt. The United States did this very thing in the 1920-1921 economic downturn and it wasn’t more than a year we were on the road to recovery. The sooner the entire global market accepts debt liquidation the faster the recovery will come. Unfortunately, the political will and fortitude simply doesn’t exist in the European Union. Let’s not forget, debt liquidation is coming to our shores too. It will only be a matter of time.

Stay disciplined and cut those losses.

AAPL weighs on the NASDAQ and the rest of technology stocks

A positive surprise from the ISM non-manufacturing index and factory orders did not deter sellers from taking aim at AAPL. Getting hit hard at the lows AAPL was down more than 16 points dragging the NASDAQ way down with it. Volume ended lower on the NASDAQ, but for AAPL volume was 85% above its average volume. It was clear the action in AAPL weighed heavily across the technology sector as other big cap technology stocks were among the hardest hit. On the bright side, small cap stocks were able to inch out gains on the day. Small cap stocks have lagged quite a bit as of late, but today they were able to notch gains. Both the NYSE composite and S&P notched distribution days bring their totals to 4 and 3 respectively. What is notably happens to be the NASDAQ which has only 2 days of distribution. Perhaps a shot across the bow here with AAPL’s action and with the NYSE sporting 4 days of distribution we certainly throw caution to the wind.

On February the 15th AAPL staged a major reversal on gigantic volume. The stock was able to power past the reversal, but it is clear distribution has begun to mount for the stock. We won’t know if the party is over until its over, but further price destruction will certainly give the impression the stock has exhausted buyers. Let’s face it, with nearly 4300 funds owning the stock it is tough for more support to come to AAPL’s rescue. Have a plan and execute.

An interesting stat has popped up and that is the amount of stocks above their respective 20 day moving average is hitting a point where stocks have bounced. This is quite the imperfect indicator and should be used more of a talking point than anything else. It will be interesting to see how this market works out over the next few days. Friday’s jobs report will certainly usher in a few more fireworks to the week.

Get out there and execute your trading plan. Your first priority is to know your risks by knowing your exits. Profits take care of themselves, losses do not. Cut ‘em.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading market model switched from a BUY signal to a NEUTRAL signal following Wednesday’s stock market session. The switch from the BUY signal which was triggered on 1/5 to a NEUTRAL signal on 2/29 was caused by a few key factors this past week. 1. New longs have not moved higher immediately leaving most with full cut losses. 2. Current holdings are giving off partial profit taking to full profit taking signals. 3. One key technical indicator called Time Segment Volume continues to show huge negative divergences on the Russell 2000, Nasdaq, and SP 600. 4. The Russell 2000 led the rally from the October reversal higher and therefore should, as history suggest, lead the market lower. This being said, we are well aware that a lot of our current holdings continue to have very strong technical price and volume patterns (Big Wave Trading portfolios remain anywhere from 55%-75% currently invested). On top of this, there are plenty of stocks out there building bases that also sport fantastic fundamentals. Fusion-io (FIO) and Questcor (QCOR) are two great examples. Even further more, we have the beloved Facebook (FB) IPO coming up sometime in the very near future. If the market reverses higher here on higher above average volume with the indexes putting in a convincing 1%+ move, you can be sure our market model will return to a full BUY signal. If selling continues to pick up and leading stocks like Priceline (PCLN), Apple (AAPL), and Mastercard (MA) breakdown, the market model will switch to a SELL signal. For now, we remain in NEUTRAL, and that means that we invest less capital in new longs, we go short great short setups (not good setups), and we are even quicker to take our losses than we are in a trending market. Cutting losses extremely quick, when wrong, remains disciplined rule #1 at Big Wave Trading.

Top Current Holdings – Percent Gain (non-margin) – Date of Signal

KORS – 70% – 1/17/12
IRE – 49% – 1/17/12
RENN – 47% – 1/11/12
YINN – 43% – 1/5/12
LHCG – 32% – 1/19/12
FAS – 31% – 1/5/12
UMDD – 31% – 1/5/12
RF – 31% – 1/5/12

Volume Fades But Stocks Stage Rebound After Yesterday's Loss

A boat load of economic news hit the market early, but it was retail sales creating a stir. Better than expected retail sales certainly did not hurt things today, but you have to wonder with shrinking personal incomes at some point the cycle will break. Volume was running about even with yesterday’s level, but end of day volume yesterday due to end of the month rebalancing kept volume under wraps today. Leading stocks fared well today and continue to act well despite four days of distribution on the NASDAQ. A good, but not great recovery as the uptrend remains with some warning signals.

Sentiment did not change much from last week with a slight shift from bears to bulls. Neither end of the spectrum is at extremes. Despite the run up we have yet to see a big push from Bulls. While we did see bulls hit 50%, but they were unable to stay above this level for more than one week. Even the Investors Intelligence survey has failed to get at 5 year highs of 62% . 51.1% of respondents to the II survey are bullish, quite normal for the survey. Sentiment isn’t going to tell you much here and it won’t until we hit extremes.

What is another interesting point here is the VIX has unable to hit new lows while the market has hit highs. This may turn out to be nothing, but it is interesting buyers haven’t become completely complacent here. In fact, the number of stocks above their 20 day moving average sits just below 45%. Hardly the frothy levels we were seeing last week. Given sentiment, the VIX, and distribution days it appears we may be seeing a market looking for more sideways action prior to breaking out. A reminder, breaking out could mean to the downside. Have a plan of attack and execute it.

The jobs report is next Friday, not tomorrow. CNBC will have to wait another week parading in “experts” talking about the jobs market. Get out and enjoy the weekend!