Volatility Jumps as the Dow closes Green while Small Caps Lag

Positive housing data kicked off the trading day with Building permits jumping higher than expected. However, it was just after the 10 am hour the market dove as CNBC blame worries over the Cyprus bailout. Volume started the day off light despite the positive housing data. Institutions were jumping in the market buying up shares as volume suggested. It wasn’t until the hysteria over Cyprus did volume kick into another gear. The S&P 500 and NASDAQ did notch a distribution day, but they weren’t as bad as they could have been if the market closed at its lows. Volatility measured by the VIX jumped more than 8% as it appears traders and PMs alike are beginning to buy protection. We remain in an uptrend and with the Federal Reserve tomorrow we’d expect activity to pick up after the Fed releases its policy statement. The Dow continues to be the leader among the major indexes. Today KO led the way for the index, but with the Dow leading it does give us pause if we’ll see this rally continue. At this point we do not have enough to say this rally is over as distribution simply isn’t piling up (YET). Leading stocks aren’t screaming higher suggesting we can continue. However, on the flip side they aren’t breaking down in droves saying we are about to crater. Stay disciplined here and do not rush in to be a hero. Wednesday’s Federal Reserve meeting will certainly be something the financial media will savior. I am sure Ben Bernanke will try to calm any fears the Federal Reserve will withdraw “support” of the financial markets. We’ll kindly remind everyone the Fed has more than tripled its balance sheet since 2008 and provided Trillions in guarantees to the market. I suppose a few trillion more won’t hurt. We are in an uptrend and while this could change tomorrow there is no telling if it will. Those who tell you they know where it is heading are full of crap. No one can predict the future. Know your exits and let your winners ride!

GOOG Soars past $800 Stocks Lift to New Highs on Light Trade

The market is able to shrug off a dip in homebuilder sentiment and move into new highs on the year. Small caps continue to lift despite ultra light volume in the IWM tracking ETF. Volume on the day was below Friday’s option inflated volume. NYSE composite came in second adding 73 basis points boosted by Oil and Gas sector followed by Utilities. High gas prices and higher payroll taxes appear, for now have yet to cause any impacts to consumer spending despite WMT internal memo leaked on Friday. Our uptrend remains and we are going to continue to stick to it until we see evidence to suggest we are going switch gears. Volatility continues to be compressed as this market continues to push to the upside. Fears of any shock in the market have subsided as we have yet to see any major hurdles arise. We have our exit strategy in place so we do not fear any move to the downside. However, it is interesting to see how much volatility has compressed since this market has pushed higher. There isn’t any fear out there. Whether that translates to further upside or not remains to be seen. We have our uptrend and are operating as such. Until we see distribution piling up and leading stocks breaking down then we’ll switch gears. Tomorrow we’ll get the FOMC meeting minutes. The central bank has its work cut out for it trying to navigate the QE waters. Ben Bernanke has committed to an accommodative monetary policy for the United States. The Fed has pumped trillions of dollars into the market and trying to exit this strategy will be extraordinary difficult. How do you remove an addict from its preferred drug without causing the maximum pain? Perhaps we should accept the pain as temporary? Very interesting to see how this all plays out. For us Trend Followers price action will dictate how we react. Distribution remains elusive and with the market continuing to make new highs without any institutional selling is not a recipe to sell. We’ll let the market come to us rather than predicting where it will go next. Short-term Trends TICKER ST TREND TREND CHANGE DATE CLOSE % SPY UPTREND NO CHANGE 2/19/2013 153.25 0.75% IWM UPTREND NO CHANGE 2/19/2013 92.55 0.88% QQQ UPTREND NO CHANGE 2/19/2013 68.24 0.72% USO DOWNTREND NO CHANGE 2/19/2013 34.96 0.69% UNG DOWNTREND NO CHANGE 2/19/2013 18.30 2.92% GLD DOWNTREND NO CHANGE 2/19/2013 155.33 -0.28% SLV DOWNTREND NO CHANGE 2/19/2013 28.44 -1.35% DBC UPTREND NO CHANGE 2/19/2013 28.24 -0.39% FXY DOWNTREND NO CHANGE 2/19/2013 104.77 -0.02% FXE DOWNTREND NO CHANGE 2/19/2013 132.81 0.19% TLT DOWNTREND NO CHANGE 2/19/2013 116.5 -0.50%

Stocks Stage a Big Rally, but Hit Some Resistance

The S&P 500 and Russell 2000 found very little resistance at last week’s high as the NASDAQ backed away from its high of last week. Volume was strong, but the market could not find enough buyers to clinch a true follow-through day. We continue to operate without a follow-through day, but with the NASDAQ and the rest of the indexes above their respective 50 day moving averages we are back in buy mode. The move at the end of the day does bring a bit of caution and only did a few buyers at the end of the day save the rally. Tomorrow’s reaction to the FOMC rate announcement and Bernanke’s press conference will tell us a great deal about where this market is headed. We are in buy mode despite the sluggish end of day action and will look for this trend to continue. We simply cannot ignore the move in small caps today with the index lagging only the NASDAQ today. Breaking out of a small consolidation area the group pushed higher and continues to look quite solid. It is very hard to ignore the relatively strength displayed by the group and we are going with it. Focusing in on price action IWM looks poised to continue its move higher. Of course, we have an exit plan and if this move fails we’ll simply exit and move on. There is no need to guess what may or may not happen here, but for now small caps look poised to lead this market higher. AAPL continues to be the talk of the town, but it too found resistance at its highs. GOOG did manage to get above its 50 day moving average during the trading session. However, by the close the stock was unable to close above it. Bad news for the stock as it is doing a lot of work well below the mid-point of its most recent sell-off. On the bright side of things CRM was able to punch through and breakout on very strong volume. We’ll see once again if this breakout can hold. QIHU, SSYS, DDD continue to struggle after breaking out. Tomorrow brings on the Fed and the potential for a fiscal deal. It will be fun watching the market dance to the sound of Ben Bernanke’s voice.

The Market Shakes Off Comments from Bernanke and Close Flat

Continued positive data from the housing market helped boost the market in the early going. However, the focus would quickly turn to Ben Bernanke’s speech at 12:15. Prior to his speech this headline appeared: BN 12:15 *BERNANKE SAYS FISCAL CLIFF WOULD POSE `SUBSTANTIAL THREAT. And during his speech he stated the Federal Reserve would be unable to assist if Congress did not avert the fiscal cliff. The market did not like the sound of this and sold off as volume picked up the pace. It wasn’t before long before buyers stepped up and supported the market pushing the major averages back to flat line at the close. Volume slid on the day, but with the Thanksgiving Holiday upon us light trading is to be expected. It is hard to ignore the support we saw today and we’ll be looking for a confirmation day to switch to buy mode. The market will get initial claims tomorrow, but attention will be drawn to the European summit and black Friday sales figures by retailers. This year more roughly 45% of Americans say they would like to forgo Christmas all together this year. One would conclude with an improving economy should produce consumers willing to purchase more. Perhaps we are seeing the effects of declining real wages due to inflation caused by a Federal Reserve printing at warp speed. Will opening earlier help sales? Time will tell, but looking from the outside it does appear sales have the potential of coming in on the low side of things. Then again, the market may ignore this and move higher. Price rules above all else. A couple of big technology stocks got hit hard today. HPQ and INTC both sunk to new lows as both stocks appear to be heading into the single digits. HPQ simply cannot turn itself around in a consumer dominated commodity business. INTC announced its CEO is departing in May and the news did not sit well with the market. We know CAPEX is falling and these stocks are certainly feeling the effects of decrease spending. We await a confirmation day for this rally attempt. It may be difficult to see one with Thanksgiving on Thursday, but we have seen stranger things.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio remains under a SELL signal on all indexes. However, we do take note of the positive price action and strong volume (even though it was options expiration related) on the indexes and more importantly on the oversold beloved-stock named Apple (AAPL). Volume on AAPL was the highest since March and comes on an excellent intraday reversal. We call that positive price action. However, there is no way, based on Friday alone, to know if this is the end of the downtrend or just an oversold bounce. Some of the positives going for the market is the fact it is very oversold on the short term, the crowd is increasingly becoming more bearish, and AAPL’s price and volume move on Friday. Some of the negatives are that there is still no obvious rotation from old leading stocks into new leading stocks, most recent strong sectors (IBB XHB ITB) are starting to crack on heavy volume, and despite sentiment growing more bearish there was absolutely zero fear in the most recent pullback. Everyone truly believes Ben will save us from every big bad market decline. The only way we see it at Big Wave Trading is that you must keep an open mind to everything and anything in this new QE-fed world. There is only one two ways to trade this market: trend following signals and value investing. The old momentum methodologies that made position traders like me wealthy during our early career have been missing since the 2008/2009 stock market bottom. This is a direct correlation of a QE/ZIRP policy. So, even though it seems the market is not done selling off, you must keep an open mind in the regards that Ben will indeed come to the markets rescue any time it even attempts to move lower. We have taken notice of some stocks that made very strong moves on Friday. However, we will need to see further positive price action next week or the week after to know if it is more than a one day options expiration wonder. The social networking site FB sure has been putting in some impressive price and volume action lately. That stock is definitely a stock that should be on all trend following wizards radar. It is too much of a cult stock and has so much volume that it is mandatory active and inactive traders watch this stock for trend following signals. Overall, we remain extremely heavy cash at Big Wave Trading due to the inability to trust price and volume action in the current choppy tape. Without any spike in the VIX, it is hard to believe a real bottom is here and while we are short some index ETFs we will be ready to reverse those positions ASAP if we continue to see further price appreciation. At the same time we do know another 2010 and 2011 pullback is more than likely to happen sooner or later and we will be ready to act accordingly when the time does come calling. And come calling it will one day. You can not keep an artificial economy up forever. Can you? Maybe you can. It’s a much different world than it was before QE. Get used to it. I doubt it changes any time soon. I doubt it changes any time not too soon (4 years at least). On that chipper note, have a great weekend everyone. Surf is up on the north shore and the sun is shining. Aloha!! Top Current Holdings – Percent Gain – Date of Signal AVD long – 112% – 1/10/12 NTE long – 102% – 8/17/12 VRNM short – 58% – 4/10/12 CAMP long – 47% – 4/26/12 ASTM short – 37% – 7/17/12 CSU long – 33% – 9/4/12

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio is currently under a NEUTRAL condition. The model switched from BUY to NEUTRAL on Tuesday due to the Nasdaq closing below the 50 day moving average on average volume. Our model expected this switch to occur after Apple (AAPL) closed below the 50 day moving average on strong volume on Friday October 5th. On September 24th Apple began to sell off on above average volume and continued to do so for another four sessions before finally breaking down on October 5th. Another problem we started to also notice was the overall lagging of the Nasdaq’s Relative Strength line compared to the SP-500′s Relative Strength line. While the Nasdaq was breaking out to new highs in September, its RS line was severely lagging no where near its previous March highs. In recent weeks we have seen the Nasdaq’s RS line simply implode compared to the overall market. This RS lag is even more severe in the Russell 2000 full of vibrant young growth stocks. This RS lag is overall problematic for a variety of reasons. You normally want to see new exciting growth companies and revolutionary technology companies lead a market. Not stodgy old safe dividend producing large capitalization stocks. While a trend is a trend, the strength of a trend is directly correlated to what type of stocks are leading a market. Another problem we have witnessed during this switch to NEUTRAL is that we have not seen a rotation from the leading growth stocks that have come under some intense recent selling into new leading growth stocks. On top of that, we noticed that WFC and JPM are putting in low-volume breakout high-volume fakeout reversal moves. GS and BAC appear to want to do this too. As the rulers of the world go, so will go the stock market. If the Lords of Finance sell off, the market is going to sell off. So we have a market under heavy distribution, leading stocks like AAPL and PCLN possibly rolling over, banks (KBE KRE) putting in breakout fakeout moves, and an extremely low VIX on top of all of this. What does all this point to? A high probability that we will enter into a SELL signal at some point and will begin to rework the short side/long put side of the market. However! However. There is always the Fed and Ben Bernanke. They have already intervened during every single one of the last market pullbacks. What is to say this will not be any different? They have already screwed the poor and middle class over with their “zero-percent-CDs-forever-policy,” allowing the folks that do not have time to invest in the markets no chance what-so-ever to get ahead. They have already bailed out failing corporations effectively killing free markets. They have continued to print worthless dollar bills at the push of a button for years now, effectively destroying its purchasing power thus causing massive inflation that hurts the folks that can’t save money in the first place due to the low interest rates. So do we think that an actual prolonged downtrend will start thus allowing a new fresh crisp batch of leaders to rise from the ashes when the market is ready to move higher again? Nope. We sure don’t. We can only hope that one day the Fed decides to let the market do what the market needs to do but we are not going to hold our breaths. The first area of support we are looking at is the 200 day moving averages on all leading market indexes. The bottom line, for right now, and I mean right now, is that we are NEUTRAL. We will take long and short signals as they arise. We are extremely picky here and if it is not perfect or near perfect for the reason we want to conduct the trade, we will not take the trade. On a final note, speaking of perfect, we did not have one technical/fundamental or even technical alone “perfect” chart setup during the entire uptrend from June to September. This was the first time since the 2009 uptrend which only produced CANSLIM quality long signals and zero “perfect” CANSLIM/”perfect” chart signals. To me that tells me all I need to know about the quality of the uptrend itself. Aloha everyone and have a wonderful and profitable week. Top Current Holdings – Percent Return- Date of Signal AVD long – 136% – 1/10/12 CAMP long – 61% – 4/26/12 NTE long – 57% – 8/17/12 SVNT long – 53% – 9/10/12 CLGX long – 53% – 6/19/12 VRNM short – 39% – 4/10/12 PRXI short – 37% – 3/30/12 SHF long – 35% – 8/1/12 MAGS short – 31% – 4/18/12 CSU long – 30% – 9/4/12 ASTM short – 25% – 7/17/12

AAPL leads the NASDAQ Higher as Volume Expands; Crude Sinks

Heading into the first debate of the 2012 Presidential Campaign was led by the NASDAQ despite a faltering Semi-Conductor sector. Small cap stocks struggled as well with the Russell 2000 closing down 20 basis points. Volume expanded on the day, but with back to back days of subpar volume on Monday and Tuesday it was inevitable volume was going to increase. This morning’s ADP Employment change report showed 162,000 jobs were add in the month of September coming in slightly above expectations. In addition to the ADP report, a better than expected ISM Non-Manufacturing reading showed the service sector expanding in September. Not terrible news from the economy, but focusing on the price action we saw the market notch a day of accumulation. We still have not broken out from our recent trading range, but price action continues to be favorable to bulls in this uptrend. It appears the market is waiting on the debate tonight and Friday’s job report. Friday’s jobs report will more than likely disappoint not because of we don’t like the current administration, but the past few reports have been disappointing. In any instance other than the unemployment rate falling below 7% the Federal Reserve stock market put will more than likely dampen any bearishness related to the report. Anything is possible in QE trading. Look at crude falling more than four points today. Commodities are perceived as a good investment with the Federal Reserve printing presses running at full tilt. So while conventional thinking is a fun cocktail party discussion only price matters in the market. Whatever the market will bring we are going to be prepared. Tomorrow at 2 pm we’ll get the minutes from the latest FOMC meeting where Ben Bernanke announced QE3. It will be interesting to see how the market reacts to what the FOMC discussed during the meeting. Tomorrow should be a fun day with the market reacting to the first debate as well as the FOMC meeting minutes. Who knows we may even get a Spain bailout rumor. There is always something the chew on when it comes down to this market. Actions however, are governed by the price movement of our stocks. Enjoy the debates, but remember to cut your losses and there are other candidates then just Obama and Romney.

Stocks Notch Another Low Volume Summer Session; GDP Growth In line with Estimates

No surprise GDP growth was in-line with estimates as pending home sales jumped more than expected. Both figures failed to ignite buying as the market hit the day’s low just before 11am. Once again buyers stepped up to the plate supporting the market. Support wasn’t ferocious as volume registered lower than yesterday’s pathetic levels. Volume just isn’t there during the final week of the summer. Institutions are not stepping up and putting their money to work in front of Ben Bernanke’s speech in Jackson Hole. While the price support is positive it is very difficult to have much conviction in the market in either direction. According to MarketSmith’s shorting data we continue to see the NYSE Short Interest hitting 5 year highs. Are we simply seeing a massive short squeeze? Or is the SMART money right and a pending collapse is about to occur? It is anyone’s best guess here which way the market goes. Quite frankly it is much easier to doubt the market with all the potential headwinds the market faces. China, Europe, and the Fiscal Cliff can easily be used to make a bearish case. Despite the argument and from a trading perspective when do you exit your losing position? How much do you risk? Trend following is powerful because it cuts through the fundamental non-sense and positions you to what matters most: PRICE. With very little happening in the market there have been bright spots and opportunities for BWT to exploit. The last thing we want to do is miss a signal. Missing signals decreases your opportunity to capture upside and why it is so important not to argue with your system. Follow it and do not let your opinion get in the way of your trading. You’ll be surprised how much more success you’ll have by not ignoring trading signals. Remember always know your position sizing, entries, and exits! Cutting losses is your insurance policy and your number one rule!

Stocks Stall Mid-Day as VIX Jumps off the Most Recent Lows

Just after noon, stocks took a dive, after rallying from the morning lows. The final hour of the trading session ushered in sellers pushing the major stock indexes to their final lows of the day. Only the last 5 minutes did we see buyers step up and save the market from broad distribution. Perhaps the robots are going crazy, but today’s action does constitute as a stall day. This most recent uptrend does have two distribution days across the board and now one stall day. Yesterday’s bullish intraday action was done so on light volume and therefore not as significant as today’s action. While not an end all be all day it is important how the market reacts over the remainder of the week. Today’s action is a red flag for the most recent rally and we’ll need to be aware of the market movements for the rest of the week. Still, overall, we remain in a slight uptrend and will invest accordingly. The VIX finally woke up on a day where intraday volatility was not relatively large. Fear has been absent since June when the market hit its most recent low. Perhaps the Federal Reserve put has driven away sellers, but today they did come back. Interestingly enough on March 16th the VIX hit a low of 13.66 and yesterday the index hit a low of 13.67. While it did not pin point an exact high the NASDAQ would hit its intraday high a little over a week later on the 27th of March. Perhaps this market can rally further and why it is important to see the action over the next couple of days. In order to continue to move higher we’ll need to see bullish price action. Keep an eye on distribution and stalling the rest of this week as it will be a hint where this market is heading. It took to the 3rd paragraph to talk about economic data! Retail sales jumped more than expected, but PPI came in hotter than expected. The market cheered the retail sales figures, but largely ignored the economic reports on the day. In the end, it really doesn’t matter and all that matters is how we concluded the day. Leave the economic talk for the water cooler discussion and not your trading. Tomorrow we’ll have more fun with economic data in the morning with CPI figures. If the CPI comes in higher than expected, it will certainly be viewed as a negative. Ben Bernanke knows further easing will bring on higher commodity prices and with the drought in the mid-west it presents a very delicate situation for the Fed Chairman. It is all about executing your trading plan. Know your position sizing, entries, and exits.

NASDAQ Closes in the Green as Stocks Find Support at Friday’s Lows

It was another quiet Monday trading session, as AAPL and GOOG lead the NASDAQ higher closing just off the highs of the session. Volume was once again lower on the day, as we proceed through the dog days of summer. Commodities traded lower on the day, as gas at the pumps has rebounded higher putting pressure on consumers. When the market hit its lows, after the 11 o’clock hour, buyers began to show up supporting the market. While volume wasn’t highe–showing institutions piling back into the market–the price action was considerably bullish. There is quite a bit of economic news set to hit the market the rest of the week and we’ll certainly see the market move. PPI data out tomorrow and CPI data out Wednesday will certainly spark debate regarding Federal Reserve policy. The more we see deflation the more folks will make a case for another round of quantitative easing. To us it is noise in regards to our trading, but for a cocktail party (a boring one) it makes for good banter. Price matters most and although debating Fed policy is fun for some it is not useful for our trading. Today was overall is a bullish day, but boy was it a boring day. Europe was mostly lower and we failed to get any rumors from central banks. Boring days are good when you do not get epic failures from leaders. Leadership remains thin here and cash is king, but we have seen stranger things from this market. The next big thing from the US Central Bank is the Jackson Hole summit at the end of this month. All eyes will be on Ben Bernanke to see if he hints at or lays out the plans for another easing program. Up until then, I’d expect very little from the Fed. Rumors will always be present, but price always gives the clue. Remember the most important part of trading is knowing entries and exits. Cutting losses is most important piece to your trading!

Stocks Add to Tuesday’s Gains as Volume Ends Higher

For the second straight day, Ben Bernanke testified in front of the house and stocks pushed higher. Housing data was a bit better than expected, aside from building permits. However, a few home building stocks like HOV and PHM did not agree. INTC lead the semi-conducting stocks and the rest of the technology sector higher. NASDAQ led the major indexes higher with solid gains, but off the highs of the session. We continue to be in rally mode and have witnessed a solid back to back days of gains. Despite potential headwinds facing this market and it being the summer time, we have quite the potential to run further. This might change tomorrow or Friday, but for now we are in rally mode. If we are wrong we simply use our rules to exit our positions and move forward. No guess work here and we certainly aren’t going to act upon any emotion. Know where your exits are both for losers and know when to exit your winners. Banks were looking pretty good, but earnings from BAC disappointed the market as the stock sold off in heavy trade today. GS and JPM both look weak here and after enjoying nice gains from JPM’s earnings release last Friday we have seen a lack of follow-through from many of the banks. BBCN and WTFC bank stocks we have liked continue to do well, but it is the big boys weighing on the entire sector. As we progress we’ll continue to look to see where our exits are and potential entries and go from there. We’d rather to see financials continue to lead the market as they tend to be the first group out of the gate during a rally. Where this market goes is anyone’s guess! For now we have a trend to push higher and until we get signaled otherwise it is the long side we go. Cut your losses and ride your winners.

More Twist, No QE as Stocks End Flat

The story of the day was the Federal Reserve and its actions. With very little on the economic front the market turned and waited on the Federal Reserve to deliver its rate and policy announcement. Failing to initiate a third round of quantitative easing the Federal Reserve did extend its “Operation Twist” until the end of the year. Stocks reacted in volatile fashion and during Bernanke’s testimony, but finally settling near the unchanged level as volume fell on the day. Taking a step back we saw a good day of consolidating the recent gains. Avoiding any further deterioration will be a must for us to continue on a new uptrend. Gold and crude oil did not react as if there was going to be immediate action by the fed to pump more liquidity in the market. Crude was down more than 4% at the stock market close a big tell the trend in crude remains to the downside. Gold finished down roughly 1% on the day as both commodities continue to act as if the Federal Reserve will not print any money any time soon like the equity market. It is quite clear stocks are expecting the fed to step in with further easing to support the market. At the end of the day we follow price and where it goes we do. Opinions mean very little. Listening to Bernanke during his press conference it is apparent he is looking for Congress to get its house in order. The unfortunate part of the quantitative easing is in order for it to work properly budgets must be balanced. Continuing to raise the debt burden only acts as a drag on the economy. Sure short-term bursts of debt are okay and manageable. However, massive debt spending over extended periods of time coupled with money printing is very flammable. History has provided enough evidence when money printing goes unchecked, fiat currencies always dissolve or evolve causing very painful contractions. We need our fiscal policy in order to avoid financial disaster down the road. Luckily we have price as our guide and we’ll be taking full advantage. The future is unknown and while many will try to predict what will happen know one actually knows. Using a rule based system allows us to focus on what matters and ignore the junk you hear from the financial media. Cut those losses and let your winners run.