Sunday, June 30, 2013
It was a great week the past week on Maui and a good week overall for the stock market. The market did rally the past week but all the action came on below average volume until Friday when EOQ and EOM trading took over. As we know by now, from 1850-2008 this would be considered a bad thing but from 2008-now low volume rallies following heavy volume selloffs have been bullish. So I would not necessarily be too cocksure that the market is failing here at the 50 day moving average, just yet. While we are under a SELL signal, all it would take to switch back to NEUTRAL during the summer months would be a close above the 50 DMA on all three major market indexes (the Russell 2000 is already above the line). If that occurs, the situation will still remain fluid as there are a lot of individual stocks that need some work to clean up their current consolidation patterns. That being the case, we still have a lot of leading stocks making new intermediate term and new highs and plenty of stocks still forming decent consolidation patterns. When you combine this with the weakness in bonds, the higher amount of stocks hitting new lows, and the fact that the Fed is hinting at tapering and there are all sorts of legitimate reasons to remain very NEUTRAL here. And that is exactly where we are heading into this holiday short week. While we are under a SELL signal our personal feelings are extremely NEUTRAL on the current trend. I will have to either see more breakdowns or breakouts to move to either the bearish or bullish camp respectively. As of now, we just have too many crosscurrent and mixed signals to work with. This means new positions will remain small in individual stocks, on the long side, until a BUY signal is triggered or a “perfect” signal is triggered (extremely rare to almost non-existent during a SELL signal) in an individual stock. New positions on the short side remain scant to non-existent during this volatile period. However, as the market ticks down and ends weak each session we will continue to add to our current hedges that are being built in inverse leveraged long and leveraged short ETF positions. Enjoy the upcoming fireworks in the stock market and at your local hot spot. There is a lot of data coming out, around the world, during this short week so I am sure it will not be a boring one. But hell what do I know. Nobody, including myself, knows what tomorrow will bring. The future is absolutely impossible to predict. You can definitely game it and be ready for it but you can never know it. Aloha and have a wonderful holiday week. Top Current Holdings – Percent Gain since Signal – Date of Purchase CAMP long 159% – 4/26/12 RVLT long – 139% – 3/26/13 POWR long – 132% – 12/11/12 CSU long – 93% – 9/4/12 WAGE long – 90% – 1/8/13 FLT long – 82% – 9/6/12 ASTM short – 79% – 7/17/12 HEES long – 75% – 9/4/12 SBGI long – 66% – 3/22/13 GLL long – 60% – 2/14/13 ADUS long – 60% – 4/22/13 INSM long – 59% – 4/19/13 CHUY long – 53% – 1/10/13 TECUA long – 43% – 2/5/13 V long – 42% – 8/31/12 WDC long – 41% – 1/9/13 PFBI long – 28% – 11/19/12 MEI long – 26% – 4/10/13 WST long – 25% – 1/22/13
Monday, June 24, 2013
Despite an impressive move off the lows just after the lunch hour the final hour of trading was won by sellers. Closing off the highs of the session major markets with the exception of the Dow were down more than one percent on the day. Volume simply could not compete with Friday’s level due to quadruple witching. VIX enjoyed a volatility day closing up 6.5% to 20.12. Summer time trading has arrived and we expect the volatility to continue and given the increase in volatility we will adjust. Shanghai dove more than 5% as the liquidity issues continue to evolve in China. One thing is for certain the Shanghai Composite is in a severe downtrend and trying to catch a falling knife is not something one should attempt. Perhaps the index will get a bounce this evening, but it will likely continue to the downside over the longer-term. 2013-06-24_SHANGHAI_COMP_daily The one saving grace perhaps for our markets will be the 200 day moving average will likely serve as a reasonable spot for the markets to bounce. It is anyone’s guess whether or not it will lead to new market highs, but a logical spot for the market to bounce nonetheless. Volume will be an important key in determining whether or not institutions will come out and support stocks. Today, it was a mix bag with the final hour selling really putting the damper on a sustainable bounce. A few other items will certainly help give a lift to the markets. Both the RSI and McClellan indicators are near areas where the market has bounced historically. It isn’t a given a market bounce will occur, but if one were to occur it would not come as a surprise to us. We’ll be paying attention to our stocks and will act accordingly if and when signals come our way. Everything else is just noise. Economic data today was light, but an uptick in the Dallas Manufacturing Survey was better than expected. Tomorrow we’ll get a read on Durable Goods and Wednesday we’ll get a read on GDP. Not the start to the week bulls wanted even with the intraday rally. Make it a great week. Join the Big Wave Trading team.
Friday, June 21, 2013
I am on my way out for the weekend as it is the summer solstice and a super moon weekend. Before I take a trip to Hana, I wanted to give a quick recap of the past week. The past week was the most unusual week since 2001 as for the first time in 12+ years our model did three switches to three directions in three days. It all started on Tuesday as a breakout above the downtrend channel on the Russell 2000 and Nasdaq switched our model back into a BUY mode. The very next day, we failed that move on heavier volume. That then switched our model from that BUY signal to a NEUTRAL signal. Then in one of the more insane moves in a very long time, the model then switched to a SELL signal with every major market moving average closing below the 50 day moving average. This then, of course, led to Friday’s big support on huge volume. The huge volume was due to quadruple witching so I would definitely not look much into today’s intraday action. This past week pretty much summed everything up as to what I expected we would see this summer following that break on 5/22. The summer chop is here and the mixed signals are back. Not only did I have sell signals throughout the week but I also had fresh new buy signals in many leading stocks. Their action was very mixed with most of the action being poor but not poor enough to be completely scared of the long side. With that being said, we got another two fresh new buy signals in two leading stocks, on Friday. If the market was ready to completely break down I do not think we would be seeing signals during a pullback. Normally, during a pull back, new long signals dry up. During this pullback, despite a lot of stocks breaking down, we are getting long signals. This hints more of a rotation than an outright top. Still, truth be told, the verdict is still out and in a QE/POMO/ZIRP environment anything and everything must be expected. This is definitely not the time to be a hero and if you do not have a methodology that keeps you in leading stocks during “scary” pullbacks in the indexes or do not have a methodology that at least gets you heavily hedged when things turn sour then it is probably wisest to avoid trading this market until a clear return to an uptrend is under way. Until that happens, I suggest new investors focusing on learning, reading, and studying history rather than try to game a summer-time market that is clearly bipolar. This bipolar action is all too familiar for trend followers that just lived through 2011 and 2012. Most of us knew that the smooth, quiet, and low volatility uptrend of 2013 could not last forever. So it is what it is. A mixed market with mixed signals. If you marry the bull side or the bear side this summer, chances are you are going to be very disappointed. Stay neutral my friends. I repeat, stay neutral. Have a great summer solstice and super full moon weekend everyone. Aloha. Top Current Holdings – Percent Gain since Signal Date – Signal Date N/A – N/A – N/A
Thursday, June 20, 2013
The Federal Reserve remained the focus of many traders and pundits arguing over whether or not the Federal Reserve should taper or not. Meanwhile, sellers got to work and pushed the market lower for majority of the session. Even a last second effort by buyers was knocked down at the close. Volume soared across the board as institutions rushed into the market. Homebuilders were hit hard despite the existing home sales came in higher than expected. Gold and Silver went back to September 2010 levels as both precious metals were crushed (despite physical demand for gold continues to move higher). With the major markets having put in a lower high and a lower low a downtrend is certainly here. There wasn’t much that was spared from the onslaught of selling. The 10 year Treasury note is yielding above 2.4% and the 30 year at 3.51%. Big moves in just over a month for yields, but are they spiking because the economy is getting better? Or is it simply Ben Bernanke will no longer be buying as many bonds? Headlines came out the fed was going to taper to $65 billion a month at the September meeting and end the bond buying program next June. This announcement only threw fuel onto the fire and accelerated the decline further. It is best to step aside when a freight train is headed your way. Having a sound strategy in times like this will certainly keep you calm. Many will be driven by emotion and make costly errors while we will take advantage. Here is a screen shot of the Hindenburg Omen. You’ll notice we have gotten 6 signals since the end of May. It almost appears certain we’ll get a correction with this many signals showing up. Cut your losses and ride your winners. Have a great weekend.
Wednesday, June 19, 2013
What a volatile day it turned out to be with stocks gyrating after the FOMC policy announcement only to close at the lows of the session. Stocks were lower ahead of the announcement as many feared the Fed would inject into the statement regarding tapering bond purchases. In fact, it did not and the market still went lower. Bonds sold off in tremendous fashion with the 10 year yield at 2.333% for the day. Higher yields will not be kind to the US Treasury and the US government cost of servicing debt. Given today’s action and the jump in volume it appears this market wants to head lower with us leaning towards the sell side of the Big Wave Trading model. Volume kicked into hyper drive after the release of the statement. Intraday volatility did as well and was mostly like due to algos fighting each other. The NASDAQ appeared to have a few 10 point swings in a few seconds. It is very doubtful humans could move as fast causing this type of movement intraday. It is more for our amusement to watch those trying to decipher this type of action. No way could one even begin to interpret and act upon profitably on the type of action we saw today. Avoid those who claim they can at all costs. The fear index or known as the VIX ended the day slightly higher closing at 16.64. It dipped as low as 15.36, but was able to finish in the green. For such a big move lower the lack of movement to the upside in the VIX is somewhat puzzling. Perhaps traders aren’t as fearful of a taper then the market action is leading on. For now, we have weak price action accompanied by heavy volume and this is throwing out cautionary signals. There certainly will be pundits who will be claiming the market has exhausted itself and we have topped for good. No one knows the future and while anything is possible nothing is certain. We do see ETFs like HYG and JNK displaying very weak action and it would be easy to conclude this is over. However, in 2011 many claimed this to be over and we are sitting near all time highs. We’ll let price action do our talking and follow it and leave the guesswork to others.
Tuesday, June 18, 2013
Anticipation of the Fed tomorrow is tremendous as traders position themselves ahead of tomorrow’s policy announcement. On the economic front today weaker than expected housing data failed to halt the rally in homebuilding stocks today. Homebuilding ETFs regained their 50 day moving average a show of strength. Buyers were out support stocks yet volume lagged behind Monday’s pace suggesting buying fever wasn’t too high. Tuesday’s returned to positive side as the last two Tuesday trading sessions have ended in the red. Today’s price action certainly has put the market in a more favorable light for the bulls. Of course, tomorrow can change this picture in a heartbeat. However, given the recent action there hasn’t been any signals suggesting we have much downside from here. Homebuilders have certainly made a come back and judging by the volume seen in the ITB ETF buyers were rushing to pile back in. Defense of the 50 day is a big positive for the ETF and stocks. Last week it certainly appeared as if homebuilding stocks were going to head below their respective 200 day moving averages. Crude oil settled above $98 a barrel. Higher crude prices will certainly hurt the consumer despite all the good news regarding “shale oil” and “shale gas.” Higher commodity prices in general will have a great impact on lower income families and continued rising crude oil prices will certainly keep the squeeze on. DBC – Powershares Commodity tracking fund is poised to push higher from its latest consolidation. Not only will stocks have fun tomorrow with the Fed announcement look for the commodity sector join in the fun we call volatility. There will be a lot of talk from the financial press on how to manage ahead and after the Fed policy statement. Let price be your guide rather than your opinions. Ego gets in the way often and leads to issues trading your portfolio. Let it go and follow Big Wave Trading and our process guiding you through any type of market. Enjoy watching the fireworks!
Monday, June 17, 2013
A positive sentiment report from the National Association of Home Builders (NAHB) helped propel stocks to the highs of the session. Prior to the NAHB report the Empire Manufacturing index jumped more than expected. However, a deeper look into the report showed some serious cracks. It wasn’t until after 2pm where the trouble began to start. A headline from the Financial Times stating the Federal Reserve was set to announcing taper plans on Wednesday sent the market into a tailspin. Nearly wiping out the day’s gains the market was able to close just under the mid-point of the session. Volume was higher than on Friday assisted by the intraday volatility. We remain stuck in neutral as this market is desperately looking to find a new trend. Tomorrow we’ll get a boat load of economic data, but all eyes will be waiting on the release of the FOMC policy statement. To taper or not will be the hot topic across the blogosphere and financial media. No one knows other than the Fed Chairman and the rest of the voting board members. If the FOMC does taper is it guaranteed the market will go lower? While it may seem logical for the market to go lower is it a given? We’ll get a trend sooner or later, but no one can guarantee where the market will head next. There are a few stocks looking decent here regardless of the increased market volatility. Learn to embrace volatility rather than fear it. Volatility is our friend and we’ll use it to our advantage. Many will fear market volatility as we embrace it. Learn with Big Wave Trading how to embrace volatility. We are certainly looking forward to the fireworks the market will provide this week. We’ll be ready to take on the challenge we call the market. A strong process relying on piling onto winners and cutting losers produces fantastic results. Have a great week!
Sunday, June 16, 2013
The Big Wave Trading Portfolio remains under a NEUTRAL condition, following a week of choppy price action. The overall market continued its choppy trading the previous week with neither the bulls or bears asserting any real directional power. The bottom line is that we remain trapped between the recent highs and lows of all the major market indexes during the past month. Our model will not move to either a BUY or SELL mode until this trading range is broken. The other possible model change could occur if the indexes make a powerful one day price move on higher volume. If that occurs and the indexes still remain range bound it is possible, if there are leading stocks in confirmation of the move, that we could switch before the trading range is resolved. If we were forced to make a bet on which way the market is going to break next, we would laugh in the face of someone suggesting such a preposterous notion. However, if we were asked to analyze the current situation of leading and other individual stocks in relationship to the pullback in the overall indexes, that would be a welcome logical request. When it comes to leading stocks in the market, based on EPS and RS ratings, everything is crawling along well. Our current holdings and leading stocks have done remotely well during the pullback in the market, with many of these stocks forming constructive consolidation patterns that historically should lead to further price breakouts. Some of our favorite examples include SCTY, TSLA, TNGO, DPZ, INVN, BLMN, SWHC, LNKD, and many others. These stocks are either consolidating nicely or are trending higher, despite the weak market. This, in our analysis, is a positive sign for a possible resolution higher. This being said, nothing is concrete and for all we know the market might break out to new highs to just reverse lower on huge volume. The point is that anything can happen in the stock market and if you are not ready for anything and everything, then at some point you will be caught off guard and pay the price. We shall see what the upcoming week has in store for all of us traders. As it stands, we continue to be very neutral here ready for anything to happen. Once again, based on our current holdings and leading stocks, we should expect a resolution higher. In reality, however, remember, anything can happen and everything must be prepared for. Have a wonderful rest of your weekend. Aloha from a very beautiful, warm, and sunny west side of Maui. Aloha!! Top Current Holdings – Percent Return Since Signal Date – Date of Signal RVLT long – 162% – 3/26/13 EAC long – 156% – 12/17/12 CAMP long – 136% – 4/26/12 POWR long – 135% – 12/11/12 CSU long – 106% – 9/4/12 FLT long – 97% – 9/6/12 HEES long – 86% – 9/4/12 ASTM short – 73% – 7/17/12 INSM long – 68% – 4/19/13 WAGE long – 63% – 1/8/13 ADUS long – 59% – 4/22/13 CHUY long – 55% – 1/10/13 SBGI long – 50% – 3/22/13 WDC long – 45% – 1/9/13 V long – 41% – 8/31/12 GMCR long – 39% – 4/23/13 BBSI long – 38% – 2/13/13 TECUA long – 36% – 2/5/13 GLL long – 27% – 2/14/13 PFBI long – 26% – 11/19/12 DDD long – 25% – 4/30/13
Thursday, June 13, 2013
Despite the Nikkei’s 6% drop overnight US stocks were able to find buyers pushing Major Market Averages higher by more than 1.2%. The Dow snapped its first 3 day losing streak of the year. S&P 500 tried to close above yesterday’s high, but stopped short. Overall, the day displayed each of the major market averages finding much needed support at their respective 50 day moving averages. A key level of support we needed to see hold. After today’s trading session we’ll need to see some follow through for us to have a chance at regaining May’s highs. A solid session for the bulls today with volume coming in higher shows this market still may have some highs left in it. Economic data came in slightly better than expected. Jobless claims dropped more than expected. Advanced retails sales were slightly better, but weren’t that exciting. Check out the following chart on jobs and ask yourself is this really sustainable? Is the housing recovery for real given where lumber prices have headed? What about furniture sales? Sentiment saw bears drop and bulls gain as the two nearly were even on the AAII survey. Bears dropped to 34.59 while the bulls jumped back over the 30% market landing on 32.97%. NAAIM saw position increase slightly to the bullish side, but still far from its highs seen earlier this year. Apparently the crowd and investment managers are not buying into the “but the [expletive] dip” or what we like to say “BTFD.” We employ a different strategy that actually quantifies where we get in and out it is still fun to poke fun at the dipsters. Time and time again trend following strategies of buying new highs or moving average crossovers outperform buying new lows. However, taking a look at the next chart it appears using volatility as a guide we may have seen at least a short-term bottom here using the SPY as our guide. Have we bottomed? We can’t predict the future, but we can certainly play the odds. Happy Father’s Day!
Tuesday, June 11, 2013
Failure of the Bank of Japan to signal even more stimulus sent the world markets into a selling frenzy. Initially, buyers were able to push the market well off its low and at one point pushing the Dow into positive territory twice! A weak 3 year Treasury note auction sent sellers back into the market pushing the market near the lows of the session by the close. Volume rose across the board suggesting Institutions were in the market selling stocks a negative sign for the market direction in normal markets. At the very least the action we are seeing may simply be foreshadowing further volatility. This market is certainly under pressure and given the rise from November until May a little correction is certainly not a surprise to us. Obey your sell/exit signals as the stock market is certainly on shaky ground. Following up yesterday’s move lower homebuilders continue to tack onto their losses. LEN continues to be one of the weakest among the group. XHB has seen its fair share of heavy selling since February and is now just finally catching up to the ETF. An even bigger decline has come from the utilities as the 10 year yield has jumped higher. XLU topped out the first of May has slide 9% from its high and has had trouble finding buyers. Higher rates have certainly stung a few industries and it is quite obvious traders aren’t keen on higher rates. Daily volatility has certainly kicked up with the VIX nearing multi-month highs. The VIX closed at 17.07 up nearly 10% on the day. However, VIX tracking ETFs continue to lag the performance of the VIX overall. For example, the VXX was only up 6.6% today well behind the VIX performance. It certainly doesn’t appear investors are rushing towards volatility to hedge against a market decline. Or it simply could be the inability for these ETF managers to keep pace with the VIX. Something to keep an eye on as this market proceeds. The positive here is certainly the major market averages remaining above their respective 50 day moving averages. A negative here was the rejection at the 20 day moving average. While the 50 day is certainly a bit more important the rejection at the 20 day is something to take notice. Since the beginning of the year we have been able to jump back up thru the 20 day with ease. Now, we have rejection. Stick with the process and do not try to be a hero.
Monday, June 10, 2013
A very uninspiring day as the market digested gains spawned from a two day rally to close out last week’s trading. Volume ended the session lower across the board. Typical for a Monday in this market as traders await Turnaround Tuesday. Homebuilders were exceptional weak today with LEN and RYL looking among the weakest in the group. AMZN followed through on Friday’s gains closing off its highs of the session. Today’s move was quite subdued given the moves from the Nikkei and DAX, but a quiet day can be good for a market. We’ll need to see follow-through from Friday’s gains here shortly. Stick to the plan by executing flawlessly. There are a few IPOs today mentioned in the Big Wave Trading chat room today. They are certainly poised for big gains and are giving us an indication we have another new high from this market. Nothing is certain, but we aren’t about to give up on potential gains because of the way we feel this market should go. Healthy action in IPOs often portrays an environment where traders are willing to take on beta risk. Thus, higher prices will be tolerated and not sold into. Stick with price and Big Wave Trading guiding you through the market waters. Lumber prices have fallen 23% off its February highs and now the homebuilders are beginning to show signs of weakness. LEN and RYL are both below their respective 50 and 200 day moving averages. Not typically a sign of strength. The homebuilder ETF XHB is struggling to hold onto its 50 day moving average. While lumber prices are months removed from its highs the homebuilders were just at highs in May. Did we just see the top in homebuilders? Time will tell, but it appears lumber prices won’t be revisiting its highs any time soon. Tomorrow we’ll get a few economic data points, but nothing of great importance. Retail sales will come Thursday and PPI will close out the week. The market will likely begin gearing up for next week’s FOMC meeting towards the end of the week. To Taper or not will be on everyone’s mind. I hardly doubt we’ll get any movement from the FOMC. In any case, stick with the plan and execute.
Sunday, June 09, 2013
The Big Wave Trading Portfolio remains under a NEUTRAL condition but did see the model switch to a cosmetic-SELL mode on Wednesday only to be flipped right back to NEUTRAL on Friday. This quick flip-flip was not shocking on a discretionary basis as the signal triggered with only the NYSE under the 50 day moving average. On top of that, as we have constantly warned, since 2011, SELL signals are going to have to be confirmed in all indexes, ETFs, inverse-ETFs, inverse-leveraged-ETFs, and with leading stocks breaking down, before any SELL signal is actionable on a position taking basis. QE, ZIRP, and POMO makes taking SELL signals nearly impossible and it is not anything we will be interested in seeing until we see a real parabolic/climax conclusion to all of this economy propping. Despite the fake signal, it was an overall decent week. The bad news is that our early hedges that were doing nicely hedging our longs by Wednesday left us with mostly losses by Friday. However, what turned out to be great news for us, on the flip side, we did not produce one single full sell signal on Wednesday, when our model did a false switch. The fact that the market cracked and we had zero sell signals in our long holdings was a hint that the market was stronger than the tape was letting on. On top of that, what turned out to be the worst missed trade on our end since 2011, we saw an extremely high quality long signal producing in what is currently a non-CANSLIM stock (it will be shortly in the upcoming quarters). That stock was TTS. The signal it produced that day would be considered an 8.5 out of 10 using our internal criteria and that is an extremely high rating on a new long signal (obviously 9s and especially 10s are very very rare). Unfortunately for me and my portfolios, we have never received such a beautiful signal on a day where we switched to a SELL mode. This has never happened. I began trading my trading career in 1996, went full-time in 1998, and from these moments have never seen such a signal on a day of a SELL signal. So what to do? Well, since I didn’t consider it “perfect” (a 9.5 or 10 out of 10) I decided to pass and let the model take control. That was a big big mistake as TTS has rocketed higher 13% in the two days following this lovely signal. On top of that, the SELL is now NEUTRAL. Lesson learned. What was the lessen? Well from now on I know that when the market is trending above the 50 day moving average on all of the most important major market indexes, we have many long positions holding up well in our current portfolios, we have many stocks still setting up in strong bases, we have very few stocks breaking down hard in my short scans, and we get a near-perfect high-quality long signal on a day when we do switch to a SELL we take the trade. Now, I have to watch TTS do what it is going to do and “hope” that it produces some sort of follow-up signal to try to get me long this wonderful pattern. We shall see if I get a second chance. I will not be holding my breath, however. Still, it was a very important lesson learned and goes to show that even with almost 20 years of full-time stock market experience you can still teach an old dog new tricks. Well played Mr. Stock Market. Well played. Big Wave Trading never needs to learn a lesson the hard way twice. Have a great upcoming rest of the week everyone. It’s been a nice weekend, despite the TTS missed trade on our end. Truth be told, I am more upset that the season finale of Game of Thrones is tonight than I am I missed that trade. As far as I am concerned, Game of Thrones, should never end and never go on break. Just keep the camera rolling and George R.R. Martin writing. Aloha!! Top Current Holdings – Percent Return Since Signal Date – Signal Date EAC long – 228% – 12/17/12 HIMX long – 185% – 12/19/12 CAMP long – 132% – 4/26/12 POWR long – 125% – 12/11/12 RVLT long – 114% – 3/26/13 CSU long – 107% – 9/4/12 FLT long – 95% – 9/6/12 HEES long – 82% – 9/4/12 ASTM short – 72% – 7/17/12 INSM long – 72% – 4/19/13 GNMK long – 71% – 11/16/12 WAGE long – 64% – 1/8/13 WDC long – 46% – 1/9/13 BBSI long – 45% – 2/13/13 ADUS long – 41% – 4/22/13 V long – 40% – 8/31/12 CHUY long – 40% – 1/10/13 SBGI long – 39% – 3/22/13 GMCR long – 35% – 4/23/13 TECUA long – 31% – 2/5/13 GLL long – 31% – 2/14/13 AMWD long – 30% – 2/1/13
Thursday, June 06, 2013
The US Dollar took a plunge during the session, but the move failed to keep stocks down for long. By early afternoon the stock market found its footing and pushed higher closing at its highs for the session. Volume rose on the NYSE, but fell on the NASDAQ. Institutions were certainly active in the market today ahead of tomorrow’s job report. At one point during the session the S&P 500 was below its 50 day and looked as if it wanted to head further south. The defense of the 50 day moving average is certainly a bullish indicator for this market to bounce. A solid day for market bulls, but given this market’s ability to react violently to news tomorrow will certainly be fun to watch. Volatility broke out during the session as the market fell along with the US dollar. The only thing not to rebound nicely was the dollar index. USDJPY broke through its 50 day moving average and fell below the 96 level for the first time since April. The USDJPY currency pair has correlated well with the Nikkei 225 and tonight’s trading session should be filled with fireworks. Falling into a bear market the Nikkei has come off more than 3,000 points from its high falling below its 50 day moving average. Sure we could see a bounce, but does that mean its going to revert back to its May’s high? Sentiment has shifted in favor of the bear camp, but not at an extreme level. Bulls fell below 30% to 29.47% on the AAII sentiment survey. Bearish respondents couldn’t crack into above 40% closing the week at 38.95%. NAAIM manager survey pushed the median responded to only 55% invested. Interestingly enough if we look at the extremes there was at least one manager who was 200% long when responding to the survey. On the flip side the max exposure on the downside remained at 125%. Sentiment is favoring the bear camp, but given the trading action over the prior week it is no surprise. Tomorrow should be a fun-filled day with lots of action regardless of direction. Try to avoid the talking heads and focus on price. Have a great weekend!
Tuesday, June 04, 2013
For the first time in 20 tries the Dow Jones Industrial Average fell on a Tuesday. Volume came in considerably from Monday’s level, but institutions weren’t keen on bidding up US stocks on volume following through on Monday’s gains. The market appears to be awaiting the jobs report on Friday. In the short-term we are seeing quite extreme oversold readings but we know this can continue into even further extreme conditions. Today’s move is certainly not what we want to see from this market. This uptrend is under pressure and we’ll need to see a powerful bounce to shake this market avoid any further destruction. Stick with the Big Wave Trading process and you’ll breeze through this market with ease and gains. No matter the direction you’ll succeed. Stick with cutting losers and stick with your winners.
Monday, June 03, 2013
A dose of negative economic news helped embolden sellers during the first half of the trading session. However, sellers would lose their momentum and the market would regain strength pushing well off the lows of the day’s gains. After Friday’s late day plunge the market appears to be ready to push higher just in time for Turnaround Tuesday. Volume on the day soared despite Friday’s end of the month volume kicking in. The Dow Jones Industrial average led the broader market showing blue chips are holding up this market. Commodities jumped on dollar weakness with the USDJPY dropping below par. A few leaders were hit today, but with the market finding its footing this uptrend may not be over just yet. Turnaround Tuesday is tomorrow and if we had to wager a guess we’d suspect a rally would occur. Tuesday’s have been very important to this rally and the trend has been for Tuesday’s to finish in the green. Not too mention we remain oversold given where the McClellan Oscillator resides. A run at previous highs is not out of the question with the support at May 23rd low. The market has May’s high in its sights. Gold and silver have seemingly found a bottom along with the miners. GDX has come off its lows as of late after April’s plunge. Volume has picked up on the upside more so than distribution since the end of April. GLD and SLV continue to try to pull off the lows, but volume isn’t prominent like volume on the GDX. Has gold and silver bottomed? No one can answer this question without guessing. Pick your spot and know where your exits are. Stick to your process and have a great week!
Saturday, June 01, 2013
The Big Wave Trading Directional Model has switched from a BUY signal to a NEUTRAL signal, following the final hour of action during Friday’s stock market session. The vicious sell off on Friday, combined with the churning and distribution days adding up this month, is more than enough evidence that it is time to be fluid and ready for a move in any direction in the overall market. Longer-term there is a lot of support in the overall market that could easily lead us to further upside price. However, on the short-term we are indeed extended on all major market averages in relation to the 200 day moving average. The Nasdaq and Russell 2000 also remain a bit extended from their respective 50 day moving averages. Therefore, a pull back here is not a surprise and is in fact welcomed if we want to continue with higher prices in a more measured and somewhat safe manner. What will be more important to watch from here on out is how the major indexes will act around these key averages. Support at these key areas, along with high quality stocks showing Relative Strength to the overall market, would be indicative of a market that wants to continue higher over the intermediate term. If, instead, the market decides to find some support, begin to bounce, and then rolls over below the 50 day moving averages on the indexes, then we can start to prepare for some form of correction. Right now, most of our long positions (you can see 75% of our current holdings below as 3/4 of our portfolio holdings are up 25%+ per trade), are riding their key moving average lines higher and if they start to break below we will continue to take profits, cut our losses, and add to our hedges. Right now, since we are heavily long, we have been building a hedge in case the market does decide to correct harshly over the next couple of weeks. If the market decides to move lower, we will continue to pair back our long positions and add to our hedges. If the market decides to roll over and enter a prolonged downtrend, we will be ready via our market direction model and we will go short stocks that produce short signals accordingly. For now, it is best to be ready for anything. Emotions are very strong for those in the bull and bear camp. That can cause some extreme short-term price movements, as we saw in the final hour on Friday. Therefore, the best plan is to have a plan for every outcome. We do this on a daily basis at Big Wave Trading and that is why you will find very little to zero emotions involved in our methodologies. It is all about price signals. It is never about opinions or emotions. The only good opinion is no opinion, in the stock market. Have a great weekend everyone. It looks like our summer shores are in store for another large swell. Good news for me. Once again, have a great weekend. Aloha!!! Top Current Holdings – Percent Return – Signal Date EAC long – 204% – 12/17/12 HIMX long – 201% – 12/19/12 CAMP long – 134% – 4/26/12 RVLT long – 128% – 3/26/13 CSU long – 112% – 9/4/12 POWR long – 108% – 12/11/12 FLT long – 95% – 9/6/12 HEES long – 86% – 9/4/12 INSM long – 79% – 4/19/13 ASTM short – 71% – 7/17/12 GNMK long – 71% – 11/16/12 WAGE long – 60% – 1/8/13 SBGI long – 48% – 3/22/13 ADUS long – 45% – 4/22/13 WDC long – 44% – 1/9/13 CHUY long – 39% – 1/10/13 V long – 38% – 8/31/12 BBSI long – 38% – 3/22/13 PFBI long – 31% – 11/19/12 GMCR long – 30% – 4/23/13 GLL long – 30% – 2/14/13 AMWD long – 28% – 2/1/13 DDD long – 26% – 4/30/13