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

Outside Reversal for the QQQs Looks Negative, but Does it Spell “DOOM?”

Friday’s action was quite bearish for the market, or was it? It is not a good thing to see the market gap higher then fall flat on its face. We’ll take a look at the QQQs to see what happens when the ETF stages an outside reversal day. Friday’s Chart: Crunching the numbers here is what stands out: The average return following the outside reversal: 1 Day – (.23%) 5 Day – .00% 20 Day – .68% 30 Day – .44% Comment: Things aren’t all that bad, right? The Best Performance: 1 Day – 10.42% 5 Day – 16.63% 20 Day – 12.12% 30 Day – 28.25% Comment: As you can see, if you go short this signal you best cut your losses REALLY FAST. The Worse Performance: 1 Day – (8.21%) 5 Day – (13.63%) 20 Day – (10.38%) 30 Day – (58.28%) Comment: When it gets bad, it can get real bad! Final Thoughts: The odds of this pattern working (short side) across the four time frames is 43%. I wouldn’t be all that excited, but remind you this analysis does not take into consideration if the QQQs was in an existing downtrend or any other special situation. This analysis is the 50,000 foot view of what happens when the market notches an outside reversal.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio remains under a SELL signal on the SP500, Nasdaq, Russell 2000, and DJIA. The NYSE switched to BUY signal yesterday and subsequently re-switched to a NEUTRAL signal by the close of today’s trading. Two words can sum up this week of trading: random, ugly. Another word many traders were using this week was confusing. While we remained under the 50 day moving average on all important (I would not consider the NYSE “important” per se) indexes, the action on Thursday had the type of move that signals a short-term low has been hit. The previous three to five sessions in the big indexes prior to Thursday indicated a market that wanted to continue to bounce. However, today completely put a wrench in that assumption. The worst part of this whipsaw move the past two days is that our short ETF positions gave a partial cover signal and our exposure was reduced at the open on the gap only to see the market sell off all day confirming the original signal. It is what it is. Now what? Well, technically, nobody knows. Still, with this kind of action in the indexes, following the already in motion sell off, it can be said that based on history the market should continue to sell off. However, based on the history of the past four years, the market should establish a low around here on very little volume and then rally to new highs on even lower volume. That has been the pathetic, but real, pattern the past four years. It’s outside of anything you can backtest on USA markets but it is what we have. Our current methodology has us in a very heavy cash position, with some current long positions still working, and a couple of hedged ETF shorts to counterbalance the longs. As these longs give final profit taking or cut loss exit signals, we will increasingly become more weighed to the short side via our ETF short positions. If we do find support here, our longs should continue to work and we will exit the ETF short positions. As for current trading opportunities we are finding very few. There are a couple of recent pumps that are in shortable positions but you can’t place large amounts of capital in these cheap pumps. There are very little to zero stocks setting up in current strong technical patterns, with proper volume characteristics, that lead to high percentage breakouts. On top of that, there continues to be no trend following signals via our trend following methodology in individual stocks. We have noticed strength in a few world stock markets, particularly singling out the South East area. It will be interesting to see if the money continues to flow into these advancing nations and out of declining nations like the United States. Follow the money. The money never lies. Price is the only truth, in a world full of professional and well-payed liars. We wish everyone a great weekend. Maybe next week we can get a more trend-friendly market. The current chop of the small trends that we do get make it nearly impossible to make any significant gains as we must position size accordingly. Aloha everyone! Top Current Holdings – Percent Return – Date of Signal AVD long – 120% – 1/10/12 NTE long – 59% – 8/17/12 VRNM short – 51% – 4/10/12 CAMP long – 48% – 4/26/12 MAGS short – 29% – 4/18/12 CSU long – 28% – 9/4/12 ASTM short – 25% – 7/17/12

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading portfolio remains under a SELL signal that was triggered on 10/19/12. It was another down week for the overall stock market and it was another above average weekly volume sell off for the Nasdaq composite. This now brings the total of above average volume weeks on the downside this year to 6 vs. 0 up weeks on above average volume. Despite the constant distribution that we have seen the past four years, it simply has not mattered as we are in a QEn environment. This means that despite the weak action in the overall market, and stocks following earnings lately, it would be unwise to assume that the next rally attempt, if it does come on lower volume, will fail. We have seen time and time again how higher volume sell offs are supported around the 200 day moving averages on lower volume and then the next thing you know we are hitting new highs on below average volume. Therefore, despite being under a SELL signal with short positions in the DJIA and SP500, we have an overall neutral/cash bias at Big Wave Trading across the board. We are prepared for the market to find support here and rally and we are ready for the magic bullet of QE to finally run out of firepower. Either way, we are ready. The most telling issue in this downtrend is two fold, for us. One, we still have long positions that were initiated in the previous uptrend that continue to trend higher above key short-term and long-term moving averages. If more of our longs were outright breaking down on huge volume, we would be more “worried” about falling prices. Second, we continue to receive zero extremely high reward/low risk ratio short signals. Without these “screaming” shorts, we find it best to stay neutral on the overall downtrend taking only the 50 DMA trend following signals in the market indexes. Since June we have not had a single stock produce what we would call a 10 out of 10 long or short signal. The new signals that generate, since June, have at best been a 7 or an 8 out of 10. This is not terribly surprising considering the magnitude of this artificial low volume stock market rally the past four years. However, it is annoying as it prevents us from making any substantial money to the upside. Until we receive these “near-perfect” signals, we will continue to operate on a shoestring basis giving preference to trend following signals in high priced stocks, extremely high quality CANSLIM stocks, and index ETFs that trade significant volume. If the market finds support around the 200 day moving averages of the major indexes and we can rally back above the 50 day moving average, obviously the SELL signal will be negated and we will be back looking to operate on the long side. However, until we start to rally on higher volume, sell off on lower volume and then rally on higher volume, on the market indexes, there is no way we will even think about increasing our size. That is unless that 10 out of 10 shows up but it is hard to believe they will when the overall market’s volume is artificial. Low volume rallies followed by heavy volume sell offs that are then followed by more low volume rallies do not produce the quality chart patterns that we require (along with growth in the fundamentals) before going heavily long in any one position. For now, we remain under a SELL signal and will operate accordingly. Cash is king, right now, for those with a time horizon longer than one day. Aloha and have a wonderful weekend everyone! Top Current Holdings – Percent Return – Date of Signal AVD long – 143% – 1/10/12 NTE long – 59% – 8/17/12 CAMP long – 56% – 4/26/12 VRNM short – 46% – 4/10/12 MAGS short – 30% – 4/18/12 HEB short – 29% – 9/24/12 CSU long – 29% – 9/4/12 SHF long – 28% – 8/1/12 TAYC long – 26% – 6/15/12 ASTM short – 26% – 7/17/12

Dow and S&P 500 Lead Stocks Lower as NASDAQ Finds 200 Day Support

More selling hits the street despite yesterday’s end of day rally. The 200 day provided the NASDAQ with some support, but the index failed to put in a big turn around day. Earnings continue to pour in and are only helping a few stocks. FB reported after-hours and is seeing a rush of buyers into the stock, but FB is not the norm. Volatility spiked closing above its 200 day moving average for the first time since the beginning of June when our most recent rally began. Fear has once again crept back into the market, but we lack the panic we normally see in a market bottom. Price action continues to be weak with volume still big on the downside and we remain in sell mode. Earnings season has crushed many growth stocks, but they continue to pile up. BWLD is just another victim to the earnings disaster. FB and PNRA are two bright spots, but they are the exception to the rule. NFLX was hit hard again in after-hours as the company failed to reach its user target. The stock had seen some life, but for a little over a year has been taken to the woodshed. CMG is in the same camp. The ultimate growth stock AAPL reports on Thursday and after failing to rally after its announcement of the iPad mini Thursday’s report will be important to the stock. AAPL has touched its 200 day, but has yet to top out since the 2009 bottom. More than 3 years later the stock has had a tremendous run and Thursday we’ll see if the stock can find the juice to resume hitting new highs. Commodities continue to pull back as crude oil briefly hit an 85 handle on the day. Gold and silver continue to pullback after their run up from the announcement of QE 3 or what we call QE forever. The market has now pulled back roughly 6% (NASDAQ) from the QE announcement. The market dropped roughly 3.5% from its peak from the QE2 announcement. At the moment we have support at the 200 day for the NASDAQ while the S&P 500 has yet to reach its 200 day. The election is two weeks away and it is bound to have an affect on the market. The most recent pullback has not been kind to leading stocks and it appears we’ll see this continue given the reaction to earnings as of now. Have a plan and trade. Cut losses and ride your winners. Volatility is finally showing some fear in the market and will at some point signal a possible bottom. Cash is king for now.

NASDAQ Closes Positive for the Second Straight Day as Big Tech Disappoints in After-Hours Trading

Back-to-back Accumulation Days has the Big Wave Trading model switch back to BUY mode. The NASDAQ still remains below the 50 day moving average, but the S&P 500 continues to act strong on the back of bank earnings. Technology earnings are now in focus and during the after-hours session INTC and IBM reported earnings disappointing the street. Both stocks will be putting pressure on the market during tomorrow’s action and it will be important to see how both stocks respond tomorrow. Given the past few days price action is strong and what we needed to see this market to move back higher. Tomorrow can bring on a different market and it is why we have a stop loss strategy. We cannot blindly go long or short without knowing our exits. Risk control is a must as tomorrow may bring on intense selling, but there is no way for anyone to know what tomorrow will bring. Of course there are many opinions, but are these opinions always right? What happens when your opinions are wrong? A disciplined mechanical approach to the market is far better than forming an opinion and trading by the seat of your pants. Earnings season continues to benefit banks and with support from the Federal Reserve it shouldn’t surprise those many banks are reporting good earnings. INTC and IBM were hit hard today along with APOL and ISRG. INTC had previously warned and it couldn’t impress the street with the previous warning. As we move forward with earnings expect a bit more volatility as companies report. Be aware of when your stocks are set to report. Know where your exits are and make sure you are using proper position sizing. Cut your losses short and we’ll see if this market can build upon Monday and Tuesday’s action.

Big Wave Trading Portfolio Update And Top Current Holdings

There will not be a weekend update this week. We apologize for the inconvenience. Top Current Holdings – Percent Return – Date of Signal AVD long – 145% – 1/10/12 CAMP long – 72% – 4/26/12 SVNT long – 61% – 9/10/12 NTE long – 60% – 8/17/12 CLGX long – 58% – 6/19/12 VRNM short – 36% – 4/10/12 PRXI short – 36% – 3/30/12 SHF long – 35% – 8/1/12 CSU long – 30% – 9/4/12 MAGS short – 28% – 4/18/12

The 4th Quarter Starts in Lackluster Fashion

NASDAQ 100 stocks lagged the broader market lead by MSFT and AAPL as the Dow Jones Industrial Average and Russell 2000 were able to close in the green. Volume ended the day lower than Friday’s inflated figures from end-of-the-month rebalancing. Overall the session wasn’t that inspiring, but it wasn’t entirely awful. Early on in the session optimism ran high with positive news from the ISM Manufacturing Index report showing the sector expanded when expectations were for it to slow. Price paid were a bit higher, but weren’t alarmingly higher. The close was decent with buyers stepping up and lifting the markets avoiding closing on the lows. Our uptrend remains with very little distribution piling up despite the bearish opinions of the market. Today’s reversal is not what you want to see from the market. Last year, however, the first day of October was not that great either. Even the second day, 10/4/2011 at 3pm looked dire until we got a rumor of a new bailout for Europe. While things may look dire now you just never know what the market will hand you the next day. Guessing where the market will be next is not a recipe for success and continues to keep traders from maximizing potential gains. Stick to a disciplined approach and play the odds rather than simply guessing. The election is not far a way at all! It will be nice to get away from the constant stream of political ads and banter. However, for this market it does appear we are looking like an Obama victory. We can debate polling tactics and have yet to have a debate, but there is one thing that is certain: no one knows where the market is going. Will Obama help the US avoid the mandatory spending cuts and tax hikes? Will Romney? Will either candidate get our fiscal house in order? It is very doubtful either candidate will resist the urge to spend and inflate the deficit higher. Then again, the Federal Reserve is pumping $40 billion a month into mortgage backed securities and it won’t matter. In the end, focusing on leading stocks and their price action is the way to go. Leave the guess work to others. We aren’t off to the best start to the quarter, but it could be far worse. Cut those losses.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio remains under a BUY signal from August 3rd, following the past week’s market pullback. The pullback was overall orderly with only Tuesday being a session of concern. The fact that there were many stocks that made big moves following that session and that the market did not follow through immediately with the selling shows that the uptrend remains intact and in solid shape. Despite the low VIX and high % of bulls to bears in the Investors Intelligence survey, the atmosphere remains overall toxic. Individual investors based on the AAII survey and the real-time Finviz survey continue to point to a public that is overall skeptic to bearish. The crowd is definitely not overall bullish. At best, it can be said that sentiment data points remain mixed. What doesn’t remain mixed is price. Price is still trending higher on all time frames except the most short-term. If we get another distribution day or two, we might have some more short-term problems. However, the action in individual stocks in regards to long-term base structures, along with stocks already hitting new highs, indicates that the market might want to trend higher for a bit. I just would not expect any kind of explosive gains. Especially when the macro picture is at best not bad. 1% to 2% GDP growth is never going to light the fire underneath a country’s stock market. For now, we will stick with this slow uptrend that is still not offering any what we would classify as “perfect” or even “near perfect” long signals. Trend following big priced stocks that trade a ton of volume by buying in the money options with low implied volatility as they cross above and below whatever moving average one uses continues to be a superior methodology compared to the once extremely profitable tried and true combination CANSLIM/momentum methodology. Aloha everyone and I hope everyone is having a wonderful weekend! Top Current Holdings – Percent Return – Date of Signal AVD long – 141% – 1/10/12 SVNT long – 70% – 9/10/12 NTE long – 61% – 8/17/12 CLGX long – 52% – 6/19/12 CAMP long – 46% – 4/26/12 VRNM short – 35% – 4/10/12 SHF long – 34% – 8/1/12 PRXI short – 33% – 3/30/12 MAGS short – 28% – 4/18/12 STX long – 25% – 6/29/12

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading portfolio remains under a BUY signal, generated on August 3rd, as the market continues to move higher on well above average volume. On Thursday, for the first time during this rally, we saw the indexes, ETFs, leveraged ETFs, inverse ETFs, and leveraged inverse ETFs all move in the right direction on well above average volume. This is the confirmation we need to start to increase positions in new longs and to look to buy the dips when the dips do come in leading stocks that are short term too extended from their 50 or 200 day moving averages. The increase in volume during the past seven trading sessions and the improvement in the breadth of the advance/decline line and the upside to downside volume is excellent to see, if you are long and/or are expecting further price gains. September and October have historically been months when the stock market stages strong rallies. March is another month where powerful rallies begin. This rally started before Labor Day and the current action is definite confirmation that the trend for now must be respected. Now, I know a lot of individuals are upset at why the market is rallying (backed by Quantitative Easing). I share your concern and agree that it is the wrong policy for wiping the slate clean and starting a real economic rebound. Putting a band aid on a femur shaft fracture isn’t going to fix what is really wrong. However, maybe they don’t want to fix what is really wrong. And this is my point. Price is all that matters to us. These individuals that are in charge around the world, that make horrible decisions against the voice and concerns of the tax payers, are going to do what is in there best interest. Not in what is our best interest. What is in your best interest, knowing this, is to take control of your future by learning how to invest in a solid time tested proven trend following methodology. That is the only way those in the bottom will ever be able to save any money. With inflation the way it is and with bank CDs rates so low, what other choice do you have? That is what we are here for. Aloha and enjoy your weekend! Top Current Holdings – Percent Gain – Date of Purchase AVD long – 115% – 1/10/12 BVSN short – 82% – 3/19/12 NTE long – 54% – 8/17/12 CLGX long – 54% – 6/19/12 CAMP long – 32% – 4/26/12 PRXI short – 30% – 3/30/12 VRNM short – 29% – 4/10/12 PXD long – 28% – 7/17/12 MAGS short – 28% – 4/18/12 SVNT long – 25% – 9/10/12

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading portfolio remains under a BUY condition with strong confirmation of the original signal coming on Thursday when every single important stock market index we track broke out convincingly on enough volume to qualify the breakout as strong. The tight intraday action on Friday with a HOD close in the NYSE and SP500 confirm the move on Thursday. This strong move is coming on the back of the NYSE short interest ratio hanging out at 5-year highs around 21.27. This breakout is also coming with bulls, bears, and those on the sidelines coming in at exactly 33% across the board. That means that NYSE short interest is very high, the crowd is not particularly bullish, and stocks are breaking out everywhere with some big names making clearly bullish moves. GS, BAC, CS, JPM, DB, GM, and many other corporate global behemoths are making very bullish moves. If the crowd continues to stay bearish we could see a very powerful short covering rally released. The only odd thing about this move is that it is coming with bulls at 52% and bears at 24% on the Institutional Investor survey. However, bears crossed above the bulls way back in October where the market actually bottomed and it is still nowhere the 5-year bulls high of 62% and the bears low of 15%. Our advice is to follow the price action. While it has been pretty shady for the past couple of years, in terms of trusting this price action, there have been times trends have developed. Let’s hope this time it is for more than one or two months. The potential good news that this rally could last is that we received a lot of strong buy signals in high quality individual stocks last week and this week before the Thursday breakouts in all major important market averages. We shall see what the upcoming weeks and months leading into the election give us. Remember, one or two distribution days is not reason to sell the market short. The key is to watch for 4 to 6 of these days showing up over a two or three week time frame. If you see that, then we can start to worry. However, if that happens I am sure buying unlimited bonds in the USA is not out of the question for the ugly monsters that are Congress and the Federal Reserve. Aloha and have a wonderful and fun weekend! Top Current Holdings – Percent Gain – Date of Signal AVD long – 114% – 1/10/12 BVSN short – 82% – 3/19/12 NTE long – 46% – 8/17/12 CLGX long – 46% – 6/19/12 VRNM short – 37% – 4/10/12 CAMP long – 35% – 4/26/12 PRXI short – 31% – 3/30/12 MAGS short – 29% – 4/18/12

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio remains under a BUY signal from 8/3/12, following the past week in the stock market. There was not much that went on this week that changed anything from the previous BWT Portfolio update. The only significant event this week occurred on Friday with Gold, Silver, and Platinum ripping higher following Ben Bernanke’s speech. A long position in GLD 150 calls two days ago paid off with a 32% gain today alone. We expect much further prices ahead for Gold, Silver, and Platinum and will use subsequent buy signals to increase our exposure to this area of the market. As for stocks, everything remains under a steady albeit slow uptrend. Unfortunately, there continues to be below average volume on this move higher but NYSE turnover did come in above average on Friday and that is encouraging sign if we are to see continued higher prices. We do realize that historically low below average volume rallies can lead to severe and quick pullbacks as market participants return to the market. While this scenario is plausible, the technical action, along with the high level of shorts on the NYSE (NYSE short interest ratio is at 20.97), indicates that further price appreciation should occur. There is not much else add to this report that was not already stated last week. Our focus will continue to be on commodities and precious metals, until higher overall volume on the general market indexes returns. Have a wonderful long Labor Day weekend everyone. Aloha! Top Current Holdings – Percent Return – Date of Signal AVD long – 104% – 1/10/12 BVSN short – 82% – 3/19/12 NTE long – 55% – 8/17/12 CLGX long – 41% – 6/19/12 VRNM short – 37% – 4/10/12 PRXI short – 35% – 3/30/12 CAMP long – 35% – 4/26/12 MAGS short – 29% – 4/18/12 STX long – 29% – 6/29/12 PHMD short – 27% – 5/11/12

NASDAQ Stalls as the Market Ends Mixed

Friday’s early evening news regarding AAPL’s patent fight with Samsung helped boost the stock today sending the NASDAQ higher at the open. The initial pop in the NASDAQ was certainly attributed to AAPL’s move, but stock would stall out before the lunch hour. A steady decline into the end of the day with the exception of a last two minute rally had stocks near lows of the session. Volume ran higher on the NASDAQ, but with volume so far below average it is very hard to label today as a “stall day” adding to our distribution count. The current rally is hanging in there and with the final week of summer upon us trading should stay light until after Labor Day. Today’s price action wasn’t ideal for an uptrend. A gap reversal like we saw today is normally a bad sign for the market. However, with AAPL providing the majority of the boost for the NASDAQ and very light volume anything is possible here. We are essentially discounting the move in price due to the obscenely low volume. The real players will all return after Labor Day and we’ll certainly see volume pick back up. The lone bit of economic news came from the Dallas Federal Reserve Manufacturing activity index. Economists polled expected a drop of 6.5 while the reading came in better at -1.6. Essentially the Dallas Fed saw a slowing, slowing manufacturing pace. Later in the week we’ll get another GDP reading which will likely show tepid growth. Second quarter growth is slated to come in at a wonderful pace of 1.7%. If you did not detect sarcasm there was plenty of it in that last sentence! Where are our 4% GDP days? Perhaps at some point we’ll get there, but when is the biggest question no one can answer. It is nice to see some of our stocks soar. A prime example of one we’ll be taking some profits on is NTE. We’ll continue to take advantage of this market as opportunities present themselves. Headlines will start rolling with Bernanke at Jackson Hole this week and you never know with the ECB’s Draghi providing headlines. We’ll stick with our disciplined approach and follow price. We’ll let the guess work to others. Make it a great week.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio remains under a weak BUY signal, following a week of constructive price action in the overall market. We continue to keep positions relatively small as volume continues to be completely absent in the stock market right now. Traders are still on vacation and there has not been a single what we deem “perfect” or “near perfect” signal since the BUY signal has been triggered. We will continue to operate on a small level until volume returns to above average daily or weekly levels in the overall market or a strong “perfect or near perfect” signal is generated. As for our opinions on the future direction of the market. We do not have any. However, in analyzing the current situation we find similar parallels to the price action in the summer of 2000. Obviously, this time it is much different as it is not coming from a post-bubble pop. However, as someone that follows history, this must be taken into consideration. A low volume rally is always suspect to heavier volume selling and with another week of August still left it is possible that the low volume rally will continue until Labor Day. If that is the case, that is when/where it then gets interesting. Will wall street come back post-Labor Day and see the gains on small volume and begin dumping shares? Or will wall street come back post-Labor Day, see the melt up on low volume, then see the 5-year high of the NYSE short interest ratio at 19.92 (MarketSmith numbers), and then squeeze the shorts to death? There is not one person out there that can answer that question. We must let price be our guide. If volume was heavier on this leg up and NYSE short interest was increasing, then I would lean to a powerful possible rally coming into election season. However, with the volume being so low, a pullback can easily materialize here. We will continue to go with the flow of price and use options to allow us to generate outsized returns that was once attainable via stock purchases alone with margin before 2011. The one extremely bright spot for us lately has been the earnings winners. Stocks gapping up on volume following earnings announcements have done brilliantly and those around in the morning taking the advice given from BWT traders have benefited greatly. Sadly, earning season is wrapping up and that means that we will have to wait 3 more months for these explosive moves that have given us an extremely high reward/risk right/wrong gain/pain ratio to come around again. There are a lot of so-called bulls out there in the II and AAII survey. There are a lot of shorts out there according to the NYSE short interest ratio. Which one is right? It doesn’t matter. Right now, all that matters is price. Follow the price. It is the only thing that doesn’t lie. Top Current Holdings – Percent Return – Date of Signal AVD long – 97% – 1/10/12 BVSN short – 82% – 3/19/12 CLGX long – 39% – 6/19/12 STX long – 37% – 6/29/12 PRXI short – 36% – 3/30/12 PHMD short – 31% – 5/11/12 VRNM short – 30% – 4/10/12 MAGS short – 27% – 4/18/12

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading model switched to a BUY signal on Thursday. This signal was generated thanks basically to the performance of earnings winners, the Relative Strength of the Russell 2000, and a volume surge on the Nasdaq. There was no confirmation with volume in any other index or ETF. Sadly, overall, there continues to be a lack of any momentum in the market following a stock price breakout. The good news is that there is a lot of momentum in earnings winners gapping up on very strong volume. Almost every single stock recommended at Big Wave Trading, in the pre-market, for the past two weeks, has worked and continues to work. This is a very encouraging sign for the possibilities of higher stock prices and a sustained trend. The argument against a sustained uptrend include the low below-average volume on this rally and lack of leadership by the big high priced stocks. The argument for a sustained uptrend include the recent outperformance of earnings winners to earnings losers and the extremely high short-interest ratio on the NYSE. The NYSE is ending the week at or near 5-year highs (can I please have one day where the data corresponds to other data providers across the board. Sheesh.) according to MarketSmith. This ratio is currently around the 19.50 area which is kindle for a huge possible stock market fire. If algorithms continue to lift this market on low volume, it is possible that this will cause a painful short covering rally for those that are simply too bearish here. If a short covering rally does start soon and money continues to come out of bonds possibly finding a home in the stock market, it could be quite a move. On top of this high level of short interest, we are almost out of summer time and that means a possible September and October stock market rally. The stock market usually likes to start strong moves in one direction or the other in October. Crashes happen in this month a lot and a lot of sustained rallies start in this month. If we rally here, pullback in September, and start moving on strong volume in October it could lead to a very exciting moment where we finally produce some big winners. However, all of this is speculation so no conviction will be put into this. Overall, the market remains healthy, despite the absolute lack of volume, and as long as this continues there is nothing to do but go with the trend. There are a couple of weeks left in August so we will probably have to deal with the low volume for a little while longer. After Labor Day we should see some volume return to this market. Or not. I can’t predict the future. I only know the now. Right now, we are melting up slowly on no volume. It is what it is. Have a great weekend everyone. Aloha from everyone at Big Wave Trading. Top Current Holdings – Percent Gain – Date of Signal AVD long – 104% – 1/10/12 BVSN short – 82% – 3/19/12 STX long – 44% – 6/29/12 CLGX long – 40% – 6/19/12 PHMD short – 39% – 5/11/12 PRXI short – 35% – 3/30/12 MAGS short – 26% – 4/18/12 VRNM short – 26% – 4/10/12

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

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

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio remains under a NEUTRAL signal, despite the gains this past week. While the gains were decent, volume was completely absent. If the data from Telechart is correct, weekly volume for the NYSE was the lowest total for the year. My main three data providers always have different volume totals for the indexes so I average them out, usually. Even though volume is so low and there has not been a confirmation rally following the strong rally on 7/27, we were given one new long signal each day last week. Following, the recent action, our portfolio has hit a protective stop and trading has been reduced to the most minimal position possible per trade. This will last the entire month, until there is strong follow-through to these recent gains or a “perfect” signal is generated in an individual stock. These have been few are far between the past two years. The mere fact that our new long signals are still not blasting higher immediately and are instead just holding their breakout levels tells me that there still is not enough pent up momentum to blast stocks higher. With the VIX now below 15 and with the bulls increasing last week while bears decreased in the Investors Intelligence survey, I wouldn’t expect much fire if we do continue to rally. In saying this, it must be noted that the NYSE short interest ratio continuously hits new 5-year highs almost daily. This index now sits at 18.63 at fresh new 5-year highs. Even if volume remains low–never short a dull market–and institutions do not return, the mere fact that a little bit of HFT/algorithm buying can lift stocks up due to the lack of supply on the market, thus creating a painful short covering rally, means that this low volume rally can continue for some time. If these shorts start to cover and sideline money returns to the market, we will be more than happy to get long some ETFs for a rally. However, if volume continues to be below average, we are not going to bite. There are simply too many uncertainties. The only thing we are certain about at Big Wave Trading right now is stocks that gap following earnings. We highlighted many stocks the past week that we issued buy signals (and some short signals) on in the AM based on earnings. Those that followed the recommendations in the AM, profited. It was a great week for playing earnings winners and losers. For the past six months, this has been the only play that has been consistently profitable more so than not. Every other methodology employed this year has more losses than gains. Next quarter, we will increase the capital we normally place in these gap plays as they are just very profitable and continue to trend after their earnings dates. Breakouts and moving average bounces still can not be trusted as algorithms are figuring out how to pick us off in this low volume environment. For the upcoming week, we will continue to maintain an extremely extraordinary high level of cash until volume returns to the overall market. We will also continue to focus on stocks that gap up due to earnings and stocks that gap down due to earnings. For the stocks that gap down we require a major previous uptrend like MNST and PCLN. A stock like YHOO would not be considered. Aloha, have a great weekend, and don’t forget to go outside at night and check out the Perseid meteor shower tonight and tomorrow night. Top Current Holdings – Percent Return – Date of Signal AVD long – 98% – 1/10/12 BVSN short – 81% – 3/19/12 STX long – 38% – 6/29/12 CLGX long – 38% – 6/19/12 PRXI short – 35% – 3/30/12 PHMD short – 33% – 5/11/12 CAMP long – 28% – 4/26/12 MAGS short – 25% – 4/18/12

Stocks End Mixed as Volume Slips

Volume continues to back down from Tuesday’s level and stocks continue to hang in a holding pattern digesting the recent gains. We did get a bit more economic news showing Jobless Claims were less than expected and wholesale inventories fell. It will be nice when claims figures show job creation rather than continued job losses. Most economic news is for cocktail parties and not for trading or at least not for our style. After the Europe close EURUSD took a dive sending our markets to the lows of the session. Buyers were able to step up and support the market pushing prices back to near the highs of the session. Volume dropped more than 10% across the board, a clear sign institutions backed away from the market. We continue to see this market move sideways consolidating its most recent move. There just something not right about this market despite our continued rally. We are not about to argue with the market and fight it. Something just doesn’t feel right out there, but this is precisely the reason we have a cut loss strategy. Just because we may feel one way or another we could be dead wrong! We will not compromise our strategy because our feelings. Opinions are very dangerous and most often they keep you from squeezing every last bit from the market. We’ll stay with cash and a few long positions. Price will dictate our next move in either direction. Sentiment continues to be dominated by those who are neutral. The number of bears did slip to 27.35% according to the AAII sentiment survey. However, only 36.47% of respondents were bullish! How can this be? There are lots of reasons, but when the market appears to want to crack wide open rumors of Fed or ECB action always brings in short covering. It is what it is and fighting the tape is a futile effort. There are lots of reasons to be bearish and very few to be bullish, but when you boil it down all that matters is where price is moving. Tomorrow morning we’ll get a reading from Import prices and the release of the monthly budget statement. Like others, we are looking forward to the weekend. Make sure you get out there and enjoy the weekend.

Big Wave Trading Portfolio Update And Top Current Holdings

This week marked a moment our model has not seen during a running six month period of time (this occurred in only four months, making it even more interesting), during the past 130 years. With the weak BUY signal in the Nasdaq switching to a SELL signal in the Russell 2000 on Thursday to a NEUTRAL signal on Friday, it marked 11 model switches to BUY or SELL in a row without a 5% gain. This has never happened before in 130 years and indicates that we are definitely in a market environment similar to 1937-1941 on the DJIA and 1976-1979 on the SP 500. The price pattern is more similar to 1976-1979 but the volume is more similar to 1930-1933 and 1940-1942 on the DJIA. This, therefore, automatically shuts down our model on the next signal and now prevents any new position to be of any size what so ever until a trend develops. I have stated before and I will state it again, there is no other time period ever in the history of the stock market where you can find the stock market rally on below average weekly and monthly volume (50 day volume average) for a prolonged period of time. All lower volume rallies before this one have ended in one or two ways. They either reverse and give back all gains or they lead up to a higher volume rally. Normally, those low volume monthly rallies only last one or two months before the real volume enters. The current rally has been on below average volume since 2009 (the entire way–not one above average volume UP month) on the DJIA and SP 500 and 2010 on the Nasdaq. So this low volume rally is too far into the trend to have that happen based on history. However, this being something completely different than ever before, could lead to it happening. This market is doing things it has simply never done before so why not. This situation, along with a high unemployment rate and a 1.5% GDP, is preventing any upward momentum from being generated. At the same time, without any more threats of QE or Operation Twist, we believe the market would be 50% lower from the current levels (based on removing all market rallies that either came before an FOMC day or on a day where easing was announced). The market is lifting higher due to inflation of hard assets. This is not good for trend followers on the long side or the short side. The real profitable trend lower will not be allowed to materialize with the Central Banks interference. And the long side trend will be small and choppy thanks to low interest rates and the aforementioned items above. Another thing that bothers me are the low VIX and sideline activity by AAII and Investors Intelligence survey members. The VIX is already at low levels so its hard to believe any real new uptrend will start here. However, the fact the VIX fell on Thursday when the market fell indicates that it could be temporarily broken. Also, there are more people on the sidelines than there are bulls or bears. This prevents extreme pessimism or optimism from forming thus preventing a major move in the opposite direction. Overall, it is a market where intermediate term trend following methodologies continue to be hindered and we find it safest for our assets that we just be on the side playing extremely small until we can get volume confirmation across the board. What will that confirmation look like? A significant move one way or the other on well above average volume on the indexes, ETFs, leveraged ETFs, inverse ETFs, and individual leading stocks. As long as confirmation is not across the board, Big Wave Trading will stay small until a “perfect” setup comes along. We have not seen a perfect setup that worked since February (one perfect and two near-perfects on the long side failed since) on the long side and we have not seen one at all since March on the short side. Until these show up, we are going to take it easy and wait for the right moment to begin operating at a higher capacity. Protecting our capital remains goal one in this trendless tape. The only play that is consistently working is our earnings gap plays. Up or down, it doesn’t matter as long as it is due to some earnings surprise and volume is at least 50% of average daily volume in the pre-market session. Besides that, buying every single dip hoping that the Fed will save you has worked also. That is not exactly my personal style. I am patient and will only risk the capital when the money is sitting in the corner waiting to be taken. Aloha and have a great weekend! Top Current Holdings – Percent Return – Date of Signal AVD long – 88% – 1/10/12 BVSN short – 82% – 3/19/12 PRXI short – 35% – 3/30/12 MAGS short – 33% – 4/18/12 CLGX long – 32% – 6/19/12 CAMP long – 31% – 4/26/12 AXTI short – 26% – 7/19/12 PHMD short – 26% – 5/11/12 STX long – 25% – 6/29/12

Fed Chief Says No to QE and Stocks Respond by Closing Lower

Leading up to the Federal Reserve rate annoucement was the big story was the software glitch hit by Knight Capital. Gigantic volume struck the NYSE causing very erratic trading in nearly 150 stocks. Just when confidence in the stock market is grim we get another flash crash incident. At least the news story distracted the majority prior to the Fed Announcement. Disappointing the market the Federal Reserve failed to deliver a new quantitative easing program. NASDAQ and Small Cap stocks lead the market lower with the Russell 200 finishing down more than 2%. It certainly doesn’t help when Knight Capital is down more than 33%, but small cap weakness continues. Preliminary volume indicates the NASDAQ was able to avoid a distribution day despite the losses on the session. Not a great day for bulls as the market will be hyper-focused on the ECB tomorrow before the opening bell. While the markets closed up lower the VIX failed to rally to show fear amongst sellers. The VIX has not been signalling any fear in this market. Today was no different despite the market not getting another round of QE. The lack of fear in the system can mean many things, but one thing it tells us upside will be limited and any large gains are a ways away. In addition to VIX, bond yields lept and closed higher after the Fed announcement. Rising bond yields and falling stock prices aren’t usually a norm. Sure, rising bond yields are a negative for the government and its financing activities. For stocks, from a historical view rising bond yields have been a big positive for the markets. While today may be an anomaly, it will be something to pay attention to going forward. Now it is onto the ECB tomorrow and then the July jobs report on Friday. More fireworks are set to hit the market and we’ll be ready. Remember, rule number one of cutting your losses!