Stocks Fall Hard in Heavy Trade; Homebuilders Rally

A slew of positive economic data helped bolster the case for the Federal Reserve to taper its money printing scheme. Apologies, taper the quantitative easing program. The S&P 500 blew by a key level we had been watching in heavy trade as well as the NASDAQ. Leading the market to the downside were small cap stocks with the Russell 2000 falling 1.93% on the session. On the positive side, a better than expected homebuilder sentiment drove housing stocks higher in heavy volume. Volatility jumped as the fear trade kicked into gear one day ahead of options expiry. A nasty day of selling ahead of options expiry and pushing our uptrend out of the way. It is important to obey your trend following rules. Did you have a stock break through a key moving average, channel, or ATR stop? Whatever your sell rules are you must obey them. Ignore them at your peril. No one knows whether or not today was a buy-the-dip-day or the start of something more sinister. Do not ignore your rules. The S&P 500 did drop below 1680 in heavy trade leading us to believe we are likely to see the major index to test its 50 day moving average. For the NASDAQ, to see its 50 day moving average will take a bit more effort by sellers. Over the next couple of trading session how each index reacts to its 50 day moving average will be a key indicator how we proceed forward. Keep your focus on price action and the market will guide you. Sentiment continues to favor the bull camp, but has come in week over week. Bulls did drop on the AAII survey with Bears inching up a bit. However, bulls still sit at 35% while bears sit at 28%. NAAIM sentiment saw a dip in bullishness due to more bearish bets being placed on the market. We have yet to see extreme sentiment, but perhaps this is apart of the “new normal.” Either way; price rules our actions and everything else is a cocktail conversation. Stick to your rules and with Big Wave Trading.

Another Hindenburg sighting; Europe Emerges from Recession

Its official European nations are out of recession as GDP rises above expectations. The news did very little for US stock futures and neither did Mortgage Applications which fell 4.7% week over week. Homebuilders once again were weak on the session and continue to look very weak. Buyers kept to the sidelines today with the market drifting in a range all day long. Keeping the market from pulling back further was AAPL as the stock punched through $500 or what was known earlier this year as the generational bottom. We continue to move sideways in this market digesting July’s gains and we remain patient studying price. Another Hindenburg sighting was made today making it the 6th time in 8 days (Business Insider and Zerohedge confirmed) the magical formula for predicting crashes has shown up. The omen doesn’t have a perfect track record by any stretch of the imagination, but it did show up in similar fashion in 2007 and 2000 prior to those bear markets. Can we reasonably guess the same will occur? No. We’ll simply follow price action and let it dictate our next move. Key levels on the downside are 1680 and on the upside is 1710. If we do see this market plunge through 1680 in heavy trade we may have something to the downside. Until then we are sticking with our plan. Here are the Hindenburg Omens: http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/08/20130814_Hind.png Homebuilding stocks continue to take a beating and today was not an exception. ITB and XHB are in downtrends and continue to act weak. Both ETFs are signaling more lows and if buyers do not step up here homebuilders are at risk of a steep decline. Probabilities say a modest decline is certainly likely. In the same boat, but further down the stream are JNK and HYG. High Yield tends to run alongside equities, but not since May. HYG and JNK continue to show weakness in the High Yield space calling into question if we are about to see some trouble in High Yield land. As the 10 year moves higher the ability for questionable borrowing will simply become more difficult to obtain. Perhaps another “omen” for this market, but we’ll need to see further evidence. Will the Hindenburg turn into something real this time around? Stay tuned.

Market Participants await Economic Data and the Fed

A quiet day on Wall Street today as summer trading continues. Many are likely still trying to recover from their weekend festivities. Perhaps many were with Steve Cohen. Pending home sales weren’t as bad as the market was looking for, but was still negative month over month. Dallas Fed Manufacturing activity index was lower than expected coming in at 4.4 (expectations were for a reading of 7.5). The market was able to find its footing just after the European close. NYSE volume ran just below Friday’s level and closed that way too. NASDAQ saw volume drop too. Major indexes were able to avoid distribution given volume was lower on the day. Today was not a game changer as this uptrend continues to march on. The talk of the town continues to be whether or not the Fed Chief Ben Bernanke will hint or talk about tapering the Fed bond buying program. QE and ZIRP have destroyed those who have saved by compressing short-term and long-term rates forcing folks into riskier assets. How does this translate to how we react in the market? It does not, but as a matter of policy debate we can certainly point out how much we have destroyed the earning power from savings. Who wins out Wed the Doves or Hawks? Leading the S&P 500 higher today were utilities. Despite the 10 year yields rallying slightly today utilities found love. On the downside the two notable groups lower were Financials and Oil & Gas. While Oil & Gas lead to the downside losing .84% Financials were down .72%. If it weren’t for the Financials earnings growth would be downright dismal. ZeroHedge has been quite vocal on this point. Financials or XLF is one sector to watch. While a pullback is normal, but if the group turns into ITB/XHB would be a big red flag for this market. Until then, there is no reason to think this uptrend can’t continue. We can guess if the market has topped or not, but we simply do not have evidence it has done so. Yes, housing stocks have rolled over and are poised to continue lower. However, they are really the only group looking like the downside is the path of least resistance. Cut those losses.

Obama’s Economic Speech Fails to Inspire Buyers; AAPL Jumps

A big jump in New Home sales failed to get the market going as the homebuilders sold off hard on the news. The talk of the street was AAPL earnings and the stock’s big move on the day. Without AAPL the NASDAQ would have notched a day of distribution. The S&P 500 could not escape distribution settling down .4%. Even though the NASDAQ did not suffer the same fate as the S&P 500 it did give up almost all of the gains had at the open. Not typically something you want to see in an uptrend, but it isn’t a gigantic red flag. In after-hours trading we had quite a few earnings moves setting up nicely in the morning. We are still without enough distribution days and negative price action to call the end of this uptrend. While we may be long in the tooth we don’t have the proper signals telling us this is over. AAPL was an earnings winner as many were calling for an atrocious quarter from the technology giant. More earnings in the after-hours session will help set the tone tomorrow at the open. Earnings gaps have been a great way to play earnings season. Stocks must meet certain criteria before they can be considered, but they can be quite profitable. Homebuilders sold off in heavy volume and it comes to no surprise even with a big jump in new home sales. ITB and XHB are certainly struggling and while the housing data points to a positive outlook perhaps fundamentals truly are best at tops. In addition to ITB and XHB another key sector looks to be rolling back over and that is XLU. After rallying along with bonds (yields falling) yields raced higher today putting pressure on Utilities. Utilities are far from sexy, but along with Housing this sector is seeing quite a few headwinds. You’ll find plenty top callers in this market. It has proven to be a fool’s game trying to game a market top. Don’t call tops and ride your winners.

S&P 500 Hits another All-Time High

Today was a quiet day in the Market as participants ease back into trading from the summer weekend. Existing home sales disappointed where by sales dropped 1.2% month-over-month. Clearly higher rates have put pressure on the housing market. Chicago Fed Activity index show a slight drop of .13, but who really follows this index anyway. The disappointing housing figures helped push the market higher. When there are no sellers it is quite easy to push the market higher with very little volume. Volume dropped from Friday’s option expiry inflated figure, but we weren’t really expecting volume to surge. The S&P 500 hit a new all-time high on small gains, but hey it is still a new high. Distribution really isn’t hounding the market and we still no reason to call a top here. This market continues onward and upward with this uptrend despite those who continue to fight the trend. Earnings continue to be the focus and MCD delivered its results prior to the market open. Unfortunately, it missed its estimates and the market punished the stock throughout the day. Overall, those who eat less MCD tend to be a bit healthier people in general. MCD clearly weighed on the Dow Jones Industrial Average and the stock does appear to be entering into a downtrend. MCD is not a typical name we’d be involved with, but given its price action to date we’d avoid the long side. Housing stocks will begin to deliver its earning releases shortly. ITB and XHB continue to look very top h heavy. ITB looking the worse out of the two, but both clearly are struggling at the moment. Nothing in this QE/ZIRP driven market would surprise us, but it does appear the housing stocks are set to go lower. PHM reports before the bell on Thursday and it appears to be rolling over. So much of the economic recovery talk has been surrounded by the housing recovery will make this week interesting. SHW disappointed with its earnings, yet HD and LOW are near or at highs. LL reports on Wednesday too. HD and LOW do not report till the middle of next month. Keep an eye on housing stocks as well as to those who are tied into it. Gold and silver pushed off their lows nicely today. Certainly here in the short-term a bottom is in place. We have certainly seen a few cover here. Does it mean gold and silver are headed back to 2012 highs? It does not. We’ll be patient and wait for proper entries and use proper risk management before entering into any trade. Nice way to kick off the week with gains. Stick with the process and have a great week!

Light Trading Volume persists; Stocks pull back notching a Day of Distribution

A better than expected Homebuilder sentiment reading failed to lift stocks and sent homebuilding stocks lower. Trading volume rose above Monday’s level, but again was below average. The major stock indexes did notch a day of distribution in technical terms. However, the damage was minor and we are considering this to be a light distribution day. The S&P 500 and NASDAQ Composite ended its win streak at 8 straight days of gains. Traders now await Ben Bernanke’s testimony tomorrow. There were pockets of weakness, but until we see more of this action this uptrend still is in play. TSLA was the talk of the town after the stock fell more than 18 points. The stock has had an amazing run since its initial breakout in April. The stock has more than tripled from that point to now. It is not unlikely to see the stock break after hitting new highs. If you bought the recent low volume breakout you are likely underwater and highlight a point of being nimble when buying extended stocks. However, if you are in from April you have plenty of leeway. Just remember to take profits along the way. If you have a sound trading plan you aren’t panicking over the move. If you are, come join us. Yesterday we pointed out the homebuilding sector as being weak. After initially climbing after the sentiment release the entire sector sold off. Today’s action highlights what you think may not necessarily happen. The price action as of late has been bearish, not bullish. Could the sector turn around after tomorrow’s release of Housing Starts and Building permits? The answer is yes, but given the evidence we have now it doesn’t seem likely. Stick with price and ignore the noise. There were plenty other leading stocks like XONE and SSYS who were hit today. It is not unusual to see leaders get hit, but when they begin to get hit all at once over a period of time it usually spells trouble for the overall market. Today was one day and we remain in an uptrend. Until there is sufficient evidence given to us from price we are going to stick to the long side. Maybe the top callers will be right here…or they won’t. Enjoy watching the fireworks go off courteous of the Fed Chief.

Stocks Rise as Volume ends Mixed

Sloppy action began the day as sellers immediately hit the open. However, just after 10:30 and during the Fed’s open market operations did the market find its footing and reverse course. For the fourth straight day the market saw gains, but volume ended mixed on the day. NASDAQ volume was higher on the day, but slid on the NYSE. Traders weren’t too active on the NYSE today. Perhaps tomorrow’s release of the FOMC meeting minutes is weighing on trader’s minds. Whatever it is, trading was not active today on the NYSE giving pause to this most recent rally attempt. Price action remains okay for the markets, but without a confirmation day it is looking like if this rally is to continue gains will be limited. Homebuilding stocks turned things around today. The group has been beat up for quite some time. Higher interest rates will certainly negatively impact buyers’ purchasing power. Price action in the names still needs some work to show any turnaround is possible. For now, we’ll keep an eye on the group for improvement. Any weakness will certainly be a sign of things to come for the group. HYG and JNK continue to act like junk despite HYG’s attempt today. It is anyone’s guess where rates will go next, but for now it appears higher rates are here to stay. HYG and JNK certainly have been hindered by higher rates. Even XLU has come well off its high set back in April. Anything related to yield has been taken to the woodshed. Until we get a signal otherwise, it appears these sectors will continue to be under pressure and see lower prices. It was interesting to see the XLF breakout today approaching May highs. Financials are an important indicator on where the market is heading. First we had Small Cap stocks breakout into new high territory and now with financials nearing a new high this is certainly a positive for the overall market. There are positive signs for this market and there are negative. Confused? Biased? Join Big Wave Trading and focus on winning.

Stocks Drop as Volume Soars

The Federal Reserve remained the focus of many traders and pundits arguing over whether or not the Federal Reserve should taper or not. Meanwhile, sellers got to work and pushed the market lower for majority of the session. Even a last second effort by buyers was knocked down at the close. Volume soared across the board as institutions rushed into the market. Homebuilders were hit hard despite the existing home sales came in higher than expected. Gold and Silver went back to September 2010 levels as both precious metals were crushed (despite physical demand for gold continues to move higher). With the major markets having put in a lower high and a lower low a downtrend is certainly here. There wasn’t much that was spared from the onslaught of selling. The 10 year Treasury note is yielding above 2.4% and the 30 year at 3.51%. Big moves in just over a month for yields, but are they spiking because the economy is getting better? Or is it simply Ben Bernanke will no longer be buying as many bonds? Headlines came out the fed was going to taper to $65 billion a month at the September meeting and end the bond buying program next June. This announcement only threw fuel onto the fire and accelerated the decline further. It is best to step aside when a freight train is headed your way. Having a sound strategy in times like this will certainly keep you calm. Many will be driven by emotion and make costly errors while we will take advantage. Here is a screen shot of the Hindenburg Omen. You’ll notice we have gotten 6 signals since the end of May. It almost appears certain we’ll get a correction with this many signals showing up. Cut your losses and ride your winners. Have a great weekend.

Stocks Close Higher ahead of the Fed

Anticipation of the Fed tomorrow is tremendous as traders position themselves ahead of tomorrow’s policy announcement. On the economic front today weaker than expected housing data failed to halt the rally in homebuilding stocks today. Homebuilding ETFs regained their 50 day moving average a show of strength. Buyers were out support stocks yet volume lagged behind Monday’s pace suggesting buying fever wasn’t too high. Tuesday’s returned to positive side as the last two Tuesday trading sessions have ended in the red. Today’s price action certainly has put the market in a more favorable light for the bulls. Of course, tomorrow can change this picture in a heartbeat. However, given the recent action there hasn’t been any signals suggesting we have much downside from here. Homebuilders have certainly made a come back and judging by the volume seen in the ITB ETF buyers were rushing to pile back in. Defense of the 50 day is a big positive for the ETF and stocks. Last week it certainly appeared as if homebuilding stocks were going to head below their respective 200 day moving averages. Crude oil settled above $98 a barrel. Higher crude prices will certainly hurt the consumer despite all the good news regarding “shale oil” and “shale gas.” Higher commodity prices in general will have a great impact on lower income families and continued rising crude oil prices will certainly keep the squeeze on. DBC – Powershares Commodity tracking fund is poised to push higher from its latest consolidation. Not only will stocks have fun tomorrow with the Fed announcement look for the commodity sector join in the fun we call volatility. There will be a lot of talk from the financial press on how to manage ahead and after the Fed policy statement. Let price be your guide rather than your opinions. Ego gets in the way often and leads to issues trading your portfolio. Let it go and follow Big Wave Trading and our process guiding you through any type of market. Enjoy watching the fireworks!

Markets Close in Lower half of the Day’s Range as Volume Jumps

Failure of the Bank of Japan to signal even more stimulus sent the world markets into a selling frenzy. Initially, buyers were able to push the market well off its low and at one point pushing the Dow into positive territory twice! A weak 3 year Treasury note auction sent sellers back into the market pushing the market near the lows of the session by the close. Volume rose across the board suggesting Institutions were in the market selling stocks a negative sign for the market direction in normal markets. At the very least the action we are seeing may simply be foreshadowing further volatility. This market is certainly under pressure and given the rise from November until May a little correction is certainly not a surprise to us. Obey your sell/exit signals as the stock market is certainly on shaky ground. Following up yesterday’s move lower homebuilders continue to tack onto their losses. LEN continues to be one of the weakest among the group. XHB has seen its fair share of heavy selling since February and is now just finally catching up to the ETF. An even bigger decline has come from the utilities as the 10 year yield has jumped higher. XLU topped out the first of May has slide 9% from its high and has had trouble finding buyers. Higher rates have certainly stung a few industries and it is quite obvious traders aren’t keen on higher rates. Daily volatility has certainly kicked up with the VIX nearing multi-month highs. The VIX closed at 17.07 up nearly 10% on the day. However, VIX tracking ETFs continue to lag the performance of the VIX overall. For example, the VXX was only up 6.6% today well behind the VIX performance. It certainly doesn’t appear investors are rushing towards volatility to hedge against a market decline. Or it simply could be the inability for these ETF managers to keep pace with the VIX. Something to keep an eye on as this market proceeds. The positive here is certainly the major market averages remaining above their respective 50 day moving averages. A negative here was the rejection at the 20 day moving average. While the 50 day is certainly a bit more important the rejection at the 20 day is something to take notice. Since the beginning of the year we have been able to jump back up thru the 20 day with ease. Now, we have rejection. Stick with the process and do not try to be a hero.

Small Caps lead with Gains as Industrials and S&P 500 end flat

A very uninspiring day as the market digested gains spawned from a two day rally to close out last week’s trading. Volume ended the session lower across the board. Typical for a Monday in this market as traders await Turnaround Tuesday. Homebuilders were exceptional weak today with LEN and RYL looking among the weakest in the group. AMZN followed through on Friday’s gains closing off its highs of the session. Today’s move was quite subdued given the moves from the Nikkei and DAX, but a quiet day can be good for a market. We’ll need to see follow-through from Friday’s gains here shortly. Stick to the plan by executing flawlessly. There are a few IPOs today mentioned in the Big Wave Trading chat room today. They are certainly poised for big gains and are giving us an indication we have another new high from this market. Nothing is certain, but we aren’t about to give up on potential gains because of the way we feel this market should go. Healthy action in IPOs often portrays an environment where traders are willing to take on beta risk. Thus, higher prices will be tolerated and not sold into. Stick with price and Big Wave Trading guiding you through the market waters. Lumber prices have fallen 23% off its February highs and now the homebuilders are beginning to show signs of weakness. LEN and RYL are both below their respective 50 and 200 day moving averages. Not typically a sign of strength. The homebuilder ETF XHB is struggling to hold onto its 50 day moving average. While lumber prices are months removed from its highs the homebuilders were just at highs in May. Did we just see the top in homebuilders? Time will tell, but it appears lumber prices won’t be revisiting its highs any time soon. Tomorrow we’ll get a few economic data points, but nothing of great importance. Retail sales will come Thursday and PPI will close out the week. The market will likely begin gearing up for next week’s FOMC meeting towards the end of the week. To Taper or not will be on everyone’s mind. I hardly doubt we’ll get any movement from the FOMC. In any case, stick with the plan and execute.

Distribution hits the Market despite Banks moving higher

Void of economic data early morning futures were lower on the back of European stocks and Nikkei futures moving lower. Volume started the day mixed, but gained momentum throughout the session. Even though today’s session was a technically a distribution day we were able to close in the upper half of the trading session. The final 30 minutes of the trading session was not particularly strong as buyers were simply absent. The market is still above last week’s low and our uptrend still intact. Until evidence piles up we’ll continue to operate on the long side. An interesting development is what is going on in the Lumber futures market. Lumber continues to open limit down and is roughly 30% off its highs. Homebuilders ended the day lower, but remain near their highs. XHB has seen very little accumulation since April even though it has hit new highs. Distribution is clear in the chart and it is a prudent move to obey price signals in the homebuilders. Financials were winners on the day led by the big banks. You name them they were higher today. This is a good sign for the market when the financials are able to hold up in spite of the broader market sell-off. Even AAPL was positive on the day not contributing to the NASDAQ fall today. Keep an eye on financials as this market pushes forward. There are plenty of pundits in blogosphere as well as CNBC convinced we have seen the top in this market. Last Wednesday could have very well been the top, but how can we be so sure? We don’t have distribution piled high and our market leaders falling apart. Yes, TLT and bond yields are jumping, but this isn’t an all-out sell signal. TLT and HYG have been hit hard and something we’ll keep an eye on, but our focus is our stocks and the market. When are sell signals are given we’ll take them. At this point we haven’t been getting any and will respect our process. Remember to cut those losses.

Stocks Rebound but Volume Falls

Positive economic data fails to lift stocks initially as the market focuses on Bernanke’s testimony. Europe continued to succumb to the Italian problem. Volatility dropped after jumping 34% yesterday, but despite the market rebounding volume did not follow. Monday’s have been low volume sessions for much of this year with Tuesday’s showing big volume. Today’s lack of volume shows institutions weren’t too keen on jumping back in the market. Late day buying helped push the market to the highs of the session. We remain in neutral mode and we do have a change in a short-term trend with one of our ETFs. The market now will have to digest more economic news with Durable Goods and GDP coming Wednesday and Thursday. Friday we’ll likely see the US go over the Sequester hurdle. We’ll be focused on the overall market action. At the moment we are seeing a lot of distribution in the market without much accumulation. Looking back to September of last year we didn’t see this level of distribution like we are seeing now. Perhaps there is something more sinister happening, but we’ll wait for our signals before we act. We are still a bit oversold in the near-term so another bounce from the market is not out of the question. Stay ready and execute your game plan. We do have few pockets of strength, but it is so few and far between it is nothing to get excited about. FLT continues to be a big winner, but many leading stocks look bad. BAC has been a leading stock despite its pitiful earnings growth. Remember, BAC has been goosing its earnings using its loan loss reserves. GS remains above its 50 day, but the last few selling days have left a big blemish. Homebuilders certainly got some love today, but remain below a key moving average. These stocks will need to rebound to give this market any chance of rebounding. Stick to your signals and ignore the nonsense spewing from CNBC. Short-term trends: TICKER ST TREND TREND CHANGE DATE CLOSE % SPY UPTREND NO CHANGE 2/26/2013 150.02 0.68% IWM UPTREND NO CHANGE 2/26/2013 89.37 0.39% QQQ DOWNTREND CHANGE 2/26/2013 66.56 0.38% USO DOWNTREND NO CHANGE 2/26/2013 33.33 0.36% UNG DOWNTREND NO CHANGE 2/26/2013 18.98 -0.52% GLD DOWNTREND NO CHANGE 2/26/2013 156.22 1.22% SLV DOWNTREND NO CHANGE 2/26/2013 28.41 1.21% DBC DOWNTREND NO CHANGE 2/26/2013 27.42 -0.18% FXY UPTREND CHANGE 2/26/2013 106.55 -0.75% FXE DOWNTREND NO CHANGE 2/26/2013 129.57 0.02% TLT UPTREND NO CHANGE 2/26/2013 119.33 -0.58%

NASDAQ Stalls as Volume Finishes Higher

NASDAQ Composite continues to lag behind the Dow Jones Industrial Average and the S&P 500. Volume rose across the board, but remained below average. The NASDAQ notched a stall day and although it failed to register a day of distribution. Stalling days are nothing new and all it will take is for the NASDAQ to eclipse today’s high. Two star industries on the day were XLF and XHB as both groups appear to be ready to run higher again potentially in a blow off move. End of day action took the market off its highs, but the S&P 500 and Dow were able to escape too much damage. AAPL weighed on the NASDAQ once again as the stock continues to prove it is a laggard. One question would be is the stock the canary in the coal mine? There is no question AAPL’s products are great, but is the action in the stock foreshadowing something in the overall market? Or is it simply a laggard stock and should be completely ignored? Time will tell where this stock will end up. However, we know the stock is in a downtrend and is all we need to know. Wednesday we’ll see the market react to the State of the Union. President Obama’s speech is pretty much known as he will revert to ideas he trumped on the campaign trail. More taxes and more spending (disguised as “investments”) will be proposed. The President has a way of delivering a great speech and this should not be any different. Democrats will praise the president while Republicans will detest it. After the speech all eyes in the political world will pay attention to the Sequester on March 1st. A few disappoints in earnings this morning with KORS and INVN reversing gains. While KORS was a viable gap its inability to hold onto its opening price certainly puts a blemish on the stock. INVN was just terrible. In the after-hours session we had a few leading stocks have a tough time. RAX for one has been a stalwart for this market. Unfortunately, the stock fell 10% in the after-hours session. PCYC a thin name jumped 2% after reporting earnings. A stock to watch for a potential gap move at tomorrow’s open. NTGR and BWLD were on the negative side as well with both stocks falling hard. Not a pretty picture for the majority of earnings with only a few bright spots this afternoon. Regardless of your opinion of the market we remain in an uptrend. This may or may not change tomorrow, but if it does we are prepared.

Big Wave Trading Portfolio Update And Top Current Holdings

The Big Wave Trading Portfolio remains under a SELL signal on all indexes. However, we do take note of the positive price action and strong volume (even though it was options expiration related) on the indexes and more importantly on the oversold beloved-stock named Apple (AAPL). Volume on AAPL was the highest since March and comes on an excellent intraday reversal. We call that positive price action. However, there is no way, based on Friday alone, to know if this is the end of the downtrend or just an oversold bounce. Some of the positives going for the market is the fact it is very oversold on the short term, the crowd is increasingly becoming more bearish, and AAPL’s price and volume move on Friday. Some of the negatives are that there is still no obvious rotation from old leading stocks into new leading stocks, most recent strong sectors (IBB XHB ITB) are starting to crack on heavy volume, and despite sentiment growing more bearish there was absolutely zero fear in the most recent pullback. Everyone truly believes Ben will save us from every big bad market decline. The only way we see it at Big Wave Trading is that you must keep an open mind to everything and anything in this new QE-fed world. There is only one two ways to trade this market: trend following signals and value investing. The old momentum methodologies that made position traders like me wealthy during our early career have been missing since the 2008/2009 stock market bottom. This is a direct correlation of a QE/ZIRP policy. So, even though it seems the market is not done selling off, you must keep an open mind in the regards that Ben will indeed come to the markets rescue any time it even attempts to move lower. We have taken notice of some stocks that made very strong moves on Friday. However, we will need to see further positive price action next week or the week after to know if it is more than a one day options expiration wonder. The social networking site FB sure has been putting in some impressive price and volume action lately. That stock is definitely a stock that should be on all trend following wizards radar. It is too much of a cult stock and has so much volume that it is mandatory active and inactive traders watch this stock for trend following signals. Overall, we remain extremely heavy cash at Big Wave Trading due to the inability to trust price and volume action in the current choppy tape. Without any spike in the VIX, it is hard to believe a real bottom is here and while we are short some index ETFs we will be ready to reverse those positions ASAP if we continue to see further price appreciation. At the same time we do know another 2010 and 2011 pullback is more than likely to happen sooner or later and we will be ready to act accordingly when the time does come calling. And come calling it will one day. You can not keep an artificial economy up forever. Can you? Maybe you can. It’s a much different world than it was before QE. Get used to it. I doubt it changes any time soon. I doubt it changes any time not too soon (4 years at least). On that chipper note, have a great weekend everyone. Surf is up on the north shore and the sun is shining. Aloha!! Top Current Holdings – Percent Gain – Date of Signal AVD long – 112% – 1/10/12 NTE long – 102% – 8/17/12 VRNM short – 58% – 4/10/12 CAMP long – 47% – 4/26/12 ASTM short – 37% – 7/17/12 CSU long – 33% – 9/4/12

Stocks Fall Again as Fed Hints at More Asset Purchases Next Year

Despite CSCO and ANF gapping higher the market could not overcome selling. Once again volume jumped on the day as Institutional Investors dumped stock on the market. We did see some movement from the VIX, but the fear index remains tame under 20. Selling picked up steam as Obama stepped up to the microphone after meeting with numerous CEOs. The market clearly didn’t appreciate what he had to say nor what came from the FOMC meeting minutes. More asset purchases were discussed for next year due as if the first three easing programs worked. Our sell signals remains and has kept us on the right side of the market despite the oversold conditions. There isn’t much this market hasn’t taken to the woodshed. Homebuilders and Financials were the two groups holding up and now they are under tremendous pressure. BAC had been holding up, but it too could not hold up under the tremendous selling pressure. XLF is now just above its 200 day, but all we see is heavy volume selling. It will take some time before XLF will repair itself. XHB sliced through its 50 day today and appears to be headed to its 200 day. We may be oversold, but there isn’t much signaling a short-term bottom. We could bounce into next week, but we aren’t seeing anything ready to support a significant move higher. Perhaps we get a Grand Bargain the market likes, but what we heard from Obama this is simply a pipe dream. Given the oversold nature of the market it wouldn’t surprise us to see the market try to bounce at these levels. We do not have a crystal ball, but given what we have seen from the market and with a tame VIX it is hard to believe we have found a floor. The June bottom came when the VIX nearly hit 30, but lead to a choppy bottom before we headed higher. Until we get capitulation and a VIX jumping it is very likely we’ll continue lower. Do not be a hero and try to pick a bottom. Leave that to Jim Cramer.

Big Wave Trading Portfolio Update And Top Current Holdings

THE COLUMN BELOW WAS A PREMIUM MEMBERSHIP COLUMN PUBLISHED ON FRIDAY FOR BIG WAVE TRADING MEMBERS. ANALYSIS SPECIFIC TO TRADING POSITIONS HAS BEEN REMOVED. Happy anniversary of the October 19, 1987 crash everyone!! Well, well, well. It sure was an interesting day to say the least. Today’s option expiration was nothing short of exciting as stocks sold off on heavy above-average higher-than-the-day-before volume. Stocks and stock indexes didn’t just sell off, they cratered. The weakness in the Nasdaq and Russell 2000 finally spread over today into the SP 500 and DJIA thrusting all four major indexes into a SELL signal on our market trending model. The Nasdaq and Russell 2000 were currently under a NEUTRAL signal and the SP 500 and DJIA were under a BUY signal but today’s sell off was confirmed everyone thus switching everything into a SELL. It doesn’t matter where you look. The indexes, futures, the options chain, ETFs, or inverse ETFs. Wherever you look, volume exploded higher. What didn’t explode higher but finally moved was VIX. VIX has finally begun moving in the direction those of us at Big Wave Trading believed it should have started moving in on 9/25. While the move came on convincing volume, and the CBOE reported the highest weekly trading volume ever in VIX futures, a BUY signal was not triggered in VXX/UVXY/TVIX. [MEMBERS CONTENT ONLY]. [MEMBERS CONTENT ONLY]. Getting back to the overall market, it was the fifth time this year that the Nasdaq has closed lower for the week on above average 50-week volume. As just mentioned, this now makes it five times that this has happened versus 0 times the Nasdaq has closed higher on above average 50-week volume. 5 – 0. For the year, the NYSE is actually up 1 vs. 0 times down. But the NYSE is not where you find your dynamic exciting technology based growth stocks. Those are found on the Nasdaq and Russell 2000. When you consider the volume pattern of the Nasdaq and then take a look at the recent slope of the Relative Strength line of the Nasdaq and Russell 2000 compared to the SP 500 you can see that we have a potential problem brewing here. The Relative Strength line of the Nasdaq is simply imploding here nearing the December 2011 levels. Meanwhile, price is nowhere near those lows. If this trend continues, watch out! The Nasdaq and Russell 2000, in healthy uptrends, lead the market. The Nasdaq and Russell 2000 start to lag the NYSE when a rally is on its last legs. The Nasdaq and Russell 2000 lead the market down when a downtrend is starting in the stock market. What stage are we in now? You are correct. This obviously means that now is the time to be cautious. This is especially the case when you look at the recent action in AAPL, GOOG, AMZN, PCLN, and LULU. After taking a look at those, take a look at the big giant bellweathers like IBM, INTC, MSFT, SBUX, MCD, and GE. Notice the same bearish action? Then take a look at your leading biotech stocks like ALXN, BIIB, VRTX, and PCYC. Is there anything surviving? Of course. The bank stocks like GS, BAC, and JPM are acting like there is nothing wrong and of course for the master criminals that run these banks and the USA there is not. On top of that, they need to make sure real estate prices go up so that all their real estate holdings continue to make them wealthier and wealthier (If these sociopaths CREATED their own businesses this would not be a problem. They didn’t.) on the backs of the middle class. On that note the XHB is fine. HOV, TOL, PHM, BZH, MTH, MHO, LEN, KBH, etc. all look like they were completely oblivious to the carnage gripping the market today. If you see the big banks (KBE) and home builders (XHB) start to roll over, then you can be sure this uptrend is finished. To me, it already is, as I follow the Nasdaq/Russell 2000 as market leaders. However, if these stocks continue to rally, show no damage, and we begin to find a floor to this selling, I would expect that the uptrend could definitely continue. I mean, it is a Fed based QE driven stock market. When stocks sell off, they step up to make sure their jobs are safe for now. I am sure one day this will stop working. Until then, the theme don’t fight the fed still rings loud and true. No one can predict the future in the stock market. I will not try to either. While it looks like we are about to crack wide open, we could easily find support and rally higher on no volume. Hell, we did it in 2009, we did it in 2010, we did it in 2011, and we did it earlier this year in 2012. Why not a fifth time? [MEMBERS CONTENT ONLY]. [MEMBERS CONTENT ONLY]. It looks ugly but it has looked ugly before. Let’s see what happens next week. Have a great weekend everyone. Aloha. [MEMBERS CONTENT ONLY]. Top Current Holdings – Percent Gain – Date of Signal AVD long – 139% – 1/10/12 NTE long – 62% – 8/17/12 CAMP long – 59% – 4/26/12 CLGX long – 52% – 6/19/12 SVNT long – 44% – 9/10/12 VRNM short – 39% – 4/10/12 CSU long – 32% – 9/4/12 MAGS short – 31% – 4/18/12 SHF long – 28% – 8/1/12 ASTM short – 26% – 7/17/12 HEB short – 25% – 9/24/12

Small caps lead the market lower; Volume slips again

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

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

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

Remember to always cut your losses short.