Dow Jones Industrial Average Ends Higher for the Fifth Straight Session; AAPL Slide Continues

Big headlines of the day were better than expected retail sales and the slide in AAPL. Going unnoticed was the outside reversal the Russell 2000 index staged. Not going unnoticed was the heavy volume selling in AAPL for the second straight day. The stock continues to see sellers and has now closed under $500 mark for the first time since February 2012. DELL gained for the second straight day taking the sting out of the slide in AAPL as rumors about a possible takeout swirl. Not a bad day for the markets, but outside the Russell 2000 we do not see the major averages pushing to new highs. Whether we are consolidating or not remains to be seen, but the fact we can’t move higher immediately does give us pause. Until we get real sell signals this uptrend still has a chance to push higher. Another big headline of the day was FB news of their new search tool. Lacking the big “wow” factor the stock ended lower on the day. FB has had quite the run and sellers took advantage of the news and sold the stock lower. Does it mean it continues? No one knows and we have yet to see a true sell signal in the stock. We would welcome the stock to pause setup a base and breakout. For now, we’ll see how it progresses over the next few trading sessions. If you are long, make sure you have a game plan on where your exits are. Tomorrow morning we’ll get earnings releases from JPM at 7am and GS at 7:30am. Both stocks have moved out of bases and are higher at the moment. Either stock would not be buyable if they were to gap to the upside. Let’s not forget banks were a big driver for growth in the S&P 500 earnings last year and will be important for the trend to continue for banks. One could think they should have great earnings with the Federal Reserve Bank buying up their mortgage portfolios, but we really do not have a clue. Both stocks will drive the action tomorrow along with volume. How they end up will be key to how the S&P 500 acts. A perfect example of how a breakout should work is XXIA. While the pattern is far from perfect as we can find many flaws the last two days is how we expect stocks to act after running. It is not unwise to take some gains off the table after the monster run. It too has triggered the holding rule of running more than 20% in less than 3 weeks. A strong stock with earnings set to be released on 2/6/13. This uptrend just doesn’t want to die just yet. Look for prices to continue to move higher until we get solid sell signals.

DELL Lifts on Buyout Rumor as AAPL sinks Volume ends Mixed

A very quiet day as volume on the NYSE runs very light below Friday’s level. AAPL, RIMM and DELL shares supported the higher volume on the NASDAQ, but were unable to push the NASDAQ into the green. AAPL was able to close above $500, but it continues to come under selling pressure. The DELL news helped the NASDAQ and the rest of the market when it jumped above $12 a share. All in all today was a quiet day on the NYSE. The NASDAQ did see higher volume notching a day of distribution, but with DELL’s move helped remove the sting a distribution day would give. We can argue about the headwinds existing for the market, but for now the uptrend remains in play. Tomorrow we will get quite a bit of economic news to hit the market at 8:30. We have the following: Empire Manufacturing, Retail Sales, and PPI. It is anyone’s guess to how these figures will move the market, but they will likely move it. At least we can blame the Fiscal Cliff or any move the market will make. There will be a lot made of the retail figures due to the holiday season and how Black Friday may or may not have pulled sales into November rather than December. Boiling it down it is all noise and the market action is all we care about. Leading stocks acted well today for the most part. We continue to see decent action amongst the leaders. One leader LULU was hit in after-hours trading after lower revenue guidance. In after-hours trading the stock is off more than 7%. XXIA continues to act well push higher by almost 9%. The right side of this pattern didn’t have much volume, but we continue to see positive price action in the stock. We have a few other stocks we were looking at that are close to breaking out or have. You’ll have to check out our forums tonight to get the names. Action here certainly supports higher prices, but we keep on waiting to see this market push higher. Have a plan and execute the plan. Make this a great week!

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio remains under a BUY condition across the board. This past week was further confirmation on the current strong technical condition of the overall market. While it is not perfect and we can argue about volume on the days we do rally, it is what it is and that is a strong current rally favoring all sectors and market cap size across the board. While this rally is incredibly strong right now with barely any selling able to move the market anything lower than .96% on the Nasdaq, when we do pullback, there are plenty of items out there that could be better. To start off with we hear a lot of chatter about the low VIX. While the VIX is low indeed it is still quite a bit away from the lows it was able to set in 2007 below 9. So to say it is extremely low is a bit of a stretch. However, we do realize that even though individual stocks are creating amazing patterns it sure is not like the amazing patterns we saw in 2003 when the VIX was around the 35 levels. That market had fear in it. This market is very complacent. But it is not an extreme. Also we note that cyclical stocks with dividends are doing better than growth stocks here on a Relative Strength basis. After four years of a market without a 20% pullback it is safe to say we are long in the tooth and if a final run is occurring it would historically match up with cyclical stocks leading and not growth. We can not predict when the market rally will end, and we certainly will place zero capital on that guess, but we do know that these stocks lead near the end of a long cycle. However, it is QEinfinity, the world is printing, and China is growing like mad with exports up 16% in the most recent report. Another item we hear talk of is the Investors Intelligence bull/bear survey. Currently the survey shows 51% are bulls compared to 23% that say they are bullish. That is in stark contrast to the powerful rally that started in 2003 when there were around 40% bulls and 55% bears. Once again, not a market full of fear that produces a fresh new bull market. While this is all interesting it is, once again, something you can place no capital on. It is just food for thought, in case everyone thinks that we are in for another 4 years of straight up prices. However, sadly, once again, we might, knowing the insane sociopaths that are in control of the economy and country. The one last talking point we have heard is that mutual fund inflows were the highest in 13 years right when the market topped back in March 2000. In contrast, mutual fund outflows peaked and continued leading into the 2003 rally. Once again, food for thought, but it is not actionable. Why? Simple, let’s say funds decide to put all that money to work and rally the market 25% before the top. Do you want to miss that 25% rise before “a possible” peak? Of course not. This is why all that matters right now is price. You set your buy stops and execute them when price breakouts of a trading range or a key moving average. It is that simple. You cut your losses if it does not work and you ride the trend until it ends or a trailing stop is hit. The key to this market is to not think. Just follow price. When you start running into bad luck, cut back on your trading more and more and more and more until things start working again. Once that happens, then begin to increase size. When you get the “perfect” or “best” or “most opportune” signal (as Jesse Livermore would say picking up a bag of money in the corner just sitting there) then you press. If you have not gotten that signal yet, maybe the market will consolidate and then breakout higher producing that signal. If this is going to be a real rally then we should rally into March, historically speaking. If this rally has left you behind, you still have plenty of time, if it is real. If it is not, you will be thankful you did not break your rules and chase price. In saying that, a lot of traders that missed YCS and DXJ have been waiting for a pullback. They are still waiting. Have a great weekend everyone. Aloha. Top Current Holdings – Percent Gain – Date of Signal NTE long – 121% – 8/17/12 CSU long – 61% – 9/4/12 VRNM short – 50% – 4/10/12 HEES long – 47% – 9/4/12 CAMP long – 44% – 4/26/12 ASTM short – 31% – 7/17/12 FLT long – 27% – 9/6/12 POWR long – 27% – 12/11/12 V long – 25% – 8/31/12

Dollar Falls and Stocks Shake-off Intraday Sell-Off

Shaking off a late morning sell-off the market was able to rebound closing near the highs of the session as volume pushed higher on the NYSE, but flat on the NASDAQ. The EURO raced higher after comments from the ECB rate announcement pushing down the dollar index. AAPL was the catalyst for both moves in the morning and late afternoon as the stock continues to move sideways after its most recent decline. The NASDAQ and Small Caps hit new highs for the uptrend a good sign for the market in the short-term at least. Our uptrend continues to play out and barring any price destruction should continue on its merry way. Gold and silver rebounded today after their most recent sell-off. Despite the Federal Reserve signaling a possible end to QE forever the metals have been able to rebound somewhat. Crude oil once again moved higher while the rest of the commodity space remained relatively flat. The inflation trade in stocks and commodities still lives. Sentiment has crept back to lofty levels for the market, but not at the highs previously seen. The AAII bull sentiment figure jumped to 46.45. This past year the high for the index hit 51.64 back in February of 2012. The market was still able to rally higher and set a new high for the rally showing sentiment is not a reliable indicator for the market. Bears came in at 26.92 well above the 52 week low of 17.18 set back January of last year. Neither sentiment readings are at extremes, but we are close. The Investors Intelligence survey showed bulls back above 50% at 51%, but no near the high of 58% set earlier. Given the recent action and the lack of ultra-bullishness it appears this market has some room to run. Tomorrow we’ll get a reading on prices on imports and exports followed by the Treasury Budget announcement at 2pm. The deficit is expected to come in at -1 billion dollars. Many took income in the month of January rather than in 2013 due to the fiscal cliff. It will be interesting to see how much money the Treasury will be able to net. I’d think the estimates are off and likely sway when the debt ceiling debate would begin. We can only speculate at this point, but something to keep an eye on. As we ride into the weekend, we expect to see this market hit new highs and stand ready to act as necessary. Cut those losses.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Model returned to a BUY signal across the board, following the resolve of the Fiscal Cliff. The gap up was powerful and very strong. The strength was broad, volume was well above average, and breakouts were everywhere. On top of that, the price action on Thursday and Friday has been tight and many stocks that did not breakout on Wednesday broke out on Thursday and Friday. While we were only 25% long, holding about 74% cash, the positions we were long did very well and we are happy with those positions. However, being under-invested before a big move is always disappointing. The good news is that plenty of stocks are building very sound to excellent bases and if this rally has legs we should continue to see leading stocks breakout over the next few weeks. The important line in the sand to watch is the gap higher. We want to see the gap hold here. If stocks pullback we will be more than happy as that will allow more and more bases to be built in leading stocks. Subsequent rallies would make excellent areas to add to our current positions. Despite the bullish price action, it still is not an easy market for trend following stock pickers that make EOD decisions. The gap up and down nature of the market makes it difficult to get good fills and the previous fake moves of 2011 and 2012 still haunt the market today. The best remedy for this is to either be a slave to your computer screen from 930am EST to 400pm EST or to set buy stops at key pivot points in stocks that you want to get long. These stops ensure you get long as soon as the stock breaks out. In today’s market if you don’t get a breakout right when it breaks out you run the risk of missing the move as they are coming in one day more often than they ever have in my short 15+ years of investing. It will be key for stocks this week to hold the gap higher. If the gap higher fails that more than likely means that we can expect more chop. However, I would not expect this to happen. Too many leading stocks are breaking out and some leading stocks have gone straight up off the recent November lows. This is a sign of a healthy uptrend. While we would rather have seen this explosive move off the November lows to give us the best entries in individual stocks, it is what it is. The Shanghai Composite was your leading index and clue that something was afoot. Its powerful start came on December 5th and its extremely powerful follow-through on December 14th. If you take a look at that index, that is exactly what you want to see. It is a near mirror image of the start of the March 2003 bull market. These two charts (the 2003 Nasdaq bottom and 2012 Shanghai Composite) bottoms should be studied voraciously as that is what perfect stock market bottoms after a long downtrend look like. Simply beautiful. Aloha and have a wonderful and profitable week! Top Current Holdings – Percent Return – Date of Purchase NTE long – 113% – 8/17/12 CSU long – 58% – 9/4/12 VRNM short – 57% – 4/10/12 CAMP long – 54% – 4/26/12 HEES long – 43% – 9/4/12 POWR long – 31% – 12/11/12 ASTM short – 28% – 7/17/12

Stocks Rally to Close out the Week despite Lower than Expected Job Growth

The market was able to shake off a disappointing jobs figure on Friday morning failing to print 200,000 jobs. AAPL was another loser on the day slipping more than 2% weighing down the NASDAQ while the S&P lead by banks and energy was able to push higher. Banks continue to do well with the Federal Reserve buying their mortgage portfolios. For the week it was a monster move for stocks and a monster fall for the VIX. This market does not have any fear and traders are positioned for this market to continue to push higher. Small caps continue to dominate hitting new highs and until banks and small caps turn there is not a reason for this market not to push higher. It was a stellar week for plenty of stocks and there appears to be more gains had. However, since the 11/16 move off the lows (when we were close, but not close to a fiscal cliff deal) we have come a long ways. This is not to say we can’t continue to march along, but there are some things saying this market needs to digest some gains. The number of stocks above their 20 day and 50 day moving averages at least suggest a shorter term pull back. However, the number of stocks above their 200 day says something different. Price will dictate our actions, but it is always prudent to be on your toes. The VIX has been decimated with fear fleeing the market. VIX is simply an indicator of market position via options. At this point in time the VIX is simply telling us traders are positioned for an upside move. Albeit a crowded trade at this point, but big bets are being made for an upside move after the fiscal cliff deal. Unfortunately for the market crowded trades can work well in the short-term, but not so over the long haul. Short-term this market appears to have legs and will look for it to move higher. Another debt ceiling showdown coupled with warnings from Rating Agencies of a possible downgrade will be another treat dealt to us by DC. We would not be in this mess if DC only spent what it took in. Make it a great weekend!

Stocks Find Hope in House Returning to the Hill on Sunday

The market was headed for a big fall in the early afternoon with the VIX soaring above 20 points for the first time since July. Then news of the House of Representatives coming back to the hill on Sunday sent the robots into action pushing the market back to breakeven. Any news regarding any action and we mean any action has brought on buyers. US Debt Ceiling is set to hit Monday and the Fiscal Cliff on Tuesday it appears we may get some sort of a deal if one side or another blinks. Market action on the other hand has been only helped by rumor of a deal and not an actual deal. Cash remains king in a headline, rumor driven market. Yesterday’s market action was not very bullish and while today’s intraday support appears to be good it remains to be seen. Sentiment here is very bullish with the National Association of Active Investment Manager’s survey showed 88% were allocating to equities. Mind you this was a 33% jump since November. AAII bullishness hit a 10 month high! Sentiment is hardly a precise indicator, but with many bullish it only appears “sell the news” event is the only likely scenario. Commitment of Traders tracks how long or short traders are of the S&P 500 and traders are the most long since the beginning of 2007. We have a crowded trade to the long side. We should also point out the number of bears heading into the debt ceiling debate last year rivaled that of 2007 and 2008. All this antidotal evidence does not translate into actionable ideas, but it does put into context the market environment we are in. Price action will dominate our actions and at the moment we have a very erratic market making it quite difficult to have much conviction in either side of the market. For now, caution continues to be the right course of action until something breaks. Today was close with the VIX popping, but it ultimately failed. Only two days left of 2012! We are looking forward to 2013. Cut those losses and ride your winners.

Big Wave Trading Portfolio Update And Top Current Holdings

After a quick trip back into the NEUTRAL zone, our models all switched to BUY on Monday the 17th. Unlike the previous BUY signal in which no action was taken, this BUY signal was actionable. The move on Monday came with strong above average volume on all four major market indexes. All four indexes also produced pocket pivot point buy signals on the same day. On top of that, banks, homebuilders, and small caps led on the day. While the signal on Monday was solid, further confirmation came the following day as all indexes followed through on the gains on even higher volume producing a second pocket pivot point buy signal in a row. However, more importantly, all ETFs, leveraged ETFs, inverse ETFs, and inverse leveraged ETFs confirmed the move by moving higher on strong volume. The volume confirmation in all indexes, with bank and homebuilding stocks leading, and an improving macro environment was a good step in the right direction for market bulls. However, as we saw on Friday, it is definitely not going to be smooth sailing ahead with items like the Fiscal Cliff around to spook traders or algorithm HFT programs. Still, the intraday reversal does show that the market has some solid support in it as traders try to play catch up to the almost daily move higher by the market from the November lows. Many traders who wanted to get long but never had a chance because the market never pulled back will statistically more-than-likely due to the solid foundation of the overall market buy the dips. So is it up up up and away from here? Nobody knows because absolutely 0.00% of all human beings alive today can accurately predict the future. The fundamentals and technicals do support that thesis. Sadly, this isn’t a free country or a free market anymore. It is a manipulated economy that is orchestrated to serve the bankers and no one else. The ZIRP and QE policy that they pursue to save the most elite of the elite will absolutely cripple the poor and middle class. While this effects traders on the consumer price level we at least can mitigate the damage by being involved in the only place this toilet paper money is going to go. World equity markets. If you have the ability to trade, you have the ability to win in this game where surely many are going to lose. On that chipper note, I wish everyone a lovely holiday season. I hope everyone has a wonderful time with friends and family. Have yourself a very Merry Christmas and a very relaxing New Years. Aloha from Maui where Christmas never quite feels like Christmas. Hey, it is a little cold. Not long sleeve T-shirt cold. But it’s a little chilly. Once again, aloha. Top Current Holdings – Percent Return – Date of Signal NTE long – 103% – 8/17/12 VRNM short – 56% – 4/10/12 CSU long – 45% – 9/4/12 CAMP long – 45% – 4/26/12 ASTM short – 30% – 7/17/12

GDP Prints above 3% as Stocks Trade in Tight Daily Range

In a surprise event 3rd quarter GDP printed above 3% above expectations. Unfortunately, the surprise to the upside failed to induce a strong response from the stock market. Initial jobless claims rose to 361,000 for the week a bit higher than expected. But, dominating the headlines was John Boehner’s plan B for the Fiscal Cliff. Volume ran lower throughout the day suggesting institutions were taking a break. Leading stocks help up relatively well while ISRG and HLF continued their declines. Financials and in particular BAC continued to march higher with Small Caps continuing their run. At the close, stocks closed near the highs of the day finishing much better than Wednesday session. Our uptrend remains intact and we’ll see how stocks react to tomorrow’s quadruple witching. News hit John Boehner pulled the vote on his Plan B sent futures MUCH lower. The Emini-S&P 500 futures dropped more than 2% in 2 seconds. The only way this occurs is with computers fighting one another. The low print was 1391 nearly a 50 point decline in the S&P 500. We aren’t about to react to the moves in after-hours session and we’ll see how we open/finish tomorrow. If we move lower and hit our exits we’ll gladly do so. For now, we’ll remain with our positions and react as our rules say we should react. There are positives in this market with small cap stocks leading the market higher. Barring a disaster tomorrow this uptrend should continue to move higher. We do have plenty of bulls in the market with the AAII Survey showing more than 46% of its respondents say they are bullish. Only 24% responded as being bearish over the next 6 months. While the percentage of bulls is not at highs it is nearing frothy levels. Remember, sentiment is far from a perfect indicator for the market. However, for the fourth straight week we have the number of bulls above 40%. Tomorrow will be fun with options in four different markets expire. Volume should soar tomorrow skewing our volume data. Price action will be pivotal given the reaction to the cancelling of the Plan B vote. There is no need to have guess work here. Stick to your plan and execute with precision. Have a great weekend and despite what many are predicting for 12/21/2012 we’ll see you next week.

VIX Jumps 10% as Stocks Pullback in Light Trade

Small caps were able to close in the green, but the major indices were unable to hold their early morning gains. At the end of the day there were some fireworks with sellers showing up and pushing the Dow, S&P 500, and the NASDAQ to the lows of the session. Perhaps the lighter volume on the day allowed sellers to have their way. Overall, a pullback on lighter volume is a good thing for this current uptrend. We’d rather not see the Dow fall 100 points. If we were seeing heavy volume selling we’d be concerned with distribution piling up and additional small caps were relatively unharmed during the late day sell off. One thing to note was the more than 11% move in the VIX showing a bit of fear coming into the market. Today was not a terrible day for the markets as it continues to keep us on our toes. The market simply cannot go higher in a straight line and pullbacks are to be expected. In our new world of forever QE it does give us pause when we can fall with relatively ease. We have moved quite a bit since last Friday and a pullback is to be expected. At the moment, it appears sellers did not bring volume to the table, but any further big price selling will concern us. It was nice to see the continued leadership from Small Cap stocks as well as the NASDAQ outperforming the S&P 500. We could have done without the end of day shenanigans. The VIX has been relatively tame since the November turn around on 11/16. We have not seen the fear index above 20 since June of this year. We do have quadruple witching this Friday as well as GDP set to be reported tomorrow morning. Quadruple witching weeks tend to see a big jump in volume as well as volatility. Without distribution piling up it is tough at this point to say today was a turning point for this market rally. Some signs of concern like ISRG getting obliterated by a Citron report and HLF getting hit by Ackman, but overall action was “okay.” A few stocks like KORS ended well off their highs, but this is normal for our current environment. However, any further weakness in leadership will be concerning as for now we are cautiously long. Tomorrow morning we’ll get our weekly jobless claims as well as 3rd quarter GDP expected to print 2.8% growth. Sadly, this is mostly due to government spending borrowed dollars. Again, price will be everything. Know your exits.

Stocks Power Ahead as Strength Continues

Once again the market powers ahead in heavier trade indicating higher prices are ahead. Homebuilder sentiment came in as expected hitting 6 year highs, but a potential deal is likely in the Fiscal Cliff saga. All that matters here is we have a ton of stocks breaking out and price action in the market supporting these moves. We can debate over what printing to infinity will do to the US Dollar, but for now we have a big uptrend in our midst. At this point, not getting behind this rally will only leave you wondering later why you didn’t get on-board. Until we get distribution piled up this market is going to continue higher. The very bullish action at today’s close indicates that this uptrend is for real despite its many flaws. The biggest flaw in the market rally is the Federal Reserve debasing the US Dollar at an alarming rate. Printing more than 85 billion worth our currency and the effect it will have on our everyday life. Japan has been doing forever quantitative easing and it has failed to invigorate its economy. Maybe it will be different this time, but one thing is for sure prices all around will go higher. Initially, this will help our market given the recent price action. The real tricky piece will be when the Fed begins its exit from its endless money printing campaign. We are seeing a tremendous amount of breakouts it is a huge positive for this market. Amazing we have yet to see a true follow-through day despite today coming very close to actually being one. At this point it is about obeying the price action and knowing your exits. There are many stocks breaking out and showing tremendous strength. Ignoring the price and volume action in these names will more than likely be futile. Even if this rally only lasts a month if you have a sound exit strategy you will be out before any harm is done. Opinions mean very little in the market and the market is always right. Believe or not we have a rally and may be we’ll only squeak out a 10% rally, but one we’ll take. Remember, knowing your exits are just as important as knowing when you get into a position.

Strong Price Action Led by Banks Backed by Volume

Today we saw strong action from banks and homebuilders as the Russell 2000 led all major market indices higher. Today was quite a pivotal day with price action and volume coming together. This market still remains without a true follow-through day, but the move today was strong enough with volume to show there are legs to this rally. We may not know the extent of the money printing consequences yet (along with ZIRP), but the action we are seeing compels to act to get long the market. The market may be anticipating a debt-deal, better than expected holiday sales, or even better than expected housing data. Who knows? The fact remains we are seeing strong price action suggesting the market will continue its advance higher. Still no follow-through, but the market is doing enough to have us act on the long side of the market. The market is clamoring for a fiscal cliff deal to avoid seeing spending cuts that would immediately impact the bottom line. Sales of companies who receive orders from the Federal Government would take a hit and any deal to avoid such cuts the market perceives to be a good thing. At some point the deficit will matter and the debt will matter. At this given point in time the market does not appear to care very much about running massive deficits. The Federal Reserve has all but signaled its willingness to fund the deficits if need be. Do not let your opinions fool you from making portfolio moves. This market is poised to continue a move higher given its recent action. Missing it because of an opinion you have is not an excuse when the S&P 500 is a reaching 1500. Will it? It has the potential to, but then again do you want to regard missing a signal because of an opinion. A key component that many market pundits will leave out is when you are going to exit a position. Just because they say go long this or that they tend to leave out when to exit. We could very well move much higher, but when do you exit? Do you ride your shares through a correction? If you cannot answer your exit point it should be top priority to know when you exit. Do not waste your time and efforts looking for a fiscal cliff deal. The market is anticipating a deal and we aren’t about to wait for it to happen. If the market does roll over we have our exit strategy to protect our downside. Banks, homebuilders, and small cap stocks are leading and we are going to follow them.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading portfolio remains under a NEUTRAL signal. However, we did switch to a BUY signal for 2 days before switching back to NEUTRAL. Fortunately for us, we have already closed shop on our model for the year. After the final and barely successful SELL signal it was decided that with the current price/volume pattern in the overall market, the upcoming Fiscal Cliff drama, and the news driven nature of the current market that shutting it down for 2012 was the right thing to do. This past week proves that point. The past week saw a very noisy intraday nature to the market with a ton of stocks showing erratic to abnormal price action. Rather it was stocks like GMCR, FB, FSLR, AMCC, or RIMM going up almost every day non-stop or the reversal in price breakouts lower in stocks like SWHC, ARIA, QCOM, CNC, or ASPS that scripted what was an odd overall market. Even the big boys like PCLN and GOOG are showing erratic trading. This is a clear sign to us that trend following and stock picking the U.S. markets remain a very futile effort for anything other than a very short-term time frame. If your time frame is going to be weeks to months, on a position, we recommend waiting for better price and volume relationship to develop in this market. At this point for us we are very happy being heavily invested in cash and on the sidelines in our top systems. Short-term daytrading methodologies and very long-term methodlogies in world ETFs with wide volatility/ATR stops are the only two systems working for us now. The world ETF market has been the one very bright spot in all of this. The moves in VNM, DXJ, EWH, EWS, and EWA have been very welcome during a time when the U.S. markets are behaving so poorly. We continue to believe that over the longer-term more capital and bigger position sizes are going to be needed in these markets to return outside normal returns in the future. We are sure one day the stock market will trend in one direction or another for a period of time that will allow old trend following momentum methodologies in high quality stocks to work very well again. Until then, however, other markets should be where investors continue to look to into the future. That is unless we can get a change in the zero-interest-rate-policy, the Quantitative Easing environment, and extremely divided electorate some time soon. I wouldn’t place on hard bets on that happening for a while. Aloha and have a wonderful weekend! Current Top Holdings – Percent Return – Date of Signal NTE long – 118% – 8/17/12 VRNM short – 54% – 4/10/12 CAMP long – 48% – 4/26/12 CSU long – 37% – 9/4/12 ASTM short – 25% – 8/2/12Q

Hope Continues for a Fiscal Deal, but Stocks Fall in Mixed Trade

Just the headline of a meeting between Boehner and Obama helped push the market off the lows. There is desperation for a deal for the fiscal cliff. The market for the second straight day rolled over from the morning highs. Despite doubling down on QE infinity stocks have been unable to crest above last week’s high. Volume on the NASDAQ rose giving the index another day of distribution while volume fell on the NYSE. Price action is not strong at the moment and given the lack of thrust from recent breakouts this uptrend we have been in is at risk for failing. Cash remains king. The fiscal cliff is such an interesting beast. On 11/16 we were close to getting a deal and yet four weeks later we are no nearer a decision than we were on 11/16. Our government spends roughly 25% of GDP by borrowing forty cents for every dollar spent. It is a nice thing to say we aren’t taxing the rich enough, but taxes only get us so far maybe 1/10th of the way. While we have been able to implement tax cuts we have never been able to cut spending. It is time to take our medicine and begin down the path of sustainability. This recent uptrend is still without a true follow-through day and even though we could get one tomorrow it isn’t likely it will produce tremendous gains. Days 3-7 are the sweet spot for a confirmation of a new uptrend. The lack of follow-through day simply underscores how weak this uptrend has been. Where are the stocks zooming out of bases? Sure we have had some breakouts, but they aren’t screaming higher like we normally see in a sustainable uptrend. As of now, we do not have the strength needed to continue this rally. This action is the main reason despite our model switching to a BUY signal two days ago that not one position was placed off of this signal. There was simply too much cross-currents and bad/confusing action. Our model has obviously returned to the NEUTRAL mode. No harm, no foul, this time around. Know your exits and if the situation changes be ready to adapt! Have a great weekend.

Stocks Stage a Big Rally, but Hit Some Resistance

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

Dull Day on Wall Street; Volume Slides Again

The only excitement of the day occurred just before the eleven o’clock hour with the market pushing to break out from last week’s high. Volume was running below average, but price action appeared to be strong. However, just prior to the breakout we saw sellers step up and prevent the breakout. AMZN and EBAY were lower in higher volume along with AAPL who closed in the red for the second straight day. CNBC continues to pound on the Fiscal Cliff issue and cannot seem to move away from it. Small Caps continue to outperform and were too close to breaking out. If we are to breakout look for Small Caps to take the lead. We have experienced another dull day in the market as we remain trendless for now. PCLN suffered a big down day with volume running more than 50% above average. The stock looked poised to breakout and run despite the 50 day running under the 200 day, but today’s action is not good for the bulls. Right now the stock appears to be stuck in its range from the summer as overhead resistance remains strong. AMZN appears to be building a handle and will need to avoid any further selling on high volume. Pay attention to the stock around its 50 day as support around this moving average will be crucial for the stock. There doesn’t appear to be many bright spots in the market at the moment, but even with a dull market the environment can change rapidly. Be prepared. The market won’t get much economic news until the FOMC rate decision on Wednesday. Many will try to game the Fed and predict what the market will do. There is an upside bias on the days leading up to the FOMC rate announcement so any breakout here wouldn’t surprise us. If we do see the market breakout we’ll go right along with it, but we’ll have an exit strategy. Last FOMC meeting the market rallied on the news of QE. Unfortunately, the rally didn’t last and we saw the market sell-off. If you didn’t have an exit strategy and were long the market thru the downtrend you suffered through a nice loss. It is always best to avoid the downturns and wait for better entry points. We are waiting on the market and there are plenty of mixed signals right now. The NASDAQ remains below its 50 day and 200 day. On the other hand the S&P 500 and Russell are sitting just above it. Meanwhile, volume remains below average.

Big Wave Trading Portfolio Update And Top Current Holdings

It was a very uncorrelated market the past week with the Nasdaq falling 1%, the DJIA rising 1%, and the Russell 2000 coming in flat. Overall, nothing has changed in our model and we remain under an overall NEUTRAL condition. Despite being under a current NEUTRAL position, we definitely have a long bias currently in big-cap NYSE stocks. Low P/E stocks that pay a nice dividend that show some fundamental growth are beginning to outperform more speculative technology and small cap stocks. The biggest reason for the divergence is obviously AAPL which makes up about 9.5% of the Nasdaq. The near 9% decline this past week definitely was the anchor preventing the Nasdaq from rising. However, if you only think that AAPL is the reason for the weakness in the Nasdaq then why did the Russell 2000 lag? It’s because right now big-cap low P/E dividend producing stocks are in favor. Growth and technology is not. While there was not a ton of market moving news in individual stocks outside of AAPL, there were more oddities this week in more ways than one: 1. The constant overbought and oversold nature of stocks continued this week with some stocks seemingly up every day like GMCR and FB and some stocks actually down everyday like ONTY. 2. Continuous breakout fakeouts in stocks like TDG SWHC ACHC NCR RBA QIHU LPH EDU TOL MHO keep happening. 3. Breakout fakeout re-breakouts in stocks like GEO show up every once in a while. 4. Insane one day price moves in stocks like GRPN which retake their 50 day moving average on strong volume and end up 22% higher on the day. The bottom line is that the insanity continues and despite some pockets in low P/E dividend stocks there is not much that can be trusted or relied on when it comes to our markets. However, the USA is not the only market in the world. Thankfully, there are other nations out there that actually promote free markets and freedom. World ETFs like EWA EWS EWH EWA and ENZL continue to march to new highs. And in other South East Asia nations the same can be said from VNM, CAF, THD, EPHE, EWM and DXJ. Other ETFs hitting new highs include EWO EWN EWQ EWK EWL EWU. On top of that, India is on fire with INDY, EPI, SCIF, and PIN showing Relative Strength versus our market. So as you can see, as long as you do not focus on the US markets, you can make money trend following world ETF shares. Especially South East Asia. Remember, the world is nothing but a flow chart of capital. If that is the case, India, China, Thailand, Malaysia, China, Hong Kong, Singapore, the Philippines, Australia, and New Zealand will continue to dominate over the next decade as money leaves the United States and moves on to the next round of major growth economies. So while we may have an insane Congress with an insane Federal Reserve bailing out and taking care of insane banksters with QE and ZIRP, trend followers can pack their bags and take their money to South East Asia. This is a trend I believe we will continue to see well into the near-term and long-term future. You can’t be $16,000,000,000,000 in debt on the book ($86,000,000,000,000 possibly in unfunded debts) and expect the growth of the 80s and 90s to E-V-E-R return. Especially in a world where big corporations gladly hire cheap overseas labor and grant themselves huge bonuses and paychecks at the expense of the workers wages and benefits. It’s a different world. The manufacturing jobs that everyone keeps screaming that need to come back are N-E-V-E-R coming back. Ever. While everyone is upset about the trendless messy market we have right now, remember, on the other side of the world the trend is clear. Over in our neck of the woods we remain under a NEUTRAL condition with a bullish bias to big cap dividend-yielding low P/E stocks and a bearish bias on the overall macro economy. Aloha and have a wonderful weekend! Top Current Holdings – Percent Return – Date of Signal NTE long – 123% – 8/17/12 AVD long – 121% – 1/10/12 VRNM short – 58% – 4/10/12 CAMP long – 47% – 4/26/12 CSU long – 41% – 9/4/12 ASTM short – 33% – 7/17/12

AAPL Suffers as C and BAC Enjoy Big Moves

A wild day on Wall Street as stocks stage an intraday reversal only to give back gains at the close. Once again the market was ready to fall apart and we were able to find buyers at the lows. AAPL tumbled hard while BAC and C raced higher. The market liked these two gigantic banks were cutting costs by eliminating jobs. Volume rose across the board giving the NASDAQ a day of distribution and stall days for the S&P 500. At one point it appeared the Dow would put in a follow-through day (and NASDAQ a distribution day), but ended the day in stalling action. We are still without a confirmed uptrend and wild intraday action. In addition, we still have failing breakouts. Adding all of this up cash is very much king. All eyes will be on the ECB tomorrow morning. Since the last ECB meeting the economic landscape in Europe has not improved, but worsen. Expectations is for the central bank to leave rates steady as borrowing costs across the continent have dramatically been reduced. More importantly, it will be how the market reacts to the central banks comments. Given the movement off the recent lows the European stock markets are expecting the central bank to produce something for them to continue their trend. After the ECB announcement we’ll get initial jobless claims and a look into Friday’s job report. Let the fun begin from CNBC and their over-analyzing the data and blaming Sandy. Market action is where our attention will be focused. There is something sinister going on with AAPL. Perhaps the rumor of a dramatic reduction in demand or some fund was forced to dump was the cause of the sell-off. To be honest, we do not care the reason for the decline and what we know was today the stock sold off in heavy volume. The stock’s trend is down and it appears there isn’t much that will stop this stock from taking out the November 16th lows. AAPL is a beloved stock and owned by many institutions and if the selling continues the exits will become very crowded. Do not be a hero. The NASDAQ remains below its 200 day and 50 day with the S&P 500 continuing to find resistance at its 50 day moving average. Until we see these indexes move above these moving averages with conviction and without a follow-through day the long side is not safe. Cash is king and we continue to tread very carefully in this market.

ISM Shows Manufacturing Contracted as Stocks Reverse and Close in the Red

In a surprise to the market data out of ISM showed the manufacturing sector contracted waking up sellers pushing the market lower. The market gapped to the upside with the hope the economy wasn’t in that bad of shape with Europe and China’s PMI data. At the open the NASDAQ hit the high of the day and was never able to recover. SPY and DIA staged an outside reversal day while IWM and QQQs were able to avoid the pattern. Volume was lower on the day compared to Friday’s massive volume surge from end of the month rebalancing. While today wasn’t an official day of distribution it was certainly a big warning sign to longs buying has been exhausted. We still have not seen a true follow-through day and it appears after today we may not see one. Tread carefully as today was not a good day for the market if it wants to push higher. The outside reversal gets negated if the market is able to retake today’s high. Volume doesn’t matter too much, but we’ll need to see the highs taken out if this market has any chance of moving higher. The other game changer was the reversals at major moving averages. For example the NASDAQ gapped above its 50 day moving average only to cut right back under it. This is not the type of price movement you want to see from the market whatsoever. To make matters worse for this rally off the November lows is market leadership. Two stocks DDD SSYS broke out last week and were looking good until the last few trading sessions. The reversals are a clear indication breakouts are failing and a big clue to the health of this uptrend. CVLT is hanging in there and with QIHU breaking out it will be important to watch how these stocks act over the next few trading sessions. Given the market conditions it is very difficult to hang onto these stocks for big wins. Remember, have an exit plan for any trades you make and do not get caught without one. Not a good start for the bulls this week. It is best to review your trading plan and execute!

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading portfolio remains under a NEUTRAL signal, despite the strong gains this past week in the stock market. The gains from last week were very strong but it came from a very oversold condition and was straight up in a V-shaped formation backed by zero accumulation. While we are used to the stock market rallying on zero volume following heavy volume selloffs, we are at the same time still not used to it. Its a learning process adapting to the current market we have been in the past two years, following 200 years of normal price and volume relationships in equity and futures markets. Therefore, despite the strong gains, we remain in a NEUTRAL condition. This being said we do see constructive action underneath in the stock market. We had a lot of stocks fly past logical buy points that we were watching the past week. These stocks, instead of pulling back and allowing for a “safe” entry, continued to rally higher. Some examples include PRLB, FB, GMCR, and HIMX. We also see other stocks working on possible basing formations in big heavy volume leaders such as GOOG, PCLN, AAPL, and AMZN. We also see some new leadership in the form of 3D-printing stocks like SSYS and DDD. So while we remain under a NEUTRAL condition we will be more than willing to switch to a BUY mode. We would like to see the market base sideways or move lower on lower volume and then begin a strong move higher before this signal is generated. If we do not see the market pullback and instead are up 2% on lower volume Monday we will be obey the model and switch to BUY. However, we would make any position small as we are overbought short-term and simply have no volume. Historically, December is a bullish month for the stock market and it does rise on little volume most of the time. Therefore, volume is not much of a concern right now as the overall overbought condition following the V-shaped rally in the indexes. The bottom line is that while we see some constructive action in the market and it is seasonally a time to be bullish it still is not good enough to press bets here. We will continue to operate on the smallest level we have ever operated on at Big Wave Trading, continuing to keep an extremely high level of cash until better chart patterns can build in the stock market. 2012 has been the worst year ever going back to 1996 in terms of win/loss pain/gain ratios. Thankfully, due to trading small and getting smaller and smaller and smaller as the year went on we avoided the losses that the trend following wizards were dealt in the month of October and surely have been dealt in the month of November. In that regard, the past two months have been “wins.” Overall, though, losing money is never a winning situation. Still a 10% drawdown sure as hell beats a 50% drawdown. When you are wrong, get smaller. When you continue to be wrong, get even smaller. If you are still wrong, get as small as you can or do not trade at all. This has been the ultimate lesson from this trendless yet extremely choppy/volatile low-trading range market the past two years. The other lesson learned is to never overly trust one particular system. Diversifying amongst a bunch of different backtested systems that perform differently in each market and knowing how to weigh each system in each market environment has been another lesson well learned. Aloha and I wish you all the best during the upcoming week! Top Current Holdings – Percent Gain – Date of Signal AVD long – 130% – 1/10/12 NTE long – 124% – 8/17/12 VRNM short – 56% – 4/10/12 CAMP long – 54% – 4/26/12 CSU long – 43% – 9/4/12 ASTM short – 34% – 7/17/12 MAGS short – 30% – 4/18/12