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

A Tale of Two Tapes, NASDAQ Continues its Outperformance

The S&P 500 and other NYSE indexes were hit with a day of distribution while the NASDAQ was able to escape. Euro contagion continue with a focus on Portugal seems to be the flavor of the month. If the market hasn’t figured it out now all the Euro nations will have to face the music at some point. Fears over continued lag in the European nations weighed on investors mind. To make fears worse China’s slowdown continues to be front and center. Its PMI continues to be weak and below 50 showing a contraction. While it is too difficult to say China is either going to land or soft the fear in the market is certainly real. A late day push off the lows of the session certainly helped out the market and this uptrend. Again, today shows this uptrend is not going to be easy and will continue to frustrate investors.

Once again the McClellan oscillator has moved into extreme oversold conditions. Remember, oversold and overbought conditions can last much longer than you anticipate. At this time, being at an extreme certainly limits the very near term downside risk. That being said, we’ll still need to stay on our toes and take our signals. A one day bounce may just be a head fake for lower prices. Stick to the game plan for now and seeing where we are at I’d expect to see the market to react to the upside in the short-term.

One positive sign on the day was the relative performance of a few leading stocks. For the second straight day we did see some bright spots from leaders. Even AAPL after posting some big gains has held up relatively well the past few days. PCLN continued on its war path pushing higher once again and the same goes for CMG. CMG is just one amazing stock. The market liked what it saw out of LULU and rewarded the stock accordingly. In after-hours NKE announced a share buy-back program boosting the stock another 1%. It would be nice to see some of the newer leadership type stocks to explode higher and produce massive gains. We have yet to see massive runs during this most recent uptrend (thanks ZIRP).

Cut your laggards and always cut your losses. Have a great weekend and stay safe.

The Market Stalls as Late Day Sellers Sour the Market Mood

End of the day action was the story of the day as sellers knock down stocks. At 3:30 in the afternoon the market appeared to be heading towards a solid day. Unfortunately for those who are long the market sellers had a different idea. Negative economic news from existing home sales certainly didn’t help the market during the early part of the day, but wasn’t the primary driver for the afternoon sell-off. We can certainly blame the turnaround in bonds or slowing China growth. Very good arguments there, but the real matter at hand is the price action of the market itself. Today’s action constitutes has a stall day and we’ll need to avoid any distribution if this market has any chance of continuing its uptrend.

Some positive news on the day there were some stocks holding up. The steady Eddy of the group (Leadership) is CMG. The stock continues to march higher, forget what you have learned from any other chart pattern. CMG is in a class of its own. PCLN is another leading stock that continues to push higher, but the stock is too far extended for entry. A few other stocks held up okay, but the late day selling does cast a least, for now a cloud of doubt.

The most recent II sentiment survey shows a big bounce in bullish investment advisers. 48.4% of respondents were bullish up from last week’s, but what is striking is the number of bears dropping off. While not near March 2011 lows, we are getting real close with only 23.6% of investment advisers are bearish. Don’t get me wrong, continued fiscal policies by the US Government will at some point impact the market. However, we trend followers know price will always be our guide.

For this uptrend to continue we’ll certainly need to avoid distribution over the next few days. Any distribution would like signal further pullback. Let the market come to you, guessing we have topped here is no way to invest. Proper discipline and prudence is the best course for success.

Volume slides NASDAQ erases losses

The market avoided a day of distribution despite early morning losses. A negative housing report soured the morning mood as sellers dominated the morning trade. Buying kicked in just afternoon time as upside volume begin to emerge. The end of day action wasn’t ideal as a slight pull back from the day’s highs was a bit disappointing. However, the support at the lows is something unmistakable as this uptrend continues to prove to be unstoppable.

At some point, yes this uptrend will cease and we’ll get a correction. No one can predict when we’ll get a correction. Distribution count on the S&P 500 is 4 and the NASDAQ sits at just 2. While the S&P 500 distribution count nears an area of concern the NASDAQ remains in the clear. Of course further selling on volume would change this, but we’ll wait and see.

AAPL was a big part of the market’s rise from the bottom. Early morning sellers were eager to take down the stock after it closed above $600 for the first time. Closing near the session highs on above average volume was a clear sign institutions stepped in and supported the stock. One thing to note, the stock closed again at another all-time high. Tough to be bearish on the stock right now, unless of course you like to pick tops and in this case you have been wrong quite often.

Another big winner on the day and for BWT members was KORS. KORS had a bit of trouble during mid-day, but buyers jumped in and pushed the stock higher closing just below its high of the day. The company raised its guidance and the market rewarded accordingly. KORS a recent IPO, continues to show strength and is a staple of the BWT portfolio.

In earnings news, ORCL posted better than expected earnings. The stock rose 1.5% at the close of the after-hours session. The stock was up more than 3% during the after-hours session, but was unable to hold onto its gains.

This uptrend remains tricky and will continue to frustrate investors. Stick to a disciplined approach and BWT. Cut those losses short.

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Major Indexes End the Day Higher as AAPL Closes Above $600

Late day selling did put a damper on the day’s action, but small caps and NASDAQ shine. Volume ended lower, but coming off the quadruple witching Friday it would have taken a miracle to eclipse Friday’s trade. By far the biggest story of the day was AAPL issuing a quarterly dividend and a share buyback program. Perhaps just as big of a story, but will go somewhat unnoticed was the big time reversal BAC ended the day with. At the end of the day the Russell 2000 and NASDAQ lead the market higher and we continue to push higher within this uptrend.

AAPL continues to be a monster stock and the”top” calling continues. It could be a top here, but given its ability to grow and accumulate cash it is hard to believe the stock has put in a top here. Sure, the stock has been on a tremendous run and is more than likely due for consolidation. I wouldn’t jump on the short/top bandwagon just yet. It would take a fundamental shift for the company to take a turn for the worse and we’ll get its clue by the price and volume action of the stock.

BAC was another story stock today as the stock hit the $10 mark for the first time since last year. By the afternoon the story wasn’t as rosey. Sellers took to the stock knocking it off its high of the day in massive turnover. The current figure available to me BAC traded 658,840,199 shares the most since August 25th when it traded 860,000,000 shares. Today was a clear sign the stock has hit overhead resitance and needs time to rest.

A headline that crossed over CNBC’s website was the market was going to run into a dismal earnings season. Here is the headline: “Market’s Next Big Worry: A Dismal Earnings Season Ahead.” Perhaps Jeff Cox (CNBC.com Senior Writer) is right the market may get a very bad earnings season. Anything is possible, but we don’t trade on guess work. Reaction to the market’s price action is much more of a reliable way to trade the market. Guess work doesn’t work and you need to leave it to amateurs.

Another story that will play big headlines is the continued surge in bond yields. TLT is a good barameter of Bonds and its breakdown below its 200 day moving average is something to take notice. The stark reality will be higher bond yields will translate to bond fund losses. Will investors stand to lose money in Bond funds as they have with equity funds? Are investors willing to tolerate bond losses and an equity market pushing into multi-year highs? Big questions to be answered and the stock market will answer them. The key will be finding the clues in price and volume action. We’ll be on top of it, will you?

Cut those losses short and have a great week.

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

Stocks Climb Higher but Volume Ends Mixed

Market pundits continued to focus in on Goldman Sachs and bond yields. Volume was below average across the board, but higher on the NASDAQ. While there is a lack of above average volume price action remains positive. The day’s gains were solid with small cap stocks leading the market higher. While the NASDAQ and are at multi-year highs the Russell 2000 continues to remain below its multi-year highs. There are negatives to point out, but the market remains in an-uptrend and at multi-year highs.

An interesting development is what we saw from sentiment indicators this week. The development there is the big disconnect between the two. Respondents to the AAII survey were more bullish than last week ending at 45.61% bullish. Bears edged lower coming in at 27.2%. On the other hand the number of II bullish respondents (Investment Advisors) dropped to 43.6%! Bears remained flat at 26.6%, but the real story was the number of bulls jumping ship despite the market being at multi-year highs. Sentiment is very hard to trade off of, but it is clear the crowd is NOT widely bullish here.

Fighting the trend is something MANY try to do yet continue to fail. We see all over facebook, twitter, and other mediums traders and investors alike are trying to pin the top of the market. We will not do that here with our trading. Now, we can guess whether or not there is a top and debate our points for fun. There is zero chance we’d ever allow ourselves to “pick” or “call” a top as no one knows when an actual top has occurred. It is a game no one has mastered and the greatest traders of all time did not make a living “calling tops.”

It is a bit concerning volume had a tough time climbing above its 50 day volume average. Even though volume was higher than yesterday it certainly doesn’t feel like the market is real active. The market is giving off the feeling it is going to fool quite a few folks and force them to sell their holdings way too early. I could be wrong and we reverse tomorrow and head into a new downtrend. For now, there certainly is a feeling the market will continue to move higher methodically forcing scared traders selling too soon. Using a disciplined, rules based system allows us to remove the emotion from our trading. Rules keep us out of trouble and ready to ride big gains!

Enjoy the rest of March Madness and do remember to cut those losses!

Bond Yields Head Higher Despite Successful 30 year Auction; Stocks Ride Intraday Roller Coaster

After hitting multi-year highs the stock market went into a volatile intraday session. Volume ended lower across the board, but it was bond yields continuing to push higher that were the talk of the street. TLT dropped more than 2.5% on the day as sellers of bond hit the market hard. Perhaps it’s a view of future inflation, but the move in bonds certainly appeared to cause the stock market to gyrate in wild fashion. Buyers at the end of the day were able to take the sting out of the wild day. Lower volume across the board was a welcome sign avoiding a stalling day. Not a typical consolidation day, but this market is anything but normal.

The close was very important as it did save us from significant damage. Interestingly enough the McClellan Oscillator, a measure of overbought/oversold conditions turned lower near oversold. Given the most recent move off last week’s lows not in overbought territory certainly helps the case to continue higher.

One hiccup to the rally may be what happens with bond yields. Since 2009 money has poured into bond funds and the trend continues. However, if bond yields continue to rise the situation will become very dire for bond funds. Higher yields means lower prices for bonds crushing the NAV of bond funds. It may take some time, but holders of bond funds will not be happy when they see significant losses in their portfolio. Even short duration portfolios will see damage, where will investors seek shelter? Will equity funds come back in favor? Anything is possible, but it is highly likely flows will favor equity funds in the future.

Despite the intraday action we remain in a full buy signal and appreciate the “pause.” Now, over the next few days we’ll need to find further power like we say during Tuesday’s market. Always cut your losses short!

Federal Reserve and Banks Give the Market a Big Boost; Small Caps lead the way

Market Timing Model switches to Buy Mode

Economic news was thrown aside today as the Federal Reserve and banks spark buyers to come back into the market. Advance retail sales figures came in line with expectations and didn’t provide much of a spark for the market. All eyes were on the FOMC meeting and its subsequent rate decision. It wasn’t until 3pm after the rate announcement did the market find buyers. JPM announced a share buyback program and a boost to its dividend. It was all the market needed for buyers to rush in and buy up stock. Small caps lead the day with more than a two percent gain showing risk on is back. Volume was up across the board showing institutions were back buying shares. We are back in buy mode as today was precisely what we needed to see to keep this uptrend alive.

Last week’s action in the market is a mere blip on the radar screen and is in distant memory. It is quite funny how things can change in one day! Today was a clear signal there was a thirst to buy up shares in a big way. S&P 500 volume was above average thanks to banks like JPM and BAC. JPM got the ball rolling announcing plans to buy back shares and boost its dividend. Subsequent bank stocks announced similar plans, but it was JPM starting it all.

After JPM announced its plans there was a headline the Federal Reserve was going to announced its stress test results after the bell. However, looking at an intraday chart, buyers began their operations just before the 3pm final hour. Did someone leak the positive stress test results? It is quite odd the market took off slightly before the JPM announcement. I am sure the SEC will be investigating.

More importantly we have a slew of new long candidates! It is always a nice confirming signal when the market blasts higher and we have new quality longs. We’ll continue to stick with this uptrend and let others fight the trend.

Stocks stay quiet ahead of Tuesday’s Federal Reserve FOMC announcement

Greece triggering ISDA’s rules of a credit event was a non-factor today. There was very little carry over from Friday’s event and the action resembled a good day of consolidation. Volume was light across the board as traders await tomorrow’s Federal Reserve rate decision. There weren’t too many exciting moves today except for JVAs post earnings move. All in all today was a good day for the market as tomorrow will bring on a slew of economic data and the Federal Reserve’s rate decision.

What will dominate the pundit talk tomorrow will be retail sales. The big excuse for whatever the numbers will be gasoline prices. Gasoline prices are, obviously a big component in discretionary spending. You can imagine the spin that will take place when the number is released. Trend following does not require us to guess or anticipate how the market will react to the news. We see the action and react according to our rules. It may sound simplistic, but when followed religiously it will produce substantial gains.

It would not surprise me to see a bit more volatility this week with Friday being a quadruple witching Friday. Volume should start to pick up and the Federal Reserve meeting will certainly help usher in volume. Surprisingly the VIX is not at 52 week lows despite the market being at 52 week highs. The 52 week low for the VIX is 14.27 and with the index at 15.64 it would signal we may not be at “the top.” It would be helpful if the market could continue to work sideways and continue to consolidate gains. However, with 6 distribution days on the NYSE, 4 on the S&P 500, and 3 on the NASDAQ one or two more days of distribution would certainly spell trouble for this market.

It is good to be back in the saddle for the week. Always remember to cut your losses in your trading as it is your insurance policy for your portfolio!

Big Wave Trading Portfolio Update And Top Current Holdings

“The elements of good trading are: 1, cutting losses. 2, cutting losses. And 3, cutting losses. If you can follow these three rules, you may have a chance.”

“Dramatic and emotional trading experiences tend to be negative. Pride is a great banana peel, as are hope, fear, and greed.”

–Ed Seykota

The Big Wave Trading Market Model switched twice this week. Once from NEUTRAL to SELL and quickly back to NEUTRAL as the market rallied on lower volume above where the SELL signal was generated. While the market has rallied following the sell off earlier this week, internals are much weaker following this rally.

Our model tracks internal technical indicators that track volume and price action over various time frames. These models show this rally is a low volume rally that has a very high chance of failing. If the rally continues and volume returns to the upside then our model will switch to a BUY signal. However, without a powerful 1.5% higher day on very large volume on the move, the BUY signal would not be a “full” signal.

We have noticed multiple problems lately with this rally. Our new long positions are not working right away like they did from December to February. Coming into this past week, Big Wave Trading saw around 11 sessions in a row where new longs did not perform immediately and thus were sold off. Current longs with large gains began showing signs of distribution or price pattern breaks with many giving either partial or full sell signals the past week. A few true gems like KORS ULTA LULU remain but many leaders have suffered some hits to their once well-formed pretty chart patterns. The past few sessions, while the market has rallied, defensive sector stocks have shown up in force in my long scans (indication of rotation out of growth into defensive stocks). Aerospace/Defense, Food, Beverage, Utility, Medical, and Drug stocks dominate my scans. In December and January various growth industry groups, retail, tech, biotech, and small caps led. Two key internal technical indicators we follow on a variety of indexes, ETFs, and inverse ETFs show extreme negative divergence and have shown this since February 2nd (ten days before the Russell 2000′s recent top)! These indicators turned higher in December well before the full BUY signal was generated on January 5th. On top of this we are seeing a lot of pump and dump stocks being promoted by horrible human beings. Sentiment in the AAII and Institutional Investors survey continues to be very bullish, even after the small recent pullback.

This is why last week our BUY signal switched to a NEUTRAL signal as soon as the Russell 2000 began to selloff. The only way to get another BUY signal right here is to have the indexes either immediately blast off 2%+ on much higher above average volume or consolidate for a few weeks and then have a 1.5% gain in volume higher than the day before. Until we see this and see more well-formed “pretty” charts with the proper price and volume pattern set up, we will remain in a NEUTRAL stance weighing to the downside. A selloff here on any increase in volume that would see leaders like PCLN AAPL or ISRG break with it would definitely throw the Big Wave Trading Model back into a SELL signal.

We remain agnostic here but our scans and internal computer system indicate that the next move will be lower. We do not place “bets” on this data. We simply take the data and use it when the next break higher or lower happens. The biggest hint something is changing is my long scans. On Friday they were dominated (10 different scans) by defensive sectors with each scan having different stocks from these sectors. That is what we call confirmation of a rotation from growth stocks into defensive stocks. Going all-in on margin here thinking the market is clear for take off is a very dangerous proposition to consider here. Aloha and have a wonderful weekend.

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

KORS – 76% – 1/17/12
SWHC – 54% – 1/3/12
AVD – 36% – 1/10/12
RF – 28% – 1/5/12
LHCG -29% – 1/19/12
CRMT – 27% – 11/30/11

Russell 2000 and NASDAQ lead the market higher as Greece fears subside

A slightly disappointing jobless claims figure dampened the mood pre-market. Sellers quickly took hold and pushed the market to the lows of the session. It didn’t take long for buyers to step up and reverse the market’s fortune. It appeared the fears over Greece’s debt deal were overblown and after the market closed news came out 95% of Greece’s creditors agreed to the debt swap. At the close volume was higher on the NASDAQ, but slid on the NYSE. With Greece behind the market for now all eyes will be on tomorrow’s jobs report.

Today’s move removed the short-term oversold condition, but the rebound over the past few days has been mixed. The NASDAQ is certainly in better condition than the S&P 500 as volume is more favorable. It is anyone’s guess where the market will go next, but we’ll have a plan of attack for whatever the market has in store for us.

Sentiment has come down this week aided by the sell-off occurring in the middle of the week. AAII bulls dropped to 42% while bears were rose slightly to 29%. Not quite the drastic move, but with only a 3% drop in the NASDAQ this little drop was not that surprising. Further consolidation here would do the market some good before moving higher. Given the jobs reports tends to provide the market with wild swings it would be nice to see the market rest a bit prior to moving higher. The market will give hints as to where it wants to head next. You just have to listen.

The Big Wave Trading market model is back to neutral after two days of a rebound. Any further selling on volume would certainly bring on another sell signal.

Get out there and enjoy a nice weekend!

Stocks rebound off oversold conditions but volume falls

Coming off extreme oversold conditions the market was able to find support. Volume came in lower on the day giving the indication institutions weren’t in a rush to get back into stocks. Greece was still in the forefront as Thursday’s deadline for bondholders. Small cap stocks lead the way with the Russell 2000 closing higher by 1.13%. It was the first time the Russell 2000 showed relative strength. AAPL’s even caused quite a stir with the stock creating intraday volatility. The first rebound attempt for this market wasn’t too impressive and we’ll need to see some further power to erase the damage over the past few trading sessions.

Leading stocks have been largely okay throughout this rally. Stocks like KORS have been big winners, but we haven’t seen the multitude of 100% or more winners. Normally, in an uptrend like this we see the market produce many of these winners. Perhaps in the massive Quantitative Easing world we are going to miss out on having multiple BIG winners. It will take much more skill to find and hold onto the winners the market is producing for us.

Tomorrow I will be able to get the AAII survey, but the most recent II survey has the number of bulls dropping below 50% to 47.9%. Last week the survey sat at 51.1% clearly the most recent sell off had some effect on weak bulls. The number of bears didn’t increase dramatically moving up just slightly to 26.6%. It appears all we got from the past few days was to shake out a few weak bulls. Perhaps further downside will take care of that. Anything is possible and why it is important to have a game plan for the market.

Yesterday the McClellan Oscillator sat at -321 which is an extreme level. It was clear the downside was a bit limited in the very near term. Oversold markets can become more oversold, but at yesterday’s level a bounce certainly was very likely to occur. Today the oscillator sits at -186 and it won’t take much further upside to clear any oversold condition. Remember, this is not a substitute for price and volume, but merely a secondary indicator aiding your ability to analyze the market.

Friday we get the jobs report and it should provide us with some fun talking points. Will the unemployment rate rise, fall, or stay the same? It doesn’t matter to us, we simply care about the price and volume action. Stay disciplined and cut those losses.

Big Wave Trading Market Model Hits Sell with Stocks Falling in Heavy Trade

Renewed Greece fears hit the market hard today giving institutions reason to sell stock in mass quantities. For the second straight day the NASDAQ put in a big day of distribution. One positive in the day was there seemed to be buyers supporting the NASDAQ at 2900, but the negatives far outweigh the positive today. We now find ourselves with 4 days of distribution on the S&P 500 and 5 on the NYSE composite. Today’s selling did quite a bit of damage and caution is certainly warranted.

Only 23% of stocks are over their 20 day moving average, just one month ago this figure was over 80%. At the lows today the NASDAQ was only down 3.3% off its most recent high. I suspect a reaction to the recent sell off would be in-store for us. Natural reactions occur all the time to big moves and they tend to be big signals as to where the market is heading. July ’11 we saw the market trip up and fall quickly after the long run up from June ’11. The reaction to the sell-off was quite weak and on very low volume (removing options ex). This time will not be any different, the reaction to this selling is important and a big signal to the direction of this market.

Greece is at it again spreading continued (pick an adjective) worries about its debt situation. Simply using arithmetic one can deduce Greece will have to write-off/liquidate majority if not all its debt. The United States did this very thing in the 1920-1921 economic downturn and it wasn’t more than a year we were on the road to recovery. The sooner the entire global market accepts debt liquidation the faster the recovery will come. Unfortunately, the political will and fortitude simply doesn’t exist in the European Union. Let’s not forget, debt liquidation is coming to our shores too. It will only be a matter of time.

Stay disciplined and cut those losses.

AAPL weighs on the NASDAQ and the rest of technology stocks

A positive surprise from the ISM non-manufacturing index and factory orders did not deter sellers from taking aim at AAPL. Getting hit hard at the lows AAPL was down more than 16 points dragging the NASDAQ way down with it. Volume ended lower on the NASDAQ, but for AAPL volume was 85% above its average volume. It was clear the action in AAPL weighed heavily across the technology sector as other big cap technology stocks were among the hardest hit. On the bright side, small cap stocks were able to inch out gains on the day. Small cap stocks have lagged quite a bit as of late, but today they were able to notch gains. Both the NYSE composite and S&P notched distribution days bring their totals to 4 and 3 respectively. What is notably happens to be the NASDAQ which has only 2 days of distribution. Perhaps a shot across the bow here with AAPL’s action and with the NYSE sporting 4 days of distribution we certainly throw caution to the wind.

On February the 15th AAPL staged a major reversal on gigantic volume. The stock was able to power past the reversal, but it is clear distribution has begun to mount for the stock. We won’t know if the party is over until its over, but further price destruction will certainly give the impression the stock has exhausted buyers. Let’s face it, with nearly 4300 funds owning the stock it is tough for more support to come to AAPL’s rescue. Have a plan and execute.

An interesting stat has popped up and that is the amount of stocks above their respective 20 day moving average is hitting a point where stocks have bounced. This is quite the imperfect indicator and should be used more of a talking point than anything else. It will be interesting to see how this market works out over the next few days. Friday’s jobs report will certainly usher in a few more fireworks to the week.

Get out there and execute your trading plan. Your first priority is to know your risks by knowing your exits. Profits take care of themselves, losses do not. Cut ‘em.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading market model switched from a BUY signal to a NEUTRAL signal following Wednesday’s stock market session. The switch from the BUY signal which was triggered on 1/5 to a NEUTRAL signal on 2/29 was caused by a few key factors this past week. 1. New longs have not moved higher immediately leaving most with full cut losses. 2. Current holdings are giving off partial profit taking to full profit taking signals. 3. One key technical indicator called Time Segment Volume continues to show huge negative divergences on the Russell 2000, Nasdaq, and SP 600. 4. The Russell 2000 led the rally from the October reversal higher and therefore should, as history suggest, lead the market lower. This being said, we are well aware that a lot of our current holdings continue to have very strong technical price and volume patterns (Big Wave Trading portfolios remain anywhere from 55%-75% currently invested). On top of this, there are plenty of stocks out there building bases that also sport fantastic fundamentals. Fusion-io (FIO) and Questcor (QCOR) are two great examples. Even further more, we have the beloved Facebook (FB) IPO coming up sometime in the very near future. If the market reverses higher here on higher above average volume with the indexes putting in a convincing 1%+ move, you can be sure our market model will return to a full BUY signal. If selling continues to pick up and leading stocks like Priceline (PCLN), Apple (AAPL), and Mastercard (MA) breakdown, the market model will switch to a SELL signal. For now, we remain in NEUTRAL, and that means that we invest less capital in new longs, we go short great short setups (not good setups), and we are even quicker to take our losses than we are in a trending market. Cutting losses extremely quick, when wrong, remains disciplined rule #1 at Big Wave Trading.

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

KORS – 70% – 1/17/12
IRE – 49% – 1/17/12
RENN – 47% – 1/11/12
YINN – 43% – 1/5/12
LHCG – 32% – 1/19/12
FAS – 31% – 1/5/12
UMDD – 31% – 1/5/12
RF – 31% – 1/5/12

Volume Fades But Stocks Stage Rebound After Yesterday's Loss

A boat load of economic news hit the market early, but it was retail sales creating a stir. Better than expected retail sales certainly did not hurt things today, but you have to wonder with shrinking personal incomes at some point the cycle will break. Volume was running about even with yesterday’s level, but end of day volume yesterday due to end of the month rebalancing kept volume under wraps today. Leading stocks fared well today and continue to act well despite four days of distribution on the NASDAQ. A good, but not great recovery as the uptrend remains with some warning signals.

Sentiment did not change much from last week with a slight shift from bears to bulls. Neither end of the spectrum is at extremes. Despite the run up we have yet to see a big push from Bulls. While we did see bulls hit 50%, but they were unable to stay above this level for more than one week. Even the Investors Intelligence survey has failed to get at 5 year highs of 62% . 51.1% of respondents to the II survey are bullish, quite normal for the survey. Sentiment isn’t going to tell you much here and it won’t until we hit extremes.

What is another interesting point here is the VIX has unable to hit new lows while the market has hit highs. This may turn out to be nothing, but it is interesting buyers haven’t become completely complacent here. In fact, the number of stocks above their 20 day moving average sits just below 45%. Hardly the frothy levels we were seeing last week. Given sentiment, the VIX, and distribution days it appears we may be seeing a market looking for more sideways action prior to breaking out. A reminder, breaking out could mean to the downside. Have a plan of attack and execute it.

The jobs report is next Friday, not tomorrow. CNBC will have to wait another week parading in “experts” talking about the jobs market. Get out and enjoy the weekend!

Bernanke speaks as stocks reverse hard closing out the Month

Big volume throughout the day signal a distribution day across the market making the count up to four for the NASDAQ. Four distribution days is certainly a cause for concern and after today’s reversal on big volume it does call into question if a correction is on the horizon. Market pundits certainly had a field day with Ben Bernanke’s testimony in Washington, DC today. But, the day’s action more than likely had much more to do about money managers’ allocation strategy than anything else. Speculation about the why is just that, but what is more concerning to us is the price action of the market. Today’s action was certainly another blemish on this uptrend under pressure.

It really is no surprise this uptrend would come under pressure at some point in time. This is not something that surprises us. Given the move since the day after Thanksgiving 11/25 and the 10/4 rebound a bit of rotation out of the uptrend’s leading names is expected. Mutual funds continue to raise cash for redemptions, but after 3 month run in the market they are likely to take gains off the table. A quick 3-5% correction is not out of the question here. The most important action is to make sure you are staying disciplined in your portfolio by cutting laggards and sticking with winners.

Gold and silver took it on the chin today with the dollar pushing higher. Perhaps Bernanke’s comments spooked traders or not the push lower was quite entertaining. Some are blaming a large quantity of Treasuries coming to market causing the big declines. Whatever the case may be what we have in front of us are precious metals giving up sizeable gains after breaking out. Caution is certainly warranted.

It is anyone’s guess if this market has indeed topped. Like I said in last night’s commentary, there are quite a few looking for a top. Stick to your plan and do not let opinions and thoughts from others plague your ability to execute your trading plan. Cut those losses short.

Stocks find big support; PCLN books after-hours gains

Warren Buffet’s CNBC interview was not well received by the futures market as the market was shaping up to open lower. While I don’t think nor care if Buffet was really pushing the market lower pre-market what I do care about was the market’s ability to find support. A rush of support showed up just after the first fifteen minutes of trade, just as the market appeared to be taking a swan dive. Volume jumped on the day finishing above Friday’s level showing a few institutions joined the party today. It was important to see the market find support at the lows and now we need to see the power behind this potential move.

CNBC can’t get enough tossing headline after headline of asking if this market is tired or not. We have tools to alert us to potential trouble and it isn’t guess work. Using distribution counts we can see whether or not a market is heavy and due for a potential BIG correction. At the moment the NASDAQ has three distribution days and it is not at a point where we are going to sound the alarms. A few more distribution days and/or stalling days would certainly raise high alerts. Do not guess if something is about to occur, always react to the market and its clues. Stay disciplined and stop the guess work.

PCLN was a big winner in after-hours trade after the company beat sales and revenues. Guidance for the first quarter was higher than expectations and the market rewarded the company nicely. The stock now joins GOOG at the $600 level a big priced stock with growth is very hard to come by. Yet again another growth stock posts better than expected earnings. Let’s not forget many stocks took the plunge in October as many took down estimates allowing for comfortable beats here.

The market remains in an uptrend and no matter your opinion on the health of the trend…it remains up. You are not smart enough to know precisely when it will end and if you do I have some south Florida real estate to sell you. Always and I mean always cut your losses short.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading margin and retirement accounts remain fully invested. There have been two distribution days in the Nasdaq in the past week but the selling has been orderly. While we remain cautious on new positions with the market in a non-stop uptrend, we continue to ride the trend higher. We do not know if the market will or will not pullback. We can only prepare for both outcomes. If the market begins to pullback we will continue to sell laggards and look for new leaders. If new leaders do not appear then we know there are problems with the underlying market. As of now, every time we sell off a laggard we are presented with another leader giving a legit BUY signal. As long as this occurs, Big Wave Trading will remain fully invested flipping out the laggards and using that capital to invest in the new leaders. While a pullback seems like the appropriate and necessary thing for the market to do, we know the market usually does the opposite of what we want. Therefore, if the rally continues without a pullback, we at Big Wave Trading will not be surprised and will just ride the wave.

Top Current Holdings – Percent Return – Date of Purchase

IRE – 52% – 1/12/12
KORS – 47% – 1/17/12
MOTR – 46% – 2/2/12
LCAV – 46% – 2/13/12
FFN – 35% – 2/7/12
UMDD – 34% – 1/5/12
YINN – 34% – 1/5/12
RENN – 34% – 1/11/12
FAS – 28% – 1/5/12
TNGO – 28% – 2/3/12
CRMT – 28% – 11/30/11
RF – 28% – 1/5/11
VNET – 25% – 1/10/12

Salesforce.com Dazzles in After-Hours as Stocks Close higher

Volume rose on the NASDAQ as the index was able to find its footing again. The S&P 500 had a good day, but volume continues to be below average a sign institutional investors continue to stake out in NASDAQ listed stocks. Jobless claims fell more than expected and the Kansas City Manufacturing index rose more than expected. A few positive signals from an economic stand point certainly didn’t hurt the market today. in the after-hours session CRM posted positive earnings sending the stock higher by 10%. The cloud computing space is making a bid to become a leading industry again. The end of day surge into the close was another positive signal for this market and we continue to remain in an uptrend.

It is Thursday so we have a look at the release of the AAII sentiment survey as well as the II survey. Yes, these are released on Wednesday, but AAII does not become available to me until today. In the AAII survey we see both Bulls and Bears edge slightly higher, but nothing major in terms of a sentiment shift. There continues to be a bullish tint in investors’ attitudes towards the market, but it is not a surprise given the recent run-up in stocks. Only 51% of II survey respondents are bullish despite the recent run up. Extreme sentiment levels come when the II survey posts 60% or more. Perhaps we’ll get there soon, but for now sentiment isn’t at extreme levels where a possible major pullback could occur.

The NASDAQ does have 3 days of distribution and is something we’d get concerned with if we do see a major distribution day soon. However, concerning ourselves “if” it happens is silliness. We are discipline and react to the situation. Many times guessing is based upon a hunch or fear which rarely works out in your favor. Staying disciplined and following your rules will ensure your survival! Stick with it and follow rule #1.

Enjoy the weekend ahead!

Small caps lead the market lower; Volume slips again

Another quiet day on Wall Street where stocks close near the lows of the session, but volume falling below yesterday’s level avoiding a day of distribution. We did receive downbeat news from the housing sector sending homebuilders lower. Gold (GLD) and silver (SLV) continued to add to their gains today showing the precious metals believe in continued expansion of central banks’ balance sheets. The close was somewhat disappointing not being able to lift off the lows of the session, but with volume really light institutions weren’t selling stock in droves. We continue to consolidate the most recent gains, but we would like to see a bigger push by leaders to emerge from this consolidation.

Existing home sales did disappoint today, not badly, but enough to send home builders much lower today. XHB – the homebuilder ETF was down 1.46% today after the news. It is important to note the homebuilding stocks have been what have led this most recent rally. To see the group struggle certainly signals a possible rotation by the market or worse a top. While we can’t predict tops, or rotation it is best to stock to a sound trading discipline to avoid confusion. Stick with the rules.

Outside the XHB, GLD and SLV took center stage moving higher. Yesterday, the precious metals performed very well and today the group continued yesterday’s strength. Continued strength in precious metals certainly hints at continued expansion, better yet money printing by central banks. Typically, when precious metals rise in the case of balance sheet expansion stocks rise along side the precious metals. Central banks do not have any more ammo other than to print money and they will do so until the system breaks or they are successful. Either way, easy money translates to higher asset prices.

Remember to always cut your losses short.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Market Model remains under a full BUY signal. This buy signal was signaled on 1/5/2012 and has not had a change since. The distribution day had zero effect on the model and thus being fully invested on the long side continues to be the mode of operation. Big Wave Trading will continue to ride its winners higher while selling off any new long that does not trade higher immediately. The capital raised from selling these losers will continue to find its way into new longs and current winners as long as the model remains under a full buy signal. A string of 3-4 distribution days in 2 weeks would no doubt, following the non-stop uptrend we have had, throw the model into a neutral position until the next follow-through day or BUY signal is alerted. We are ready for a pullback at anytime at Big Wave Trading. We do not know if a pullback will be the start of a new bear market or a pause for the rally to continue. Based on the very heavy and clear accumulation in multiple stocks across multiple sectors, an upcoming FB ipo, and the more than likely event of QE3, we do believe any pullback will lead to better buying opportunities as we come upon the bullish months of March to May. However, Big Wave Trading in no way project these opinions into our trading methodology. If the market rolls over, instead, on huge volume, with multiple leading stocks breaking down everywhere, you can be sure we will not be waiting to buy stocks and will instead be short the market. This is a very strong market and trends can last longer than shorts can stay solvent.

Top Current Holdings – Percent Gain (Non-Margin) – Date of Signal

FFN – 58% – 2/7/12
IRE – 56% – 1/12/12
KORS – 49% – 1/17/12
MOTR – 41% – 2/2/12
RENN – 41% – 1/11/12
YINN – 39% – 1/5/12
UMDD – 34% – 1/5/12
RF – 32% – 1/5/12
FAS – 29% – 1/5/12
JKS – 28% – 1/27/12
CRMT – 27% – 11/30/11
DVR – 25% – 1/13
LNKD – 25% – 1/19

Nasty Intraday Reversal Led by AAPL Sours Uptrend

Positive economic data helped set the tone early for the market. Empire manufacturing and the Home Builders confidence survey both came in better than expected. By noon, the high of the day was set and AAPL’s roll over pushing stocks lower. Volume jumped on the day over on the NYSE giving the S&P 500 another day of distribution. The magnitude of the roll-over gives the NASDAQ a distribution day, but it is only the second day. AAPL was the big disappointment of the day with GIGANTIC volume the stock has run into major resistance and does spell a bit of trouble for the market overall. While one day doesn’t make a market we are certainly on watch with this uptrend, this type of action is not what you want to see.

There are many reasons to like AAPL as a company. The stock is much different than the company itself. Removing emotion and opinions the move in AAPL today does resemble a possible top. Let the hate comments begin! In all honesty, it is too difficult to say AAPL’s run is completely over, but for the time being it appears the upward momentum has come to a halt.

It will take more than one day to knock this market off its kilter. Cluster in a few more distribution days it would certainly mark the end of the rally. A more likely scenario is a 3-5% pull back to digest all the recent gains we have seen from the market since December. One quick look at the QQQs and this rally has been non-stop! A normal reaction to this move is certainly warranted. If you have an exit strategy in place you already know what you are going to do. If you do not, the big question is why you haven’t put one in place. Get one.

Stay the course and stick with the game plan. We have had a nice run and perhaps it is time we see a pullback. What happens is anyone’s guess, but with a plan we’ll profit from it.

Barron’s Declares Dow 15,000 and Stocks Respond Closing Higher

Leading the way Small Cap stocks closed higher followed by the NASDAQ. Volume fell across the board, but coming off a weekend it isn’t entirely surprising volume was off. AAPL pushed through the $500 level for the first time. Another stock hitting $500 was ISRG; two big growth stocks hitting big milestones is a positive sign for the market. While volume wasn’t impressive across the board select stocks saw plenty of volume. Institutions certainly targeted a select few today and despite the overbought conditions this market continues to motor higher.

Besides AAPL and ISRG another stock making a splash was PCLN. The stock has been stagnant for quite some time. For almost a year the stock has been unable to gain much traction, but the move today is certainly a good one with volume up more than 75%. The stock is set to release earnings on 2/27. 2012 estimates have been coming down, but given the move today it appears there is a bit of excitement prior to earnings.

Riots in Athens were broadcasted throughout the world. The markets certainly cheered the passage of the new, new, new austerity bill, but a few folks in Athens weren’t in agreement. I just wonder if Greece will uphold to the agreements they have put in place. My money is they will not meet the austerity guidelines. We’ll be back again where we’ll be hearing another round of haircuts until 99.99% of Greece’s debt is liquidated. If other countries haven’t taken notice they should. Take the initial pain of the budget cuts to be better off later. We are going on year two of the crisis; it shouldn’t have taken this long.

After-hours Moody’s put a few Eurozone nations on negative watch. France was one of the countries and is a big deal. France and Germany have been the two countries financing bailouts. If France’s borrowing costs it will be increasingly difficult for France to support bailouts of the rest of the Eurozone nations.

Despite the Eurozone woes our uptrend continues higher. All the shenanigans going on across the globe really are just a discussion point. Even the cover to Barron’s is a discussion point. Perhaps we’ll look back and say today was the top or we won’t. While it would be fun to call the top, we’ll let price and volume dictate our actions.

The trend is our friend and until it breaks we’ll ride it. Cut those losses short.

Big Wave Trading Portfolio Update And Top Current Holdings

Big Wave Trading Margin and IRA accounts remain nearly fully invested (85%-95%) as our Market Model remains under a full BUY signal. That signal was triggered on 1/5/12. Big Wave Trading is currently watching the current pullback to see if it will result in a short-term top or a normal pullback that will lead to a resumption of the current uptrend. As of Friday, there are no distribution days to signal that anything more than a pullback is occurring. Big Wave Trading will use this pullback to sell off any stock showing a loss or any stock lagging the overall market by a significant degree. The money raised from selling our laggards will be deployed in new long positions or current long positions accordingly as they arise. If the pullback gains steam and distribution days mount, measures will be made to raise cash as indicated via our Market Model as it switches to NEUTRAL or SELL.

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

FFN – 51% – 2/7/12
IRE – 51% – 1/12/12
JKS – 37% – 1/27/12
MOTR – 49% – 2/2/12
RENN – 34% – 1/11/12
YINN – 30% – 1/5/12
UMDD – 26% – 1/5/12
RF – 25% – 1/5/12
FAS – 24% – 1/5/12
HK – 22% – 1/9/12
LNKD – 21% – 1/19/12

Greeks Agree to Austerity; NASDAQ Leads, but Small Caps Lag

The big news of the day was the Greek’s finally were able to come to terms on a new, new, new austerity agreement. Yes, another plan they will fail to deliver on. Volume ended the day mixed as NYSE volume slid underneath yesterday’s levels as NASDAQ volume jumped nearly 10%. AAPL was a clear winner today with their announcement of the iPad3 set to hit store shelves during the first week in March. Small cap stocks did not fare as well today closing in the red; one small blemish on the day. We continue to power higher in the market and the NASDAQ continues to see signs of accumulation. Today was another reminder to avoid fighting the trend.

Sentiment is getting a bit frothy according to the most recent AAII sentiment survey. The Bulls stampeded to above 51%. A level that is quite extreme while the bears finished above 20. Bears didn’t set a new low for this uptrend, but certainly the number of bulls set a new high. Is this “the” top in the rally? It is anyone’s guess given the amount we have run and not to mention the number of bulls. With that said, we still have plenty of stocks looking good and solid accumulation to make us believe we can continue higher.

This uptrend now has a few blemishes that could stall this rally. This does not mean it ends the uptrend completely, but it does signal we could see a quick shake out. So far, we see 1-2 hour shake outs only to power higher. Small caps were certainly a blemish, but today’s breadth was weak considering the market move. NASDAQ breadth favored decliners rather than the advancers today. Normally, an update will sport many more advancers than decliners. New highs continue to be healthy and be a positive force for the market. Given the number of stocks over respected moving averages and breadth weakening it would appear something amounting to a shakeout will occur shortly.

I could be wrong and we never see a shakeout, it is precisely why we react to price moves rather than anticipate them. Our success depends on our ability to react to price changes rather than guessing or anticipate a move. No one individual is that smart and can hit turns in the market often. Don’t anticipate the move, go with it and react as it happens.

Have a great weekend.

Stocks Close in the Green Again; Uptrend continues

Just another day in this uptrend as stocks close higher on the day recovering from early morning lows. Volume rose on the day showing institutions had an appetite supporting the market on the morning dip. It is truly amazing this market is on, a straight line to multi-year highs from what appeared to a market heading for fresh bear market lows. For now, it appears the market is more focused on the Fed’s printing presses than any country from the European Union defaulting. Stop fighting the trend as it has been very painful for those who have been.

Yes, the market is “overbought,” but it has been for quite some time. Sentiment has come down off its highs as of late, so the crowd is anticipating some sort of pullback. Anticipation is a problem if you act upon a hunch. It will lose you money either by missing out on a move or compounding your losses. While it is true we are overbought, the market can continue higher. We have defined rules for exits and until those are met, we’ll stay long.

It will be nice when Greece finally defaults. The past few weeks every morning and night headline has Greece “close” to a deal with its creditors. Just get it over and done with, they are going to default one way or another. Greece has not shown it can stick to any terms it has promised, why even bother with a new set of terms? In the end, Greece cannot pay for its obligations and liquidation needs to occur. This is a painful process for those who are dependent on the government and it will take time for it to resolve itself. Trading off this situation is too difficult; we’ll stick with the trend.

A dangerous tactic here is chasing. It is never wise paying up more than 5% beyond a proper buy point. Often time stocks will reverse shaking out weak holders and late buyers. At this juncture and with the amount of stocks extended it would not surprise me a few of them shakeout weak hands here. If you do chase, make sure you are lightning fast cutting the position if it turns against you.

Stay disciplined and cut those losses.

Stocks Finish off the Lows as Volume Drops

Settling near the highs of the session stocks put in a solid day of consolidation. Volume fell more than 20% across the board, a very good sign institutions weren’t selling. After such a big run up, a day or two of consolidation is a very healthy signal. Crude oil settled lower, but natural gas is in the midst of forming what it appears to be a bottom. While a positive sign for those drilling for the natural resource, but not a particularly good sign for consumers. At the end of the day, we saw a very positive signal out of the market and we continue to ride this uptrend starting at the beginning of this year.

Another few days of the market pulling back would do us some good. 88% of stocks are above their 50 day moving average. Normally, at these extreme levels we do get consolidation. Does this mean you act upon thinking a pull back is about to happen? No, pullbacks are apart of the market and we welcome them as we live within this uptrend. If big volume selling takes place we’ll start taking a different tone, but for now, we stay the course and execute our game plan.

BAC continued its tear leading the Dow Jones Industrial average higher. Financials continue to perform well despite the negative press. It is nice to see banks perform well; they tend to lead the market higher in new uptrends. WFC and PNC are two other stronger BIG banks doing well. A bit of consolidation for the bank stocks around their respective 200 day moving averages would do them a bit of good.

NFLX and GMCR two former top quality stock All-Stars continue to mount comebacks. We are seeing quite a few of these old names like AKAM and CSTR come back to life. DNDN is another former high flyer coming back to life. As always, sound money management is a must and cutting losses should not be avoided at any time. Even these former high flyers coming off their lows are not exempt from the plan.

Solid start to the week and would not be surprised if the market continued pulling back. The uptrend remains strong and there is no reason to think otherwise.

Big Wave Trading Portfolio Update

Big Wave Trading remains fully invested in all margin and IRA accounts. Big Wave Trading has been fully invested since the full BUY signal was generated on 1/5/2012. While many traders/investors tried to deny the uptrend as just another suck out our model told us to expect more via the price and volume action across a myriad of stocks across multiple sectors. The past week the market finally took off and our long positions were rewarded greatly. We at Big Wave Trading could care less how much the market moves up from here. We know that we can not control the gains. We can only control how much we lose in the stock market. Therefore, if the trend persist, we will continue to sell stocks underperforming and move the bad cash to good stocks outperforming the market on a Relative Strength basis. We do not get emotionally involved with gains at Big Wave Trading. We could care less. It is simply doing the process right that gives us the pleasure. Being right is meaningless. Getting rich is meaningless. It is the process that allows us to be right and get rich that matters. The most important ingredient in this process is cutting losses fast. Big Wave Trading never holds losers. If the stock is losing money, we sell it and move on. No questions asked. Big Wave Trading’s win/loss ratio is at a point that we could be right 10% of the time and still not lose money as we refuse to lose 1% of our total account value in any one trade. Losing is not an option. Winning is the only goal. We will continue to stay fully invested until poor action among leading stocks (Relative Strength basis) and distribution days start to litter this market. If many distribution days occur, the Market Direction Model will switch back to NEUTRAL and possibly switch to SELL. Switching to a sell signal depends on the amount of distribution days and time frame in which they occur. We do not expect that to happen any time soon but expectations are resentments waiting to happen. Therefore, we remain completely agnostic towards the future. We are prepared for a continuation of this uptrend, a top, or possible consolidation. All game plans for each outcome have been analyzed and our ready to be used accordingly.

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

IRE – 64% – 1/12/12
YINN – 37% – 1/5/12
RENN – 35% – 1/11/12
FAS – 28% – 1/5/12
UMDD – 28% – 1/5/12
RF – 24% – 1/5/12
DVR – 23% – 1/13/12
MOTR – 23% – 2/2/12
RAM – 21% – 1/9/12
RGR – 20% – 1/5/12
VNET – 20% – 1/10/12
RATE – 20% – 12/28/11

NASDAQ Closes off its Highs as Volume Slides, but Above Average

The market ended off the highs of the session, but with volume coming in lower we avoid a day of stalling. Russell 2000 small cap index raced higher tying the NASDAQ composite for the top index of the day. Interestingly, enough both indexes have yet to have the golden cross yet continue to lead the entire market higher. Bernanke’s testimony on the hill helped spark some buying, but as the testimony wore on sellers began to take over. We continue to play in overbought conditions, but this rally is healthy and remains that way. Tomorrow’s job report will certainly set off fireworks. At this very moment, we have a healthy rally that is a bit over-extended.

The unemployment rate will be the key statistic the market pundits will be paying attention to. Last month’s surprise move to the downside for the rate helped spark some confidence for the market in general. However, the denominator, the total employment pool continues to shrink driving down the percentage of people out of work. It is very difficult to measure unemployment, but judging by the U-6 figures as well as the number of people on food stamps our situation remains weak. Why else would the Federal Reserve hold rates steady near zero percent all the way out to 2015? If employment was actually improving there would be no need to continue to hold rates down. Enough of the economic talk, it’s about the trend.

Trend following is not an art form and trading based upon gut feel is not our style. Disciplined trading, rule –based trading is our game; it’s our edge to outperform the market. I know we harp this one lesson: CUTTING YOUR LOSS SHORT. It is vital, letting losses run ruins capital and ruins traders. Breaking your rules is another major flaw. Jesse Livermore would often break his rules only to see his net worth crumble. If you find yourself in this situation, what separates the best from the rest, the best rise again!

Have a great weekend!

Facebook $FB Files for an IPO as a late day sell-off takes down the S&P 500

The big talk of the town was FB filing for its IPO. Despite the news of the IPO sellers hit the market late day pushing stocks from its highs. Over at the NASDAQ despite sellers on the NYSE the NASDAQ appeared to be somewhat immune. Volume soared on the NASDAQ as institutions pile back into technology stocks. It is clear the leading index of this rally is the NASDAQ and we view this as a positive sign. A solid day for the NASDAQ while it appears the NYSE related indexes continue to lag.

We have a good start to the month of February as we get ready for Friday’s job report. As usual the talking heads will be looking to find clues of an improving economy. More people are fleeing the job market helping out the unemployment rate. As usual we will not try to predict what the number may or may not be and gauge a plan of attack based upon a guess. Discipline is paramount, we’ll stick to our proper buy and sell rules and let the guessing be handled by others.

What to do about FB? We are going to wait and see how it trades. We’d love to see the stock consolidate and form an IPO base. It’s anyone’s guess where the stock will go. Perhaps it will pull a LNKD and catapult on day one. Truly, it’s anyone’s guess and we’ll wait to attack the stock if it meets our buying criteria.

Our uptrend continues and without any major distribution it is hard to be calling for a top here. Perhaps a major reversal day on mega volume would do it, but we don’t have that situation. Anticipating moves will only leave you on the sidelines. Stay disciplined!

January Closes with a Whimper; AMZN Disappoints After Releasing Earnings

The early morning jolt higher the market was hit with unexpected disappointing economic news from the Chicago PMI and Consumer Confidence. While it did appear the market was heading for a day of distribution buyers stepped up just after the lunch hour. Financials reversed course pushing higher a positive sign for the market. The downside was the stalling action as the NASDAQ was unable to hold its gains from the morning. While we did see support, there weren’t enough buyers to erase the stalling action. Volume spiked at the end of the session as monthly rebalancing always ushers in a big volume spike. All in all, today wasn’t too bad of a day for now.

Historically speaking February isn’t typically a month where you would expect a big rally to kick off, but we did see in 2010 where February kicked off a sizeable rally. It is anyone’s guess whether or not we take off from here or reverse course and head lower. A sound plan to attack the market is paramount; if this market is to go higher we want to take advantage. On the flip side, we don’t want to be exposed if this market is to turn lower. Cutting losses and your laggards is a prudent course of action.

The Golden Cross occurred on the S&P 500 a bullish “technical” indicator. We pulled data from Yahoo for the S&P 500 and found 80% of the time this is a bullish indication for the market. What you learn by crunching the numbers is cutting your losses improves your performance. Precisely why we stress the need to cut your losses quickly, it is your insurance policy. We now await the NASDAQ to join the Dow Jones Industrial Average and the S&P 500 to experience the golden cross!

Cut your losses short.

Closing off the Lows, Stocks Show Resilience

While market pundits wait for a Greece and its creditors to come to an agreement, stocks quietly put in a solid day. At the open it did not appear stocks would have a good day as the market pulled back nearly one percent. Small cap stocks were having a difficult time, but a solid reading from the Dallas Fed helped spur buyers step up to the plate. Volume ran lower for much of the day and helped the market avoid a day of distribution. This is the type of action you want to see as the stock market consolidates its gains and if the market continues to act like this it will bode well for the future.

Yes, the market may be a bit overbought still, but the recent action is quite encouraging. Recent price action in AAPL, INTC, and MSFT (the big dogs) is also very encouraging. A sore spot in this rally is the inability for the IBD 85/85 to show any relative strength. This index has been stuck in neutral for quite some time, but pay attention any pick up in strength would be a very positive signal. As we head into February I would expect a choppy month as February tends to be a tough month for the market. If this type of action continues it will only set us up nicely for a big rally.

The backdoor QE 3, the Federal Reserve dollar swap program is a precursor to what will likely be another round of quantitative easing. It is no secret during election years the government will do its best to prop up the market. You can bet your bottom dollar Obama and his administration will pull out all the stops! The problem isn’t just related to democrats as both sides are guilty. This does mean we’ll likely get a rally from another liquidity injection. QE 2 did produce some big winners including NFLX so it would be a prudent move to stay on top of this market. You do not want to miss out on gains!

Always cut your losses short.

Big Wave Trading Portfolio Update

The Big Wave Trading portfolios continue to be fully invested following our full BUY signal on 1/5/2012. Both margin and IRA accounts are fully invested. As we continue to find new longs all that can be done is to sell the losers and place whatever funds remain in new positions as they generate BUY or SELL signals. A quick reminder: Big Wave Trading never carries losses. Every buy signal has a set cut loss level and it is always obeyed. The loss target on any one trade is to never be more than 0.5% of total account value. Once a stock loses 0.5% of the total account value, even if it has not hit its final cut loss target, it will be completely sold.

Big Wave Trading believes that the market may be in tune for a pullback. However, we also recognize that it is impossible to predict what the stock market will do. Therefore, if we continue to grind higher, this would not surprise us. If we do get a pullback, it appears, based on the very strong accumulation in multiple stocks across multiple sectors of the market, that it would simply end up separating the best stocks from the laggards. This would allow us to move the cash raised from the small losses or profit taking to these true leaders. If we pullback on very heavy distribution, obviously, the pullback will not be a buying opportunity. Like we always say, it is impossible to predict the stock market. Those that do are plain fools and usually their results show it in their brokerage statements.

Top Current Holdings – Percent Gain (Non-Margin) – Date of Signal

RENN – 36% – 1/11/12
IRE – 29% – 1/17/12
YINN – 28% – 1/5/12
WPRT – 24% – 12/20/11
FARO – 22% – 1/6/12

Leaders Turn Lower as Stocks Reverse Hard

The NASDAQ notched its first day of distribution after putting in a new high in the most recent rally. A solid durable goods order number helped push the market higher. However, a bigger expected drop in New Home sales didn’t help and put pressure on stocks. It wasn’t until the late afternoon did we see the selling pressure kick up a notch. A little late day surge helped the NASDAQ close off its lows, but failed to protect it from a day of distribution. Distribution happens and it boils down to whether or not you prepared for what you do next.

Once again the number of Bulls in the AAII survey was near 50%. Bears dropped below the 20% mark once again this month. Remember, yesterday the percentage stocks above their 20 and 50 day moving averages was above 80%. A pull back here is NOT surprising and is to be expected. What we need to watch for is how we pull back. Can we avoid heavy distribution? Are leaders going to hold up? Sound money management principles are paramount in this market.

Tomorrow we get a look at fourth quarter GDP and it is expected to come in at 3%. It’ll be interesting to hear the debate about the number and how you should respond with your portfolio. Unfortunately, making a “play” will end up costing you dearly. Price and volume are keys to this market and guide us to making proper decisions.

Have a great weekend and stay safe (and that means cutting losses)

Fighting the Fed is Futile; AAPL and Bernanke Send Stocks Higher

Stocks were weak to begin the day as pending home sales were weaker than expected. The weakness didn’t last very long as traders and investors were positioning themselves ahead of the Federal Reserve policy statement. By noon, stocks were at session highs, but it wasn’t until the market heard the news rates would be held down until the end of 2014. Regardless of what you think of the statement the market went higher and with volume to boot. While the market closed off the highs of the session the day overall was very bullish.

During the after-hours session NFLX reported better-than-expected earnings as the stock jumped more than 15%. NFLX had a terrible time at the end of 2011, but the stock has been able to rebound from its heavy selling. The mishap over splitting the DVD business from the streaming business may be behind the company as the stock has had one heck of a ride off the lows.

The biggest concern here is how to handle a potential pull back. I wouldn’t expect today to be the “top” of this market rally, but a potential pull back of 3-5% is always in the deck. How you handle it is the most important. Have a game plan on where you’ll exit your stocks, cutting losses and taking profits should be in your plan. If not, get it in there! We are at frothy levels with 85% of stocks are above their 50 day average and 82% of them are above their 20 day average. These levels are usually met with some sort of selling, but we aren’t going to try and “guess” when we’ll turn. This uptrend is for real and even a small pull back won’t keep it down for very long.

Stay disciplined!

AAPL Blows Away Earnings in After-Hour Session

Another great day for the stock market as again buyers step up and support the market. The market did get help from the Richmond Federal Reserve Manufacturing index as it came in better than expected. However, the market turned its attention to AAPL’s quarterly earnings report. Volume came in lower perhaps due to the Federal Reserve meeting concluding on Wednesday, but it’s anyone’s guess. More importantly, it was AAPL’s blow out quarter taking center stage. This uptrend will continue tomorrow and for the moment it continues to be strong.

There are a lot of people who are fighting this current trend and it is easily understood. Sure, we can have pullbacks, but to be calling for all out Armageddon is quite funny at this stage. It is anyone’s guess where the market will go from here despite what may appear to be “smart” analysis. We only know what is directly in front of us and we have been in an uptrend. A disciplined, ruled based approach where position sizing, cutting losses, and exiting positions is the best way to attack this market.

Tomorrow we’ll get Ben Bernanke’s take on the economy and its rate decision. Expectations are for the Federal Reserve to really keep their stance on monetary policy. Basically, they are going to decide whether or not they need to print more money. The conundrum they are in at the moment is they justified QE2 with a sluggish jobs market and with the jobs market improving they have little justification for another round. At the rate Washington, DC spends money and its inability to balance the budget the Fed will have to at some point soak up excess supply. Of course, do I know the future; no, but given with how we know DC operates not sure how we don’t go down this path.

Remained disciplined in your trading and do not deviate from the plan. Of course, cut your damn losses.

Volume falls ahead of the Federal Reserve’s two day meeting

The day began with a solid move off the lows and it was looking like the market was going to surrender to the bulls. After the 10 o’clock hour sellers hit the market sending stocks lower, but in a bullish fashion stocks were able to find support. Today’s move would have been better if the morning move did not occur. Perhaps it is a small blemish; we’ll take the pull back as the market consolidates its most recent run up. Our uptrend remains intact and it is without any major distribution or stalling a big positive for this uptrend to continue.

There is some talk about the market being overbought and sure, it is. Given the move since the New Year began it is quite obvious we have a market a bit ahead of itself. The number of stocks above their 50 day moving average is above 81%. 77% of stocks are above their respective 20 day moving average. These figures aren’t at all-time highs, but they are at levels where pullbacks do and can happen. So far, this two day pull back in the overall market is quite normal and is looking very healthy.

Tomorrow kick starts the Federal Reserve’s two day meeting. Many are asking if QE3 is coming and it is a guessing game at this point. The stock market is higher and the jobs market appears to be firming up with the unemployment (as reported by the government) coming down. To make a case for another round of quantitative easing would be a hard sell. I would imagine the Fed needing to step in when demand for US Treasuries dries up. I could only imagine what would happen if there isn’t enough demand to soak up the issuance of debt. It is fun to debate what may or may not happen, but a terrible way to trade and invest.

Stay discipline here and DO NOT chase stocks at all. Cut your losses!

Big Wave Trading Portfolio Update

Big Wave Trading is currently 100% long in our margin and IRA accounts. The Big Wave Trading market model went into a full buy signal on 1/5/2012 following a partial buy signal on 1/3/2012. Since the full buy signal, multiple stocks have set up and broken out of sound consolidation patterns. The one problem with this rally, however, is that we are not seeing any explosive gains right off the bat. Normally at the start of new uptrends, Big Wave Trading will have a handful of stocks up 20% in just a few days to a couple of weeks. This is not happening this time. This is in part due to the slow speed of this rally as we are only moving slightly higher each day, outside of 1/18/2012. Nobody knows if this rally will continue or will end with a reversal. The only right play is to be completely prepared for both outcomes. If this rally comes under distribution, Big Wave Trading will begin cutting losses and pairing back long positions very fast. As of now, we continue to focus on the long side cutting losers quickly and quickly moving that money into new stocks giving new buy signals or current long positions offering up additional buy points. If the market comes under a few days of distribution in a short time frame the model will switch from BUY to NEUTRAL to a possible SELL depending on how much selling pressure shows up in the market and leading stocks. We will see how this new week shapes up. I expect a pullback. However, what I expect does not matter. It is what the market actually does that matters.

current top holdings – % return non-margin – date of signal

RAM – 20% – 1/9/2012

Performance of Big Wave Trading

A big thank you to bjesse a member of BWT for putting this together! It goes to show you the value BWT brings to the table! Take advantage of the value by signing up here.

Performance Analysis 1-21-12

NASDAQ 100 closes at an 11 year high; GOOG closes down big in after-hours trading

Positive news for the job market as jobless claims fell hard, but it was the NASDAQ 100 closing at an 11 year high that stole the show. Yes, it is positive claims almost broke through the -300,000 level and the market certainly liked the figure. Even a slightly negative Philly Fed survey couldn’t hold back buyers from scooping up shares throughout much of the day. Volume on the NASDAQ rose again, but once again over on the S&P 500 volume fell. The S&P 500 continued its “wedge” higher as the NASDAQ remains the leading index.

The number of bulls pulled back from last week’s high, but bulls registered at 47%. Bears were able to climb back above 20%, but they didn’t make a big stand. The II survey continues to be bullish, but well off the extremes we witnessed early this year. I wouldn’t consider this market at an extreme level as far as sentiment is concerned. And with the amount of stocks we continue to find popping up this rally should have legs to run for quite some time. Again, we may see a shakeout here and there it won’t derail the rally currently underway.

Every rally will trick traders/investors to chase stocks at highs only to see the stock reverse and shaking them out. It is best to have a sound approach to buying and chasing stocks SHOULD NOT be a part of the approach. Just as important is money management, knowing how much to buy, cut losses, and exit a position is paramount. Without these tools you will be left behind.

It is clear the NASDAQ is the leading index with S&P 500 and Dow Jones Industrial lagging behind. This is precisely what we like to see. If it were the other way around, we’d have issues. Enjoy the weekend!

Stocks Close Higher Again above October Highs

Another stellar day for the bulls as stocks rose across the board. The S&P 500 closed higher for the 10th time in 13 sessions but volume fell on the index. For the NASDAQ composite the index closed higher with higher volume and it was above average. Clearly the NASDAQ is the leading index of this current rally a sign we’d like to see. Given the run up as of late, it is hard to continue to knock the ball out of the park each and every day. Use the opportunity to cut laggards and stay on your winners. Today was just another solid day in this uptrend.

The market really got going with a big jump in home builder confidence. Finally, after so long we are beginning to see an uptick in confidence from homebuilders. It remains to be seen whether or not this translates into success, but the way homebuilders are acting higher prices are ahead. Banks were helped out as well, with an improving real estate market the situation should translate well for the “toxic” assets banks continue to hold. Let’s not forget the Federal Reserve holds quite a bit of mortgage paper and continued improvement in the real estate market will surely help the quality of paper held on the Fed’s balance sheet. It all boils down to price and volume and it is positive.

I am still looking forward to seeing Sentiment indicators tomorrow. Most notably the AAII survey as it has been quite bullish for the past two weeks. Bears have been decimated below 20% and you have to wonder if this market will have a quick washout to get the weak bulls out of their positions. This would be an ideal situation for us as it will show who the true leaders are in this rally. It would then allow us to focus in on the very best and take advantage of a new rally. Sentiment is an imperfect indicator and usually works best at REAL extremes. I highly doubt we are at one now, but we are at a point where it’d be nice to shake out some weak bulls then proceed with this nice rally. Remember October of 2010 and November of 2010? Quick shakeouts only to have us lead higher. Don’t be easily shaken out, follow the game plan.

Rally Fizzles as Volume ends Mixed; NASDAQ gains but well off the highs of the Session

The morning started off great for stocks, but the day’s gains were unable to grow. Fresh off a long weekend it appeared overseas markets were brushing off S&P’s downgrade of 9 Euro nations. Little ground was covered for much of the session as the market traded within a relatively small range. A few stocks broke out including MSFT and PNRA. PNRA held onto most of its gains MSFT could not. The days action really boiled down to stalling action on the NASDAQ. In of itself, today isn’t that bad, but over the next few days looking out for distribution will be a key indication if this market can power forward over the next few weeks.

Today’s market action isn’t a glaring sell indication, but it does just raise a simple flag that the market may be acting a bit tired. We have plenty of stocks underneath setting up and looking solid. This doesn’t mean we automatically blast higher, but it does help our chances over the next few weeks/months for this market to set up for gains. For now, it appears the general market has been able to shrug off the negative news pouring out of Europe as of late. I should mention at the end of February Greece is set to default again. Don’t fret, have a game plan and execute it with precision. Big Wave Trading has a plan and we’ll continue to execute.

CNBC continues to harp on the “golden cross.” They did a piece when the Dow Jones Industrial average experienced the cross. Now it is the NASDAQ’s turn and there is a bit of history to back it up. I posted the numbers awhile back and confirmed with 80% of the time you will see gains 180 days from the actual cross. It is quite bullish and I wouldn’t be against the golden cross as history has shown it is a profitable indicator. Given the stocks we are seeing, coupling the golden cross buy signal can set up for a very bullish spring. Stay tuned.

It would not come as a surprise to use for the market to shake out weak bulls. Last week the number of AAII bulls nearly topped out at 50% for the second straight week. Normally, we tend to see shakeouts happen when the retail investor gets a bit too bullish. We are going to follow our rules as usual, will you be able to handle a market shakeout?

Market closes mixed with declining volume

The NASDAQ closed higher for the 6th time out of 7 days as volume continues to remain above average. Today appeared on the onset it would be a day of consolidation, but the NASDAQ would have none of that. While volume remains above average for the NASDAQ the S&P 500 continues to remain below the key volume moving average. A sign Institutions are more interested in NASDAQ composite stocks than the S&P 500. A pull back is certainly in the cards and would be a welcome sign to consolidate the recent gains. However, our trend remains up and until this situation changes we are positioned accordingly.

Tomorrow we get a bit of economic data in the morning and it will be all about retail sales figures. Forecasts are for sales to jump .20% and I wonder to myself: “do economists ever get anything right?” They don’t, it is meaningless to position yourself based upon a hunch or opinion. NO ONE knows the future we only know what we know up to a point. Sure, fiat money has an average shelf life of 35 years, but it doesn’t mean the US Dollar has to end (in one form or another) 35 years to the date Nixon took us off the gold standard. The moral of the story: price and volume tell the story you want to be listening to; follow it!

January always tends to be a tricky month for stocks. Sure, optimism runs high for the new year and as humans we tend to have emotional roller coasters and makes sense for stocks to run at the beginning of the year. However, January tends to be more of a messy month for stocks and it is quite dangerous to think live on hope of a good year. Have a game plan of how you plan to attack the market and execute the plan. There is buying going on underneath, we are finding them and you need to have a game plan to attack those names.

The key to success is using a cut loss strategy to protect your downside. It is always important to cut your losses and move on.

Big Wave Trading Portfolio Update

It continues to be a rough 2011, minus the July to August downtrend, but it is possible another trend is in the process of developing. Following the rally off the October lows, it started to look possible that a new uptrend might take shape as some new CANSLIM quality stocks started to build right side of bases with some breaking out. On top of that, some very pretty green chart patterns began setting up in more speculative quality names (SIMO PKT) with the stocks coming off the lows producing some solid gains fast (PEIX BIOF). During this uptrend from the October lows two partial buy signals were produced with both failing immediately due to the signals coming very late in the uptrend during overbought conditions. While this was occurring, ex-generals of the previous uptrend from the 2008/2009 lows were not participating in the rally. These two major red flags prevented a full buy signal from being produced the whole rally saving Big Wave Trading investors money by keeping new long positions very small in relation to total account capital.

Since November 17th, things have changed. Bank stocks that looked to have been trying to hammer out a bottom have completely rolled over with stocks like BAC and GS hitting new lows, the new CANSLIM quality long setups (VMW TIBX SPRD RHT) have failed immediately, the speculative longs have reversed hard/crashed (LGND OPNT GMCR), the inverse ETFs have come under heavy accumulation, the 3x bull ETFs have come under heavy distribution, the ex-generals (AMZN AAPL PCLN CRM) have all created very bearish chart patterns (most have H&S tops), and the SP500 and Nasdaq have resolved themselves below the triangle pattern they were creating in November. All of this threw our market model into a 66%-75% sell signal on November 17th.

This signal has proven quite profitable in the very short term but it remains under a 66-75% signal and not a 100% sell signal due to the fact that volume on the NYSE on the distribution days continues to be below the average daily volume of the past 50 market sessions and we still have some current long positions that are holding above key support. If the market can rally on the short term and fail at recent resistance levels on higher volume, a full 100% sell signal will be triggered (despite above average volume or not on the NYSE). The nine long positions that remain in the margin account (4 in the IRA) are all on the cusp of triggering their final cut losses. If this happens, along with the NYSE failing at resistance (even if volume is lower than the day before), then the model will go 100% sell.

Currently, the Big Wave Trading margin account is 55%-60% short 10 stocks, 10-15% long 9 stocks, and 25-35% cash. The Big Wave Trading IRA account is 70% long 4 inverse ETFs, 6% long 4 stocks, and 24% cash.

Top Current Holdings – % Return – Date Of Purchase:

EDZ – 23% gain – 11/18/2011

My Interview With The Rouge Investor Website

I had the chance to re-interview Josh Hayes from Big Wave Trading in an effort to learn about his methods to consistently profit from trading stocks. Let me stress that Josh does what I consider to be an art and he is one of the highest performers around. I’d argue he is mainly a momentum investor, mixing technical and fundamental analysis to achieve superior returns.

There are two options for getting more information about Josh and his analysis. First, he has a premium subscription service at BigWaveTrading.com with different membership levels for different needs. Second, he has BigWaveTrading.net which is a site dedicated to free commentary. Check them out!

We started off getting revised answers to the questions I asked in my previous interview and then moved on to a new set of questions.
Interview 1.0 Revisited

How would you describe your trading system?

Simple without noise. I simply pay attention to my charts. I don’t watch CNBC or read other financial publications. I do not even subscribe to IBD anymore. I just use Daily Graphs, Telechart, Scottrade, and IB. I keep it very simple and the most important thing is I never “try (it’s impossible to do)” to let my stupid opinions influence me.

How has your trading system changed, if any, ever since the economic downturn?

No, It hasn’t. I started looking at charts in 1996 and in 1999 I had learned-in-my-head the CANSLIM methodology and have kept to that simple (yet very hard to initially learn) methodology since 1999. I know and knew, thanks to my laborious reading of about 100 stock market books, that nothing ever changes in the stock market but the players. The patterns always remain the same thanks to basic insecure human emotions like greed, fear, and hope. They are completely useless in this game.

I noticed that on your telechart, you keep your price very small compared to most charts. What is you reasoning for such a setup?

It allows me to, very, clearly see the basing patterns such as a cup w/ handle, cup, ascending, double bottom, or HTF pattern. By “squishing” the price the chart goes from big and what appears to be loose to tight. If a stock is not completely tight on my price settings I know I want to avoid it. Visually, it is just what I prefer. To someone else, it might not be their cup of tea. To each their own.

Is it an advantage or disadvantage to be located in Maui?

If we are talking about surfing, YES! If we are talking about life, YES! If we are talking about the stock market, YES! Maui no ka oi. Being so far away from NYC and CNBC has to have nothing but 100% advantage towards my investing. Getting rid of all that mainland noise is the reason I can completely be objective towards the stock market. I never know what is happening in the macro environment anymore. I could care less. It’s all about sun and fun for me and that equals profits thankfully. Once again, I say, for me.

About how long did it take you to get to a level where you could make consistent profits?

Four years (1999 was too easy and we will never see that again in our lifetimes). 2000 was the first year, when the market tanked, and I beat the market by 1000%+ that I realized that I could do it. I have always beaten the market returns but trust me the market still beats me at being very difficult. I can not stress enough how difficult this really is. If you do not get any luck and have only skill in the stock market, you will not make money. You seriously need skill and luck. Since I have no luck, I am very fortunate to be beating the market every year since 1999.

What single piece of advice would you give to personal investors as we all fight to find and keep profits?

Never give up. Either you have it or you don’t. If you struggle for 10 years and are still interested TRUST ME in 20 years you will be very wealthy. However, wealth will never equal happiness. Live and love life. Have fun. Make sure you do what you love. If you do not love this game do not do it. Honestly, I hate this game so much that I love it. But if someone asked me “surfing or stocks?” The answer is simple and I do not even have to think about it. Surfing.

Interview 2.0

To start off, would you highlight your average return on a position, your success rate (% of stocks from which you profit), and the size of your average position in dollars?

All of that information can be found here. I was tracked by a subscriber in an excel spreadsheet going over my purchases and sells over the past year.

We’ve seen a bull market with significant gains since the bottom in early ’09 (Dow). What do you expect from the market in the coming years? Also, do you subscribe to IBD’s method for determine market trends?

I can not predict the future and never will try to. Nobody knows what will happen in the future and when they say they think this-or-that will happen it is completely ego driven and they want to be seen as “important and smart.” The truth is, nobody, and I mean nobody, can completely look at all the data and be correct about the future. It is a total crap-shoot. I play the now. I live in the now. There is no room for the future. It is what it is and that is that. Also, 130 years of data of facts proves that IBD’s way of determining market trends is correct. However, in all fairness, I think some of the writers of IBD might not be investing money in the stock market. They don’t have what I would say is “the touch.”

I’ve been studying the articles you’ve written about your trading strategy (which I will include links to) and was curious if you are still using the same chart setup? (The setup consisted of price with a moving average up top, volume and TSV in the middle, and BOP, MS, and RS to the S&P 500 in the bottom.)

To keep it simple, yes. The same setup I’ve had since 1999.

Click to Enlarge.

Using your chart setup, what exactly to do you look for that triggers a buy or short signal?

Volume, price, and BOP. Just like always. Big volume, a clear breakout/bounce, and heavy BOP either to the upside or downside.

Do you have a written/typed checklist of some sort that you follow when trading?

No, it is all in my head. The routine is like breathing. You just do it at this point.

How do you determine the point when you take profits/limit losses? Do you have an exact system for exiting positions?

The chart tells me what to do. Sometimes you get it right and look like a genius. Other times you get it wrong and look stupid until you get it right again and look like a genius. I take every buy/sell signal from my charts. It’s definitely more of an art than a science. I laugh at most “mechanical/black box” systems.

Do you add to existing holdings? If so, what is your strategy for this.

The chart. It is all about the signal. Breakouts/bounces on volume. I have added to positions on pullbacks in my IRA in high-priced CANSLIM quality stocks but it must be coming right off the 50 DMA on volume with a very low risk to possible reward.

How about ETF’s? Do you stick to stocks or have you started to trade other securities?

Only stocks. No ETFs. Not the same ballgame. Lazy man’s game.

Lately, I’ve started to add the IBD composite score as a screen component (only going long companies with a score of 80 or higher). Do you have a level of fundamental analysis in your system? Does share price influence your picks?

Share price and quality of fundamentals matters everything. I don’t care how nice the chart is, if fundamentals are not there, it will be small. An ugly chart but making a clear move with fantastic fundamentals will always beat a perfect chart with ugly fundies.

What would you say was the tipping point when you transitioned from an amateur to a professional?

That will never happen. I am and always and forever will be an amateur in this game. You just got to cut losses and learn your history and have amazing patience for learning. This is the hardest “game” to ever play and win at. Harder than blackjack, harder than poker, and harder than almost anything you can think of.

I want to thank Josh for his time and help in putting this together. Much appreciation! Again, if you would like to get in touch with Josh or get more information check out his site, BigWaveTrading.com.