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.
Tuesday, February 07, 2012
Monday, February 06, 2012
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.
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.
Saturday, February 04, 2012
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
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
Thursday, February 02, 2012
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!
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!
Wednesday, February 01, 2012
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!
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!
Tuesday, January 31, 2012
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.
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.
Monday, January 30, 2012
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.
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.
Saturday, January 28, 2012
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
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
Thursday, January 26, 2012
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)
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)
Wednesday, January 25, 2012
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!
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!
Tuesday, January 24, 2012
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.
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.
Monday, January 23, 2012
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!
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!
Sunday, January 22, 2012
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
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
Performance Analysis 1-21-12
Thursday, January 19, 2012
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!
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!
Wednesday, January 18, 2012
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.
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.
Tuesday, January 17, 2012
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?
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?
Wednesday, January 11, 2012
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.
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.
Saturday, November 26, 2011
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
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
Monday, February 14, 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.
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.
Subscribe to:
Posts (Atom)