Stocks Fall Hard in Heavy Trade; Homebuilders Rally

A slew of positive economic data helped bolster the case for the Federal Reserve to taper its money printing scheme. Apologies, taper the quantitative easing program. The S&P 500 blew by a key level we had been watching in heavy trade as well as the NASDAQ. Leading the market to the downside were small cap stocks with the Russell 2000 falling 1.93% on the session. On the positive side, a better than expected homebuilder sentiment drove housing stocks higher in heavy volume. Volatility jumped as the fear trade kicked into gear one day ahead of options expiry. A nasty day of selling ahead of options expiry and pushing our uptrend out of the way. It is important to obey your trend following rules. Did you have a stock break through a key moving average, channel, or ATR stop? Whatever your sell rules are you must obey them. Ignore them at your peril. No one knows whether or not today was a buy-the-dip-day or the start of something more sinister. Do not ignore your rules. The S&P 500 did drop below 1680 in heavy trade leading us to believe we are likely to see the major index to test its 50 day moving average. For the NASDAQ, to see its 50 day moving average will take a bit more effort by sellers. Over the next couple of trading session how each index reacts to its 50 day moving average will be a key indicator how we proceed forward. Keep your focus on price action and the market will guide you. Sentiment continues to favor the bull camp, but has come in week over week. Bulls did drop on the AAII survey with Bears inching up a bit. However, bulls still sit at 35% while bears sit at 28%. NAAIM sentiment saw a dip in bullishness due to more bearish bets being placed on the market. We have yet to see extreme sentiment, but perhaps this is apart of the “new normal.” Either way; price rules our actions and everything else is a cocktail conversation. Stick to your rules and with Big Wave Trading.

Another Hindenburg sighting; Europe Emerges from Recession

Its official European nations are out of recession as GDP rises above expectations. The news did very little for US stock futures and neither did Mortgage Applications which fell 4.7% week over week. Homebuilders once again were weak on the session and continue to look very weak. Buyers kept to the sidelines today with the market drifting in a range all day long. Keeping the market from pulling back further was AAPL as the stock punched through $500 or what was known earlier this year as the generational bottom. We continue to move sideways in this market digesting July’s gains and we remain patient studying price. Another Hindenburg sighting was made today making it the 6th time in 8 days (Business Insider and Zerohedge confirmed) the magical formula for predicting crashes has shown up. The omen doesn’t have a perfect track record by any stretch of the imagination, but it did show up in similar fashion in 2007 and 2000 prior to those bear markets. Can we reasonably guess the same will occur? No. We’ll simply follow price action and let it dictate our next move. Key levels on the downside are 1680 and on the upside is 1710. If we do see this market plunge through 1680 in heavy trade we may have something to the downside. Until then we are sticking with our plan. Here are the Hindenburg Omens: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/08/20130814_Hind.png Homebuilding stocks continue to take a beating and today was not an exception. ITB and XHB are in downtrends and continue to act weak. Both ETFs are signaling more lows and if buyers do not step up here homebuilders are at risk of a steep decline. Probabilities say a modest decline is certainly likely. In the same boat, but further down the stream are JNK and HYG. High Yield tends to run alongside equities, but not since May. HYG and JNK continue to show weakness in the High Yield space calling into question if we are about to see some trouble in High Yield land. As the 10 year moves higher the ability for questionable borrowing will simply become more difficult to obtain. Perhaps another “omen” for this market, but we’ll need to see further evidence. Will the Hindenburg turn into something real this time around? Stay tuned.

AAPL Jumps on Icahn News; Lifts markets

A less than stellar retail sales report couldn’t keep the market down today. Volume jumped over Monday’s super light trading volume. It isn’t a surprise to see Tuesday volume higher than Monday, but nice to see where the market reverses its early morning losses. The story today was Icahn announcing his position in AAPL. Begs the question, didn’t Ackman do the same thing with his HLF? And the reason Icahn went long HLF? Certainly doesn’t matter to us, but seeing hypocrisy in this world isn’t very hard to find. At the end of the day the push in AAPL gave a big boost to the NASDAQ. Another solid day for the market and our uptrend and we are going to continue to stick with the trend. It is truly amazing to continue to see people fight this trend we have been in since November 16th. Sure, at the end of 2012 the market was shaky. Had you paid attention to leading stocks you would have likely ignored the noise coming from the Fiscal Cliff discussions. While DC may not have solved all the issues it was enough to help propel this market to new highs set recently. The moral of the story is to stay with price and forget everything else. At the moment it appears the market is digesting July’s gains quite well. Yes, we do have some distribution in the market. However, the distribution days are far from being devastating. On the flip side we continue to see leading stocks acting strong. In what kind of market would you have leading stocks acting weak? One nearing a correction is this answer. This may change over the course of days or weeks, but what we have now is a normal uptrend. Stick with the trend and Big Wave Trading. Obey the cardinal rule of cutting losses and riding your winners.

NASDAQ Books Gains in Quiet Session

The dog days of summer hit the market with volume dropping to the lowest levels since early July. Early morning lows were met with buyers, but for the S&P 500 and the Dow couldn’t muster gains. Over at the NASDAQ and Russell 2000 were able to grab gains. Not much in the way of economic data to get the market to dive one way or another. Our uptrend remains despite the number of distribution on the NASDAQ and the S&P 500. While it is easy to make excuses and say we should be cautious, but there isn’t a way to know whether or not we have topped. We will continue to push forward and use price as our guide. Market leaders continue to act well in this market environment. It is nice to see market leaders continue to hold up well despite the number of distribution days we see. Sure, next month we’ll see a confluence of events that may or may not trip up this market. However, we aren’t there yet and guessing how the market will react to any kind of event is a fools’ game. We have price and what we know at this point in time is this market does not want to go down. If we do see major cracks in market leaders and further major distribution we’ll change our tune. Until then we’ll continue to push forward. There are plenty of people writing and bloviating about what will happen with the Fed through the end of this year. Will Big Ben taper or not? Is the next Fed chairman Yellen or Summers? We can debate how Fed policy has completely destroyed the cost of savings devastating those living off interest including pension funds. However, this is simply policy debate and should not be mixed with trading the markets. It doesn’t matter to use if the Fed will taper or if the next Fed chairman is Yellen or Summers. We’ll stick with price and leave the rest of the nonsense to others. Cut those losses short and ride your winners!

Stocks Find Strength at the Morning Lows Closed just off the Highs of the Session

After the recent bout with selling the market was able to find buyers pushing the market higher as volume swelled. Whether or not it was managers trying to get in their trades prior to leaving the Hamptons or Shore doesn’t really matter. Expanding volume as price moves higher is generally a good thing. Just after 10:30 AM EDT it appeared as if sellers were winning the day and would extend the trading losses. However, the market was able to find buyers willing to step up and scoop up shares. We did not hit new highs today, but the action was certainly bullish enough to suggest we may have another new high. Stick with the trend. Sentiment indicators crept towards the bullish tint, but not in huge waves. AAII Bull increased to 39.5% from 34.62% last week. Bears jumped too from 25% to 26.65%. Clearly more of the crowd edged towards a bullish stance week over week. However, we aren’t seeing extremes where Bulls exceed 50% and bears are well under 20%. NAAIM sentiment survey showed rose slightly from 74% to 75% invested. This move doesn’t exactly scream over exuberance from money managers putting money to work. Again, price action certainly hasn’t suggested we are at a top and even sentiment hasn’t suggested we’ve hit one either. Market leaders continue to act well in this environment despite a few mishaps with earnings: GMCR and SCTY. Even GMCR which reacted poorly to stop didn’t end the session in terrible fashion. TSLA performed well after earnings and continues to be a leader. PCLN reported today and is jumping nicely in after-hours trading at the moment. If you stick with market leaders and stay disciplined you can reach outsized gains. It takes following the methodology and not making reckless decisions. Many will still try and call a market top here. They may be right about this market and we’ll go lower. However, what we know right now is we remain in an uptrend and we are going to stick by our process. There is no need to be a hero and turn into a zero. Longevity is the name of the game and we are here to build long-term success. Have a great weekend.

Stocks close in the Red; Volume ends Mixed

Continuing with the summer trade the market closed lower lead by the Russell 2000. The NASDAQ posted back to back losses while the S&P 500 losing streak extended to 3 days. We did see a nice rally off the lows, but as soon as the rally began volume was sucked out of the market suggesting sellers left the building. NASDAQ volume did end the day higher notching another distribution day for the index. However, given the move off the lows it wasn’t a terrible distribution day. Many are blaming “The Taper” for stocks selling off. Perhaps the reason is the taper, but we aren’t picking up what the pundits are putting down. Our uptrend remains and we continue to monitor our positions and their respective price action. Solar stocks took a hit after earnings out of FSLR weren’t warmly greeted by the market. Homebuilders once again were to the downside with the entire group showing very negative price action. Given the market is in an uptrend shorting stocks is a fools game. The reason to highlight homebuilders is very simple. They were leading the market higher and now have rolled over. Financials are the only group showing strong earnings growth at the moment and if this group rolls over we’ll take notice. Earnings continue to pour in and we continue to monitor for earnings gaps. Quite a few stocks are running ahead of earnings making it quite difficult to buy with them being extended. We need sound patterns to make use of earnings. We aren’t about to gamble our capital going outside our process. Stick with the plan and execute. No need to be a hero in this market. Tomorrow we’ll get another week’s worth of job data from Initial Jobless Claims. Hard to believe this number used to be meaningless. It’s not hard to believe given the financial media’s need to fill the airwaves. You do not get an advantage by gaming initial jobless claims. It would be wise to avoid that type of trading. In after-hours trading TSLA turned heads again with its stock nearly up 10%. GRPN is another stock moving higher. SCTY and GMCR aren’t so lucky. Ride your winners hard and dump your losers.

Stocks Pull back in Fast Trade

Let the top calling begin as the stocks pull back in heavier volume. Today’s pull back wasn’t too severe and part of a normal reaction to the market hitting new highs. What we’ll want to avoid seeing for this uptrend to fail is a string of distribution days strung together. At this point, we really do not have enough evidence to suggest “calling a top” here is justified. Although, it will not stop folks from trying to be a hero and call a stock market top. Our process does not include calling market tops, but one that relies on price action giving us a high probability entries and exits. Until such time we get enough price evidence we’ll stick with this uptrend. We aren’t trying to be heroes in this market. Many tried to be in May when we had the nasty high volume reversal on the 22nd. May’s high did market a short-term top, but it wasn’t a major market top like many are hoping for. Even a 10% decline from previous highs wouldn’t signify a big market top. Do not get wrapped up in the hype of where the market is going or where it has been. All we know is what we have now and trying to guess what will be will only lead down a path of pain. For the most part many leaders pulled back in normal fashion. Not much to worry about from that angle at this point in time. Distribution days are a part of EVERY market uptrend and are expected. The S&P 500 has 4 distribution days, but today is the only one where it was on the real negative side. If this market has topped we’ll get a few more distribution days and they will be more severe today. This is what we’ll be looking for and will adjust accordingly. The most important thing to remember in this market is to follow your investment process. Deviating from your plan by going rogue or being a hero will destroy your trading. Cut your losses.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Market Model remains under a BUY signal with zero pressure weighing on it. With the indexes hitting all-time highs and leading stocks leading the way higher, everything is aligned for further potential price appreciation in all asset classes. Stocks continue to trend higher and while it would have been very nice to see the market consolidate gains this summer allowing the 200 day moving average to catch up with price it is not in the cards. Still, there is no reason to complain that stocks are continuing to move higher as we are well positioned here. Still, it would be nice to see stocks consolidate these gains and get that 200 day moving average closer to price. With the market so extended from this line, making new investments here is a very risky proposition. If you are not already long, it is going to be very hard to play catch up. However, playing catch up has indeed been very possible as earnings season is allowing plenty of opportunities to play catch up with leading stocks producing some nice gains following earnings and after those earnings. The buyable gap ups have worked very well the past two weeks. The best play, for our intraday chat room members, by far, has been buying calls or straddling/strangling stocks with strong EPS/sales growth that are heavily shorted. Recent straddles in FB and QCOR has made one or our members very wealthy and with earnings season still in full swing there should be other opportunities in the upcoming couple of weeks. If you are not playing the calls, straddles, or strangles and are not buying the buyable gap ups, it has been a rough go for EOD trading signals. Recent signals on the long side have not performed as well the past two weeks as I would like to see in an uptrending tape. However, most signals are not of the high quality standard that previous signals were due to the fact that this market has been well extended past its upper regression line and 200 day moving average for a while now. This is why recent signals have been weak and why we have kept them small relative to more recent signals. Still, it is a strong tape and many more signals are sure to present themselves as we move along. As long as the trend trends higher, there is no reason to top call this QE tape. Set your buy stops in leading stocks and get long at the pivot points, straddle the heavily shorted leading stocks, or buy the buyable gap ups. These trades have been doing very well in this most recent move higher. Buying stocks on an EOD basis following a powerful breakout is still not seeing the follow through that we became accustomed to from 1996-2008. So keep that in mind as if we continue to move higher from here. While a nice consolidation allowing the 200 DMA would be nice to see it is what it is and this trend is strong. Don’t fight the tape and whatever you do NEVER top call a strong market. One day, this market will go climatic or parabolic, leading stocks will too, and lower highs and lower lows will be set in leading stocks in leading industries. That is when you need to be on the lookout for a top. Until then, ride the trend which is your friend higher. Have a great rest of your weekend and I wish you the best during the upcoming week. Aloha from a very beautiful west side of Maui. Aloha!!! Top Current Holdings – Percent Gain since Signal – Signal Date CAMP long – 178% – 4/26/12 POWR long – 149% – 12/11/12 RVLT long – 133% – 3/26/13 FLT long – 121% – 9/6/12 WAGE long – 95% – 1/8/13 HEES long – 94% – 9/4/12 CSU long – 88% – 9/4/12 ADUS long – 74% – 4/22/13 CHUY long – 57% – 1/10/13 SBGI long – 54% – 3/22/13 TECUA long – 49% – 2/5/13 WDC long – 48% – 1/9/13 INSM long – 48% – 4/19/13 V long – 43% – 8/31/12 LGF long – 42% – 4/19/13 TRLA long – 42% – 6/28/13 GLL long – 40% – 2/14/13 ADS long – 40% – 12/11/12 MEI long – 38% – 4/10/13 OCN long – 28% – 5/8/13 DDD long – 25% – 4/30/13