Big Wave Trading Portfolio Update And Top Current Holdings

The biggest cause of trouble in the world today is that the stupid people are so sure about things and the intelligent folks are so full of doubts. — Bertrand Russell

It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change. — Charles Darwin

The Big Wave Trading portfolio remains under a BUY signal.

There are concerns with the current condition of the rally but nothing internally is moving our model away from the BUY signal. The most problematic issue is that new longs are simply not performing well. New longs continue to give us small cut losses or small gains. The only two areas not doing this are our IPO and Medical/Biomed/Drug stocks. They remain a high reward/risk win/loss ratio play. This has been one of the strangest uptrends we have seen at Big Wave Trading since my career started in 1996.

For the first time ever, during an uptrend longer than three months, the Big Wave Trading portfolio is lagging the overall stock market. This is more than likely due to the slow steady nature of this uptrend, the lack of volatility, and the lack of explosive moves on explosive volume. Big Wave Trading normally will purchase 5-20% of the strongest CANSLIM quality stocks with the best chart patterns in the stock market, when an uptrend is strong. When we make these purchases and they show low reward/risk win/loss ratios we reduce position size and spread out into more speculative names with higher quality chart patterns to reduce risk. These stocks are not performing like they have in the past. Past rallies from 1996-2000, 2003-2007, 2009, and late 2010 were extremely profitable using this methodology (see Past Big Winners on this website). During this current uptrend, that is not the case.

Our market model methodology using the TQQQ long and short is crushing our current returns with a YTD gain of 33% (without the March shakeout gains would be 60%). This methodology continues to be superior to our stock picking ability ever since the 2011 top. Eventually, our stock picking methodology will come back into favor. For now, however, it is clear that using the 3x ETFs is where the majority of our capital should be deployed.

If the market refuses to selloff this year, we expect that a potential large rally may be around the corner. If that rally comes, just like in most longer-term uptrends, the large gains in individual stocks should follow. Following the 1998, 2002, and 2009 lows, this was the case. We do not expect an explosive uptrend to begin here, though we realize it could, due to the Nasdaq price being so far extended from the 200 day moving average. It would be very beneficial to the market for the price to continue to work its way lower and consolidate so that the 50 and 200 day moving average can tighten up to the price. As long as we remain extended, a risk of a pullback remains very high.

We continue to hedge our long side positions with shorts in speculative stocks with no earnings/sales growth or paid promotional manipulation pump-and-dump stocks that have made extended/parabolic moves in short periods of time. When these stocks reverse hard off their extended runs on huge volume, we take short positions. So while Big Wave Trading remains under a BUY signal we clearly recognize the fact the VIX is low, sentiment is too bullish on the Investors Intelligence survey, and the price and 200 DMA of the Nasdaq are too wide for a significant move up here.

As always, we are ready for anything and everything that the stock market can and will produce. It is the only way to play the game. The most important rule remains to always cut losses immediately when we are wrong. Big Wave Trading never holds a losing position. If Big Wave Trading purchases a stock or ETF and it does not move in our direction immediately we begin to scale out or get out immediately. No questions asked. It either works or it is removed.

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

SWHC – 72% – 1/3/12
KORS – 66% – 1/17/12
AVD – 50% – 1/10/12
RF – 45% – 1/5/12
LNKD – 37% – 1/19/12
BVSN (short) – 36% – 3/16/12
EPAM – 36% – 3/1/12
LHCG – 32% – 1/19/12
CIS – 29% – 3/12/12
CCU – 28% – 12/21/11
SUNH – 26% – 3/9/12
CERS – 25% – 2/10/12

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio’s Market Model remains under a BUY signal. However, during the week, evidence started to mount that turned the model from leaning BUY bullish to BUY neutral. This means that less capital is being deployed in new long positions and the requirements for actually becoming a new long position in the portfolios is raised. There are various internal indicators we use to confirm price action on any individual stock. We now must see all of these line up confirming the move to become part of the portfolio. The BUY neutral stance will switch back to a full BUY signal if the market can break out here. If the breakout comes on higher volume, capital deployed in the new long positions will be increased significantly. If the breakout is on lower volume, capital will be increased only slightly. In saying this, the Big Wave Trading margin and retirement portfolios are nearly fully invested already. However, there is still 10-20% cash on hand due to new high quality longs failing. Recent longs in high quality CANSLIM names like RRTS VHS HEES FTK TLLP left us with cut losses and thus have us holding some cash on hand. Recent CANSLIM longs (four of them) the past two days are holding up very well but are not exploding higher immediately. This action in high quality longs is the biggest reason, besides the low volume on the indexes, we still lean heavily neutral until we see a breakout on the indexes. Big Wave Trading is also actively working on the short side of one of the biggest pump and dumps on the Nasdaq in years. We continue to short one individual stock (we currently have gains ranging from 4% to 27% under our operation) following any consolidation after a breakdown. The insane criminal practices going on with this stock by promoters and huge potential reward has left us with no other choice than to profit off the greed and evil of some horrible human beings. One final note: If the stock market does not breakout this week or next week and we begin to roll over, you can be 100% sure the Big Wave Trading Model will switch from BUY to NEUTRAL and then position itself accordingly as price and volume action on stocks, ETFs, and the indexes roll in day by day. Aloha and have a wonderful weekend.

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

SWHC – 73% – 1/3/12
KORS – 67% – 1/17/12
AVD – 43% – 1/10/12
RF – 42% – 1/5/12
LNKD – 34% – 1/19/12
LHCG – 30% – 1/19/12
CERS – 28% – 2/9/12
ULTA – 26% – 1/17/12
CRMT – 26% – 11/30/11
CPWM – 25% – 3/13/12

Big Wave Trading Portfolio Update And Top Current Holdings

“The whole secret to winning and losing in the stock market is to lose the least amount possible when you’re not right.” — William J. O’Neil

“It is when the unimaginable occurs that the systematic trader remains calm, presciently knowing when to buy, sell, or adjust their exposure.” — Mark Abraham, Quantitative Capital Management, L.P.

Following last weeks switch from BUY to NEUTRAL to partial SELL to NEUTRAL, the Big Wave Trading Portfolio switched back to a full BUY signal on Tuesday. New longs leading up to Tuesday and new longs following Tuesday continue to act very well indicating that the rally has a high chance of continuing on the short term. The most unfortunate part of this entire uptrend has been, once again (as has been the case following 2008), the lack of new long positions immediately exploding and producing 20% gains within 2 weeks or 50%+ gains in 2 months. The lack of huge upside moves in individual stocks continues and does not appear to be in any hurry to change in the new QE environment we find ourselves in. Chart patterns that produced explosive gains from 1982-2007 simply do not produce the same huge moves (study my past big winners from 1998-2008 to see the evidence). This remains the one unfortunate problem with the new uptrend. The good news, however, this year, is that individual stocks move less with the overall market and finally have a mind of their own. It appears, during this uptrend, forcing yourself to be long leveraged index ETFs is not the only way to make money for the first time since the 2009 uptrend started. Overall, there was not much action out there following the BUY signal and that is an overall positive. It would have been much better to follow-through on the gains immediately but the indexes across the board are a bit extended away from their 200 day moving averages and history tells us huge moves are not going to happen when the indexes are around 10% higher than their 200 DMA. Some sideways consolidation would be a very bullish situation here. Especially with the upcoming Facebook (FB) IPO. A black swan event could happen at any moment so we continue to be completely ready for the uptrend to end at any day. Picking a date, however, would be foolish. We will let the price action of the indexes tell us when the uptrend is over, instead of our flawed egos. Have a great weekend everyone. Aloha.

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

KORS – 64% – 1/17/12
SWHC – 50% – 1/3/12
RF – 41% – 1/5/12
LHCG – 40% – 1/19/12
AVD – 38% – 1/10/12
CERS – 28% – 2/10/12
CRMT – 26% – 11/30/11
SUNH – 25% – 3/9/12