Saturday, April 07, 2012

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading market model went through a serious of changes this week turning from a full BUY signal to a cautious BUY signal to a NEUTRAL signal by Thursday. This NEUTRAL signal means that there is no statistical edge one way or the other as measured by all of our internal indicators. While under a NEUTRAL signal, BWT will only go long the highest quality leading stocks with the strongest chart patterns, will operate from the short side on the best topping patterns, and will eliminate all losers immediately. This means that if we go long or short a stock and it does not move in our favor on day one we are out some of it to all of it. Even if that loss is only $1. No questions asked. It is still not a stock pickers market. That is, of course, you are long PCLN CMG or AAPL. If that is the case then it is a stock pickers market. If the action in these leading stocks doesn’t confirm the mantra “focus on the leaders” I do not know what does. One particularly scary aspect of this recent rally is the drawdown in the BWT accounts from mid-February to Friday. BWT was working on some solid gains when all of a sudden March hit. March has given quite a few long signals in high quality leading stocks that have led to consistently cutting losses. This isn’t happening every once in a while. It is happening on virtually every trade since mid-February. This pattern is following the same pattern of January 2011-May 2011 where the methodology we use diverged very negatively from the overall market. For the bulls sake, we can only hope this is not going to end up in a repeat of that year. The truth of the matter is that March was brutal for Big Wave Trading. In fact, it was a shocker. Watching large gains slip away (just like the gains from September 2010 to January 2011 being destroyed from Jan 11 to May 11) is always a humbling experience. Yet it is also a chance to learn and grow. And that is what we have done. It is clear the market model timing methodology is far superior to stock picking currently. Due to this, more capital will be put to work on the model signals than before. Also, playing speculative stocks with unsustainable run-ups and criminal pump-and-dumps on the short side will become a bigger player in our portfolios. Stock picking using the chart patterns that helped create vast wealth from 1996-2000, 2003-2007, somewhat in 2009, and in late-2010 for me will come back in fashion. However, right now, clearly, it is not in style. during any other rally in the past the top percent gainers below would be nearly doubled. Outside of three stocks, the returns have been paltry. As long as this methodology remains out of style, our portfolios will adjust accordingly. I hope everyone is enjoying their long weekend. Aloha.

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

SWHC – 84% – 1/3/12
KORS – 69% – 1/17/12
AVD – 65% – 1/10/12
RF – 42% – 1/5/12
BVSN short – 40% – 3/16/12
EPAM – 39% – 3/1/12
LQDT – 36% – 2/1/12
LNKD – 34% – 1/19/12
PRXI short – 31% – 3/30/12

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