Thursday, May 31, 2012
End of the month volume poured into the market at the close, but failed to end stocks at the highs of the session. GDP came in line as expected, but at a paltry 1.9% far from where this economy needs to be at for a sustainable recovery. Sellers had dominated majority of the session and for obvious reasons. The rumor mill continues to swirl as Europe tries to figure out a way to sort its mess. Bond yields slid to their lowest levels as US Treasuries continue to be a safe haven among investors. Stocks did find their footing by the end of the day, but the rally left a lot to be desired. Sentiment week over week tilted towards the bears this time around. AAII Bulls dropped from 30% to 28% and bears jumped back over 40% to 42% from 38% last week. The story with the Investors Intelligence survey isn’t the number of bulls or bears, but the number of folks who are neutral. Short-interest remains near 5 year highs despite the lack of bears in the market. A very interesting development nonetheless and something we’ll continue to keep an eye on. Tomorrow we’ll get May’s job figure and unemployment figure from the government. Economic news has been disappointing as of late and it is hard to think employment numbers will be any different. However, the government can manipulate the numbers so anything is possible. More importantly will come the reaction to the numbers and the price and volume action for the remainder of the day. We can have all the opinions in the world that sound logical and “right,” but at the end of the day only price matters. We need to be focused on what matters: price. Enjoy the weekend coming up and make sure you get out and enjoy life a bit!
Wednesday, May 30, 2012
It is beginning to appear the European Union is on the verge of breaking up. The dollar continued its upward movement as the EURO continues to fall. Volume rose on the day, but wasn’t overly impressive given the losses on the day. Gold reversed on the day after opening the day in the red despite the rise in the dollar. Crude oil continued its downward track closing with an 87 handle. Commodities as a whole continue to fall as the Euro continues to struggle against the dollar. We are in a downtrend and likely when all is said and down a bear market. Unless this market can get a miracle there isn’t a question due to multiple factors we are headed towards a bear market. Anything is possible and we’ll adjust, but given what we have seen from this market there isn’t a reason to be optimistic for stocks in the near term. Spain is a focal point for the Euro right now, but Italy is knocking on the door as contagion continues. Greece was just the beginning and now with other struggling southern European Union countries on the brink the near future doesn’t appear to be bright. Price has confirmed we are in a downtrend and it is anyone’s guess how low we can go. An even bigger challenge for the markets will be if a State like California gets into similar trouble like Greece. California CDS has been widening and the state is $16 billion in the hole. States can’t print money to pay for their debt and must balance their budget. In addition, the United States faces the Fiscal Cliff and not to mention another debt ceiling fight on its hand. We have created a mess because we are unable to simply live within our means and outsource accountability. Keep in mind while things may be dire there will always be opportunity. We are ready, are you? Defense is the best offense at this point and while we understand the rallies will occur it will be some time before we get a healthy uptrend.
Tuesday, May 29, 2012
Coming off a long weekend stocks jumped early and pushed higher throughout the morning. When Europe closed sellers took to the market sending stocks to new lows. Of course the movement was blamed on the union across the pond and will continue to be the excuse. The afternoon was a much different story with stocks finding support into the close. Volume was higher than last Friday, but was below average. Day 6 of an attempted rally was solid, but did close a bit disappointing given the rise in the early going. We have been touching upon in our chat room the market putting in a lower high and lower low confirming a downtrend. There are many ways to spot new trends, but a classic formation is the market setting lower highs and lower lows. April and May’s sell off did considerable damage to the market and there are a variety of reasons for the pitfall. But, those reasons don’t matter and we should be focused on is price and volume. It is fun to have a discussion and debate what may or may not happen. However, at the end of the day the only thing that matters is price! At the end of the week we’ll get to endure all the hoopla over the jobs report. The last few have been very disappointing and the trend has been to fall on the negative side. If you are wondering how to position yourself in front of the report read the paragraph above. Price! We’ll probably get another poor report with unemployment falling below 8.1%. I don’t trust government figures as they like to “adjust” the number to make the number look better. A true number would include those who have completely dropped out of the workforce. However, that number would be super depressing and not something any administration would want to post. The number will be the number and we’ll be reacting to the movement of the market and not our opinion. I wouldn’t expect too much out of this market even if we do get a follow-through day. We’ll need to see new leadership form, but at this point seems like a long shot. Follow price.
Saturday, May 26, 2012
Every single disaster is due to traders not cutting their losses and letting them grow into huge losses. -Dennis Gartman “If you have an edge and if you keep making good bets as opposed to bet on chance over time you will come out ahead.” -Larry Hite The Big Wave Trading Portfolio remains under a SELL signal generated on 5/4/12. We expected that an oversold bounce was coming this past week and indeed it did begin. We expect the rally to retrace back to at least the downtrending 50 day moving average. If it does not make it back to that key technical level before beginning to sell off again, we will see that as quite bearish. Big Wave Trading will not be interested in any new BUY signal generated, if in fact the indexes do retake the 50 day moving average, as there is too much technical damage to individual stocks and the accumulation/distribution on the major market indexes are really out of whack. The only kind of rally that would change our mind would be a powerful 2%+ move higher on volume well above (25%+) above the 50 day volume average. The technical landscape of the overall market indicates further price deterioration ahead. However, as always, we do not have free markets and that means the Federal Reserve can start QE3 whenever they feel enough fear that they have to act. This, obviously, makes it tough for trend following and is thus why we continue to recommend smaller position sizes when trading stocks here. Another big volume move lower, with our current shorts all doing well, would be our signal to increase our short positions. For now, we are being cautious holding high levels of cash. As always cutting losses immediately when wrong is the smartest thing you can do in this trendless 2011-2012 environment or any other environment for that matter. By doing that you can get the one or two moves a year to pay off for all the small losses (like July-August 2011). Enjoy the rest of your Memorial Day weekend. Aloha. Top Current Holdings – Percent Return – Date of Purchase AVD – 78% – 1/10/12 LQDT – 74% – 2/1/12 BVSN short – 71% – 3/16/12 MNST – 42% – 1/13/12 PRXI short – 36% – 3/30/12 UVXY – 32% – 5/9/12 VRNM short – 30% – 4/10/12 SINO short – 27% – 4/12/12
Thursday, May 24, 2012
Economic news was mixed with a disappointing durable goods figure and a better than expected Kansas City Fed Manufacturing reading. The dollar rose again as the European situation continues to act as an annoyance to the market. Europeans cannot get their act together and we continue to suffer having to see it used an excuse for bad execution. Volume dropped on the day and below average showing institutions weren’t dumping stock. We have seen the market gain support at the lows in back to back sessions as a sign buyers are willing to step in. Today was day 4 of an attempted rally and we’ll be looking for a follow-through day soon if this rally has any legs. The number of AAII bulls jumped back above 30% since it hit lows last week. Bears dropped below 40%, but held just at 38%. Sentiment remains bearish, but well off the extreme levels we saw last week. The Investors Intelligence survey didn’t move much, but tilted towards the bears. Sentiment is by far from the holy grail of investing indicators, but it does help at extreme points. Last week we saw a market massively oversold and sentiment heavily skewed towards the bears. For now, we have lifted these conditions and move forward. Cloud computing stocks took it on the chin after NTAP reported earnings. The stock got hammered and two other names FFIV and VMW were handed heavy losses as well. These moves along with DELL held back the NASDAQ. FFIV may have found support at its 200 day but cloud stocks have not been the leaders like they were in October of 2010. Former leaders tend to be the best shorts and if any of these stocks give us the signal we’ll jump aboard. This market still remains in a precarious position. The S&P 500 and NASDAQ have put in a lower high (end of April) and a lower low here in May. We are in a down trending market. Remember, in the fourth year of a bull market on average a 9 month bear market occurs. Given the lower high and lower low we could be in the midst of the 9 month bear market. Anything is possible and we’ll stick by our disciplined trading no matter what the market has in store for us. Have a great memorial day weekend!
Wednesday, May 23, 2012
A better than expected new home sales failed to spark a rally in the markets as traders turned once again to the European situation as a reason to sell the market. Sellers were in control for much of the day as the European situation remains dire. In particular is the situation going on in Greece and the run on banks taking place with the fear of leaving banks with extremely low levels of capital. Rumors began to float in the market regarding a plan being hatched to recapitalize all of Europe’s banks. Such a plan was certainly seen as a viable plan saving the European Union for now. Volume rose across the day as support at the 200 day is clear for now and a rally to push back up into the 50 day seems likely. Day three of the attempted rally appears to be headed for confirmation. Let’s not get ahead of ourselves as we have had quite the destruction over the past month. The current market looks eerily similar to last year’s where we experienced wild swings in the market. This market is going to fool many here. If this market is going to follow last year’s path we are going to see this market whipsaw many of its participants. The rally off the October 2011 wasn’t going to be easy to handle and neither is the aftermath. INTC and MSFT were two big losers on the day for the NASDAQ as DELL earnings helped send both stocks lower. DELL was hit after it missed earnings and was a complete and utter disaster of an earnings release. Sellers took to the stock and were relentless and with sympathy so did INTC and MSFT. All three stocks were weighing heavily on the NASDAQ, but were unable to hold it back from closing positive. Europe is such an annoying thing to talk about, but it dominates the news media. The best thing that can happen in terms of the US Dollar is to see the EURO collapse. Germany is single handedly holding up the entire currency and without the country the EURO would have already been torn apart. At the moment the US dollar is trading like the EURO is about to head to the toilet to be flushed away. Thus, we get lower commodity prices including lower gold and silver prices. More importantly energy and food prices are coming down as well which can only help our economy. Selfishly the EURO can’t break up soon enough! Continue to stay disciplined despite the market environment!
Monday, May 21, 2012
AAPL and PCLN help the NASDAQ push higher as FB drops hard on its second day trading on the NASDAQ. Volume on the day was considerably lower than Friday’s level, but Friday we did have options expiry skewing volume. Today’s bounce was not a surprise to many as the oversold conditions in the market had gotten to extreme levels. Given the green close today on the NASDAQ today counts as day one of a new attempted rally. Despite today’s rally the market still remains in extreme oversold conditions and this rally has the potential to have a bit more oomph behind it. The G8 summit only left one headline and that was they were supporting Greece as a member of the European Union. Any other headline not supporting Greece in the Euro would have sent global markets into a death spiral. It does appear a bit dire with many of the European countries having a difficult time containing spending and bringing in revenues. The European central bank will have to undergo a massive liquidity injection to avoid immediate danger. However, simply printing money will only lead to bigger problems if the fundamental problems are not dealt with. The situations remains quite dicey, but it is why we follow price and not our opinions. A lot is being made of the RSI being so low recently, but the amazing part is the lack of fear the VIX index showed as the market pushed lower. We never saw real panic enter the market as we have sold off to the 200 day moving average. AAII Bears did jump considerably last week and Bulls dropped to very low levels hinting at a possible short-term bottom forming. In our forums we highlighted the need not to push on the short side as a snap back rally was very likely. Now, the market will more than likely continue to work itself higher and it would not surprise us to see the NASDAQ make its way back to its 50 day moving average. Anything is possible and we are prepared for anything. Rally attempt is here and if this bounce has legs we’ll see a follow-through day on day 4 thru 7. Stay patient and always cut your losses no questions asked. Enjoy the week.
Saturday, May 19, 2012
“I did not for one moment consider abandoning my chief defensive weapon—the stop-loss order. No matter how well built your house is, you would not think of forgetting to insure it against fire.” -Nicolas Darvas “Remember, the market is designed to fool most of the people most of the time. Sometimes, the market will go contrary to what speculators have predicted. At these times, speculators must abandon their predictions and follow the action of the market. Never argue with the tape. Markets are never wrong, but opinions often are. I only try to react to what the market is telling me by its behavior.” -Jesse LivermoreThe Big Wave Trading Portfolio model remains under a SELL signal generated on 5/4/12. The SELL signal was very strong but four false signals (3 SELL, 1 BUY–first time that has happened in the model since 1979) left us gun shy from going 100% all-in on the most recent strong signal. While this is unfortunate in the IRA/Retirement account (since it can not go short), as we are under-investing in inverse ETFs that are doing very well for us, it has worked itself out in the Aggressive/Margin account. Tons of stocks have produced very strong short signals for us since 5/4/12 and almost everything we are touching is working immediately. A far departure from the past two months. We realize that the market is very oversold here and thus it would be very dangerous pushing new short positions. If the market does not get a bounce on continues to selloff, we will continue to reduce the exposure in each new short signal that we receive. If the market can manage a bounce here and the charts stay broken with no real sign of accumulation in the market or leading stocks, we will look to fully press our bets on the inverse ETFs in the Retirement account and on shorts/ETFs in the Margin account. If the market does bounce, we get some good accumulation in leading stocks, and our current shorts start giving us cover signals, we will be more than happy to get exposure to the long side. However, we believe the fact that Facebook came public in such an environment and the fact that insiders sold over 50% of their personal holdings on the first day tells us everything we need to know as it relates to the 3-year bull”shit” market. I will redirect everyone to this post on April 23rd that I wrote for Seeking Alpha. It was denied publication because of its “technical analysis” content. That sure was unfortunate for their readers as the level of bullish articles that day was extremely intense. Aloha and have a great weekend. Current Top Holdings – Percent Return – Date of Signal BVSN short – 69% – 3/16/12 AVD – 65% – 1/10/12 UVXY – 63% – 5/9/12 LQDT – 62% – 2/1/12 SINO short – 37% – 4/12/12 MNST – 36% – 1/13/12 VRNM short – 34% – 4/10/12 PRXI short – 28% – 3/30/12 WZE short – 25% – 4/10/12
Thursday, May 17, 2012
Disappointing Philadelphia Fed and jobless claims figures help set a negative tone for the day. Europe continues to dominate the fear index and FB continues to dominate CNBC’s content lineup. The true story of the day was at the end of the day with sellers taking it to the market. AAPL was a large part of the NASDAQ decline of 2.1%. The market is now in a real danger zone with the lack of buyers willing to step up could make it very difficult for this market to regain its footing. Big Wave Trading continues to operate under a sell signal and we continue to look for this market to continue lower. Sentiment continues to be negative, but the Investors Intelligence survey continues to lack the negative bearish sentiment. AAII survey certainly saw bears jump in terms of percentage and its bull ratio near lows, but the lack of bears responding to the II survey is somewhat concerning if you are bullish. The NASDAQ has corrected roughly 10% from its March highs which should be ushering in a bearish view point. However, we continue to see the neutral camp dominate the II survey. Given our current situation nothing that happens from here on out will not surprise us. FB will be an entertaining IPO and will likely be a wild ride given the current market situation. We are oversold and a bounce would not be out of the ordinary for a quick snap rally to occur. Tomorrow’s options expiry will certainly provide the morning with fireworks. The oversold nature of this market tomorrow would be as good of a time as any for this market to push higher to work off the current oversold conditions. Cash is king here and we are looking forward to the weekend. Get out and enjoy the weekend!
Wednesday, May 16, 2012
Once again stocks were able to find footing in the middle part of the day, but fail to hold the highs. A few more FOMC members are open to more quantitative easing it wasn’t enough to help the market push back into the highs. Of course we still have the mess going on in Europe, but the market was looking for QE3 to hit the market. The Fed knows any further QE will result in very high commodity prices squeezing the poor even further. We cannot have this situation and given the situation in the Europe and here at home puts the United States Central Bank in a precarious situation. The market remains weak and while we may see a one or two day bounce the trend is still down. If one had to guess just by looking at a chart of the NASDAQ it is quite easy to see the 200 day moving average is a logical next step for the index. Yes, we are oversold and sentiment is getting quite negative we have yet to see any real panic set into the market. The VIX, a measure of fear has yet to signal real fear in this market. Perhaps a move above 30 would signal enough fear, but it has yet to eclipse the 30 level. Talk of another flash crash is always imminent given the even happened only two years ago. For now we have a market creeping lower and lower and even with FB coming public on Thursday there is very little that can save this market from the inevitable. The United States has been on a war path regarding spending. Wars, social security, medicare, prescription drug coverage, etc are a big drag on the government budget. Unfortunately, Washington DC will not tell the American public the truth. Spending needs to be lowered end of story. The Buffett tax is only estimated to bring in a few billion dollars a year extra! We have a 1.5T yearly hole at the moment that Obama feels quite comfortable with. This is nuts! The only fix is to overhaul the tax code into a one page simple code and reduce spending. However, the media and Obama administration do a great job distracting the public from the facts. If anything, the United States fiscal cliff is far more dangerous than a Greece leaving the EURO. As a reminder, this week is options expiry and Friday should be a fun day. Tomorrow will more than likely be a bit more entertaining with FB coming public. We are not planning on participating in the IPO nor trading it on the first day. We’ll sit back and wait for it to base much like EBAY and GOOG did after their debuts. We’ll be patient. Execute you trading plan and cut those losses short.
Tuesday, May 15, 2012
The only positive news on today’s session was the fact homebuilders are most optimistic in five years. Even Empire manufacturing ticked higher than expect, but the market was unable to take its eyes off the situation going on in Europe. For the second straight day the intraday rally was faded and during the final hour it accelerated. News out of Greece regarding the inability to pick a government provided enough ammo to sellers to push the indexes to the lows of the session. There does not appear to be an end in sight here and not the type of market you’d want to bring FB public. Big Wave Trading has been under a sell signal for a bit here and now we can see why. The market remains oversold, but if the market has taught us anything it is these conditions can last for quite some time. It wouldn’t surprise us if the market produced a rally over the next day or two to resolve some oversold conditions. However, it is quite clear the trend is down and any counter trend rally should be shorted. We can blame the situation in Europe or even point to the fiscal disaster awaiting the United States. It simply doesn’t matter, price wins and we’ll follow its lead. Just to throw a monkey wrench into the mix this week happens to be options expiry (OPEX). Always appears the market tends to get into a volatility craze prior to OPEX. Today we saw the VIX index multi-month highs confirming the selling we see on the S&P 500. This goes for the NASDAQ too, but the S&P 500 has been leading us lower and given the moves in the VIX it appears the selling isn’t done. All signals are pointing to this market pushing lower and there is not much we can do about it. Sure a bounce may occur, but it won’t have the gusto it would need to kick off a new market rally. Too much damage has occurred and it will take a lot to repair the damage. Cut your losses and enjoy the ride.
Monday, May 14, 2012
The market got a double dose of bad news as Greece inches closer to a Euro exit and Italian short-term bond yields jump. Volume rose on the NYSE by a small fraction, but fell over on the NASDAQ. Italian CDS along with Spanish CDS jumped on the day as yields rose for both countries. Traders and investors continue to pound on the PIIGS for their troubles and the global markets are reacting negatively. To highlight the fear VIX jumped to multi-month highs. Everything in the market as well as commentary points to very bearish outcome. There are plenty of reasons for this market to turn lower. A Greece exit is projected to be a very costly, but may be necessary venture. In the long run it may be the best case scenario to stop endless bailouts. In addition, the market is sniffing out the ramifications of the fiscal cliff the United States is headed towards. Higher taxes and lower spending to curb deficits will certainly lead to an economic slowdown. When you include government spending in GDP (remember, government has to take from corporations and consumer) of course when government spending is contracting so will the economy. There isn’t much other than taking our medicine we can do to avoid the inevitable. One saving grace in the near term is the oversold conditions we have in the market currently. While conditions can remain oversold for quite some time coupled with the overwhelmingly bearish talk and lack of bulls it would not be inconceivable for a rally to occur. Shorting at obvious times tends to end in disaster for many. Have a game plan and execute it flawlessly. Over the next 24 hours at some point Greece will decide one way or another if they will pay more than 400 billion dollar principle payment. It’ll be interesting to see if they are going to pay it or not as it will be a significant headline driving the morning buzz regarding the market. It wouldn’t surprise me if somehow the Greeks were allowed an extension or some sort of relief to avoid a potential disaster. Have a game plan and leave the guess work to CNBC’s market pundits. Cut your losses short and enjoy this market.
Saturday, May 12, 2012
To anticipate the market is to gamble. To be patient and react only when the market gives the signal is to speculate. — Jesse Livermore “Every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, too tough on the emotions.” — Jesse Livermore “FYI – JPM $2b loss was someone’s $2b gain.” — Big Wave Trading’s second-in-command, MarketSpeculator The Big Wave Trading Portfolio continues to be under a SELL signal triggered on 5/4. This has been the strongest SELL signal YTD as multiple confirmations in various futures/ETFs were triggered. However, due to the current choppiness of the market, possible QE3, and frequency of recent false signals, we are moving slower into our ETF positions. Still the bottom line is that the signal remains true and proper price/volume action is following. While we remain under a SELL signal we have been getting a lot of long signals from the Biotech and Housing related sectors of the market. Indeed it remains a mixed tape. There is more bad than good out there but it is still not weak enough to push short positions heavy. If there were not any long signals in quality stocks, this would have us wanting to push. Instead we will be patient and wait for real follow-through to the SELL signal that was produced on 5/4. Overall we remain like water. Very liquid and willing to move from one direction to the next until we get what we need to push us all-in on full margin. Right now, capital preservation instead of hitting home runs remains the name of the game and has been since our large gains in February were completely taken away by March and April false signals. It’s a tough environment but professional traders know that a big trend always follows. This type of tape is meant to wear you out not necessarily knock you out. Those that are patient and careful with their capital when signals are not immediately followed-through are going to do much better than wild and loose trading. If we do not break down here and instead reverse back above the indexes 50 day moving average obviously the SELL signal will be taken off. We remain under the thesis that any rally here to new highs would be even more bearish than before. Volatility is too low and breadth is too poor for any sustainable uptrend to come about. A market being lifted by a few stocks always crashes. Before we can have any real uptrend to make some real powerful gains, this market needs to correct. If QE3 comes to the rescue we believe that it will only lead to a more powerful and vicious black swan swoon. A correction here would be healthy. A rally would not. Only after a correction will we be looking to get heavily long high quality breakouts in stocks or fully long a BUY signal with leveraged ETFs. Top Current Holdings – Percent Gain – Date of Signal LQDT – 79% – 2/1/12 AVD – 75% – 1/10/12 BVSN short – 64% – 3/16/12 MNST – 42% – 1/13/12 ABR – 28% – 2/29/12 VRNM short – 27% – 4/10/12
Tuesday, May 08, 2012
I would venture a guess today showed a bit of capitulation selling at the lows of the session. Volume was running much higher than Monday’s pathetic volume level as the market once again turned to Europe as its excuse for selling off. Buyers began to step in after 1pm and continued through till the close. It is going to take much more volume to surge back into the market to regain its footing, but today is the type of day you want to see for the first day of an attempted rally. We are certainly not going to get ahead of ourselves and declare this to be the bottom of the move off March highs. It is encouraging to see the amount of volume coming into the market today. However, if it is just one day wonder we’ll know sooner rather than later. To recap, today was day one due to the amount of volume and the major indexes closing near their highs of the day. We’ll be looking for the market to follow-through on a strong day with big volume over the next few days. Who is going to leave the Euro this summer? It appears the masses believe the Greeks will leave the Euro. However, Germany is the one who should leave the ill-fated currency. Why should the Germans be forced to bailout the Eurozone? Will the people of Germany continue to vote for bailouts of countries that are irresponsible with their spending? Germany should be the country to leave the Euro just on principle alone. In the end, it all boils down to price and we’ll react accordingly. Remember, today was a solid day for the markets. We need to see more from this market before we can confirm a new market rally. Volume is very important here and if we are to confirm a new market rally volume will need to rival today’s level. Keep in mind, cut your losses!
Monday, May 07, 2012
Sunday night futures took a big hit as French and Greek elections spook the market. Futures were able to climb back and wipe out majority of the losses from Sunday night prior to the open. As the market was able to gain itself footing, but lacked any oomph. Volume was lower on the day as it tends to be on Monday mornings. Today was Day one of an attempt at a new rally and it was very underwhelming. A show of support by institutions would have been nice to see. Not a bad day as things could have gotten much worse, but the market is lacking the thrust. The one bit of economic news of the day came at 3pm when the government released figures on consumer debt. It grew and quite big. Economists expected consumer credit to grow by 9 billion, but only to see it grow by 21 billion. This comes at a time when the public should be reducing debt and growing savings. Most private businesses had to adjust to the downturn in 2008, but the government and consumers have yet to experience a similar reduction. Rather than take the medicine now we are running the risk of a much larger problem requiring much more than just medicine. Over in Europe the people have had enough of austerity and pushed toward socialism. The only problem is no one will lend anyone in Europe any money. It will boil down to the ECB getting the nod to print more Euros. Endless deficit spending has caught up with Europe and no one is willing to deal with the consequences of it. Kicking the can down the road will only lead to greater problems and more angst amongst the people of Europe. Take your medicine and move on. The market still remains in a very dangerous area with the S&P 500 and NASDAQ below their 50 day moving averages. It would not surprise me to see today’s low taken out over the course of the next few days. Stick to your game plan and execute.
Sunday, May 06, 2012
“I learned that an opinion isn’t worth that much. It is more important to listen to the market.” -Brian Gelber “Most traders who fail have large egos and can’t admit that they are wrong. Even those who are willing to admit that they are wrong early in their career can’t admit it later on! Also, some traders fail because they are too worried about losing. I’m not afraid to lose. When you start being afraid to lose, you’re finished.” -Brian Gelber The Big Wave Trading Portfolio switched from a weak BUY to a NEUTRAL to a strong SELL signal on Friday. The weak BUY signal was generated by CANSLIM stocks breaking out and the Homebuilder indexes (ITB, XHB). The nature of the BUY signal was problematic and it is no surprise we are now under a SELL signal. What was surprising was the shocking (almost stunning) amount of CANSLIM quality stocks that broke out during the recent signal. This caused our portfolios to definitely be way too long the recent move and thus subjected us to more cut losses than what would normally happen. The mistake was taking any breakout that came within two weeks of earnings. This will now be a hard rule in our methodology. New breakouts in high quality stocks within 10 days of earnings are now completely off the table. Had this one rule been observed the small losses we did take would have been cut by nearly 50%. As for the current market condition, the breakdown we just saw in the market was on above average volume on the Nasdaq. This volume was also higher than the recent upside volume in the index. AAPL, CMG, and PCLN are beginning to see some serious distribution problems. Other CANSLIM quality stocks have reversed their previous breakouts on heavy volume. Other CANSLIM quality stocks failed late-stage basing patterns. Even other CANSLIM quality stocks had total and complete devastation following earnings misses. This all came on top of a horrible jobs report. This definitely weighs on our model. The only problem we have with this SELL signal is that our internal indicators are not confirming the move. They are, however, beginning to have a rollover type look and if the market does continue to selloff these indicators will go into confirmation. Overall, the charts in individual stocks have gotten very ugly very fast. The old market axiom of sell in May and go away appears to be intact. The amount of distribution in this market since February has been very large in comparison to the accumulation. Now that we have the market breaking down below the 50 day moving averages on above average volume it appears everything is in line for a rough May to October period. In all fairness to the stock market, we do know that it can and will do anything it wants whenever it wants. Therefore, if we selloff and then rebound on huge volume and get a massive follow-through day on accumulation, we will go long. This despite Big Wave Trading’s opinion that a serious correction is in our very near term future. I penned an article that was denied publication by Seeking Alpha due to the “technical” analysis nature of the article. I believe it is worth a read for anyone who has recently gone long this market and believes this is the start of a normal pullback. It could be but it probably is not. Top Current Holdings – Percent Gain – Date of Purchase SWHC – 81% – 1/3/12 AVD – 68% – 1/10/12 BVSN short – 57% – 3/19/12 MNST – 32% – 1/13/12 PRXI short – 25% – 3/30/12
Thursday, May 03, 2012
A better than expected jobless-claims figure was overshadowed by an overwhelmingly disappointing ISM non-manufacturing reading. Sellers dominated the day pushing stocks lower all day as volume rose on the day. The NASDAQ now with two days of distribution and the S&P 500 with four it certainly appears this market is going to play games with both bulls and bears. The late day rally was even lame as it appeared the market was going to coast into the close and a wait tomorrow’s job report. Our cautious buy signal still remains, but it appears it is in jeopardy. LNKD posted its earning after the market close and the stock responded positively. The company has posted amazing sales growth the last few quarters and the past two quarters of EPS have been outstanding. Not too many companies can sport more than 100% of sales and earnings growth like LNKD has. It is no question companies are turning to LNKD for hiring purposes, but will it translate to jobs growth? We’ll certainly find out tomorrow if this economy has been able to produce any jobs. Facebook (FB) hits the market soon and with the IPO set to price anywhere between $28 and 35 will make Mark Zuckerberg an instant Billionaire. Quite the story and amazing what you can do with a business. LNKD came to market and my recollection of the day was LNKD pricing near $45 and catapulting to more than $120 a share. It would not surprise me one bit FB does not do something similar. Don’t bet on it, but it isn’t out of the realm of possibilities. Tomorrow will be just another day, the jobs report is something the CNBC/Bloomberg/FBN talking heads can fill the airwaves with. Their job is to (this is key so remember) sell advertising and not to make you money. Have a sound game plan and execute it. Money management is so pivotal in this process and without it you will be left out to dry. Cut your losses and have a great weekend.
Wednesday, May 02, 2012
A lower than expected ADP payroll figure soured the market mood at the early going. Friday’s jobs report is just around the corner and the ADP figure certainly points at a disappointing figure Friday. Volume started out the day running hot, but cooled as the session turned to the afternoon. NASDAQ volume ended lower on the day and is a bit disappointing as higher volume on a day like today would have been super positive. NYSE volume ended higher giving a day of distribution for the S&P 500, but given the support off the lows the distribution day is relatively minor. We are still in a cautious buy mode and continue to look for full confirmation this market can move higher. Earnings season is in full swing and we continue to see wild swings in stocks posting earnings. MA held up well after posting earnings this morning. We continue to see excellent opportunities with earnings season and tomorrow morning is no exception. Reg FD has certainly produced wild moves after earnings, but we have been able to take advantage of the situation. As long as we cut our losses short we’ll continue to produce solid gains. Europe is in big trouble and their stock markets are beginning to crack once again. Spain’s stock market has hit a 52 week low today certainly a negative sign. Germany’s DAX index has put in a right shoulder of a head and shoulders topping pattern. Things are not looking over in the Eurozone and it appears the US Stock Market has largely ignored the perils occurring across the pond. It will be interesting to see how thins unravel here over the next few weeks. If selling pressure continues in Europe will it spread again? The NASDAQ looks pretty good here along with the S&P 500 despite the index sporting two days of distribution. We are under a buy signal, but it would be nice to get a nice strong lift off the 50 day moving average with tons of volume. Until then, we’ll cut our losses short and let our winners run!
Tuesday, May 01, 2012
Positive ISM figures helped the market surge to the session highs only to see sellers take away the day’s gains. ISM Manufacturing grew more than expected and buyers jumped at the chance to move into the market. However, by the afternoon cracks began to become apparent whereby AAPL and small caps began to turn lower. Selling continued throughout the remainder of the trading session with small caps leading the charge lower. PCLN and AAPL helped drag the NASDAQ lower, but the index was able to close in positive territory. Volume was higher on the day and with the mixed action does not instill confidence in this market. Mixed action overall and we continue to operate under a cautious buy signal. AAPL continues to struggle after its earnings release. The stock is trading quite loose and is in danger of losing its 50 day moving average. There is no doubt that if AAPL turns sour you can almost guarantee the market will move lower in sympathy. Price should dictate on how you trade and this instance there is no need to anticipate the move. Stay patient and let price confirm the move before acting. Crude oil was higher on the day as the commodity continues to hang above $100 a barrel. Given prices are staying high the continued stress on the average Joe continues. What is interesting is the math simply doesn’t compute with oil this high and the market being able to absorb the high prices. This is precisely why we only pay attention to price in this market. Our opinions are very much useless in the market as they are often wrong. Logic simply doesn’t work only price! Tomorrow we’ll get a read on the jobs market with the ADP employment report set to hit the airwaves. This Friday we’ll get a read on jobs from the month of April and if it was like last months we’ll have a very tough market to deal with. There isn’t any sense to go ahead and jump the gun because no one can predict the future, not by a long shot. Stick with the trend. Happy Trading! Cut those loses short.