Bank downgrades hit after-hours as the NASDAQ slips lower
November 30, 2011 | Comments Off
The story of the day was the bank downgrades after the market closed. During the market session BAC broke through a key pivotal point and continued lower in after-hours. Technology stocks were the ones hit hard during the trading session as stocks like GOOG, AAPL, AMZN, ADBE etc pushed the NASDAQ lower. Leading the charge lower was small cap stocks as they continued to lag the broader market. Today’s market session is very telling as to the strength of this market. We are looking for a reversal to the downside with volume as a key indicator to get short.
Our trend is down, but it can be broke with a reversal to the upside with volume. Of course, this is not what we are expecting as this market continues to show it is very weak. AAPL couldn’t even muster back to back days of gains. AMZN appears to be heading down to much lower prices. PCLN is another stock running into strong resistance at highs. These big technology names have been the stalwarts of this market and when they are struggling it is time to take notice. Be prudent here, this market is weak.
The debt crisis happening in Europe will make its way over to the side of the pond. S&P has already downgraded the United States and Fitch has put our country under review. We’ll see another debt ceiling debate here soon as we continue to be unable to come to an agreement to close the budget gaps. Both sides of the table need to get together and solve the issue. What a great time to usher in a more simple tax code, make government efficient (via six sigma, LEAN), and reigning in entitlement spending. Seems easy, why can’t they get it done?
Stocks reverse fortune close higher; volume remains well below average
November 29, 2011 | Comments Off
The NASDAQ avoided its 8th straight down days with a 3.5% gain on the day’s trading. Volume was well below average, but higher than Friday’s shortened session. Today’s gains came after hefty losses from Thanksgiving week as well as the week prior. There were a few nice moves in individual leaders names, but overall the market picture looks weak. This most likely be the start of a head fake to the upside heading into the close of November. Better known as window dressing, fund managers may reach to push performance. Day one of a new attempted rally today and without any conviction from institutional buyers this head fake most likely will fail.
Sentiment had taken a bearish tone last week with the number of Bulls dropping to 33% while the Bears jumped to 38% (AAII Sentiment Survey). Friday’s close saw some interesting Bull/Bear figures on FINVIZ’s main page at the close with the bears reaching 70% (later in the day it got to 100%). There was quite the negative tone in the market last week and was broken after today’s move to the upside. Sentiment is never an exact science, more of a discussion point than a true decision point. Stick with the trend despite these natural reactions we are experiencing now.
Big Wave Trading Portfolio Update
November 27, 2011 | Comments Off
It continues to be a rough 2011, minus the July to August downtrend, but it is possible another trend is in the process of developing. Following the rally off the October lows, it started to look possible that a new uptrend might take shape as some new CANSLIM quality stocks started to build right side of bases with some breaking out. On top of that, some very pretty green chart patterns began setting up in more speculative quality names (SIMO PKT) with the stocks coming off the lows producing some solid gains fast (PEIX BIOF). During this uptrend from the October lows two partial buy signals were produced with both failing immediately due to the signals coming very late in the uptrend during overbought conditions. While this was occurring, ex-generals of the previous uptrend from the 2008/2009 lows were not participating in the rally. These two major red flags prevented a full buy signal from being produced the whole rally saving Big Wave Trading investors money by keeping new long positions very small in relation to total account capital.
Since November 17th, things have changed. Bank stocks that looked to have been trying to hammer out a bottom have completely rolled over with stocks like BAC and GS hitting new lows, the new CANSLIM quality long setups (VMW TIBX SPRD RHT) have failed immediately, the speculative longs have reversed hard/crashed (LGND OPNT GMCR), the inverse ETFs have come under heavy accumulation, the 3x bull ETFs have come under heavy distribution, the ex-generals (AMZN AAPL PCLN CRM) have all created very bearish chart patterns (most have H&S tops), and the SP500 and Nasdaq have resolved themselves below the triangle pattern they were creating in November. All of this threw our market model into a 66%-75% sell signal on November 17th.
Holiday trade begins as stocks slump; GDP revised lower
November 23, 2011 | Comments Off
The big economic news of the day was the big revision lower for third quarter Gross Domestic Product. Slower growth is a killer to budget forecasts and does not bode well for business confidence. Volume on the day ran lower, very typical for the Thanksgiving holiday week. Institutions weren’t out selling, but the weak price action is as of late continues to point to lower prices. A brief rally did provide a bit of hope for bulls, but it was all for naught. The trend remains down and it will take massive institutional support to turn it around.
After the market close the Fed announced another round of stress tests for banks. Remember Europe’s stress test in the spring? It said Dexia was the strongest bank in Europe…yes Rick Perry: “oops.” Even after our stress tests look at our banks, BAC is down more than 50% on the year. This new stress test is utterly ridiculous and will end up prove useless. This shouldn’t be construed as a bearish tint; price and volume will determine what side of the market we’ll be on. You can bet we’ll be on the RIGHT side.
There really isn’t much to derive from the action today other than the trend remains down. Opinion doesn’t matter even if the argument sounds good. If it sounds good, it is probably too good to be true. Most people want to be told a bed time story, a feel good story to make you feel comfortable. Trend following deals with facts, the truth and does not fall victim to a bedtime story. Stick with a rule based trading system and follow the rules!
Stocks finish off the lows but close with hefty losses
November 21, 2011 | Comments Off
Troubles in Europe remain as France’s cost of borrowing continues to rise. The European contagion will not stop until every country in the European Union is pressed. France’s CDS continues remain at highs signaling higher borrowing costs. Over on this side of the pond Washington DC still can’t work together towards a deal and confidence a meaningful deficit plan. Facts remain, the market is weak and continues to remain weak until this trend changes any meaningful rally is a ways off. We remain in a downtrend and the market will need to get to work to support a sustainable turnaround.
Again, we aren’t in the predicting business so it is anyone’s guess as to where this market is heading. There are plenty of “good” arguments to be made from stocks are cheap to corporate earnings continue to blow out estimates. Predictions are worthless and are often wrong. We just want to find a trend and ride until it ends. At the moment, the trend is down and we are trading as such. To go against the trend is like trying to swim up the Mississippi.
The QQQs flash a sell signal as Europe remains the focus of market pundits
November 20, 2011 | Comments Off
Friday’s lackluster performance following Thursday’s drop pins the tail on the donkey. Despite the market being oversold in the near-term doesn’t mean we can’t fall further. Price and volume have been on the side of the bears as of late. The bulls lack of response to Thursday’s action is quite telling there is very little institutional support for stocks. We have been highlighting this important development; the market needs institutional support to keep rallies going. With upside volume weak and downside volume heavy, it appears the market will break with volume.
On Thursday the QQQ broke through a key level for us triggering a long signal in SQQQ for our aggressive subscribers. The move triggered a short signal for the QQQ. We aren’t in the predicting business therefore we don’t put a price target on the potential trade. No one can predict the future and it is foolish to think you can.
The trend is your friend, ride it.
Nasdaq Resolves Itself To The Downside On Higher Volume
November 18, 2011 | Comments Off
I will make this simple for everyone. Big Wave Trading follows the trends. We will be wrong a lot and cut our losses when we are. Until this year, we were always right more than wrong. This year, however, we have been wrong more than right, due to the extreme go-nowhere-volatility.
Times like this leave a lot of people frozen and unable to take their signals. Not us. Today we got our signal of what to do next. The trend is down. Stocks are failing nice base patterns they were forming, banks are losing the 50 dma, ex-generals are rolling over, and 3x ETFs are seeing huge volume.
This indicates a major trend change is coming here. Will it end up with a change? We don’t know. We just take the signals. We have our sell signals. We are going short stocks and long inverse ETFs. If we are wrong, again, we will cut our losses. If we are right, then we will profit greatly. No guts, no glory. I keep it simple.
The nice bases and chart patterns in a matter of only three days to a week have nearly all been taken to the woodshed. However, some of our longs still look really good and volume was not above average on the NYSE so our new market position is not with 100% conviction. It is with 50%+ conviction and we will invest accordingly.
Fitch spooks the market giving major indexes another day of distribution
November 17, 2011 | Comments Off
A report by Fitch on US bank exposure to Europe sent stocks into a tailspin late in the trading session. For most of the day it appeared the market was gaining intraday support like most other days in the market. Leading stocks were acting well, but with the NASDAQ sporting 5 distribution days this uptrend is now under pressure. It is wise to begin to trim laggards in your portfolio. You can always get back into the stocks if they rebound, but capital preservation is paramount for how to trade stocks successfully.
Your portfolio is the number signal and if it begins to lag it is a signal the market is not healthy. That is if you are only trading leading stocks. Leading stocks will always tell you the health of the market and if your portfolio cannot keep up with the market overall than it is a red flag. Remove laggards from your portfolio and move into cash. If new stocks setup, you’ll have ammo to take advantage of stocks breaking out. On the other hand, if the market turns south you’ll be protected by staying in cash.
It will be interesting to see how the market reacts to Fitch’s report over the next few days. Of course we aren’t going to anticipate moves we’ll just let the market come to us. I am sure CNBC and Bloomberg will be all over the news story flooding the airwaves with nonsense analysis. Remember, CNBC and other financial media exist to sell ad space. They need viewers to make money and they try to hook you buy offering “expert” analysis. Even market mavens, bond kings grace your television trying to convince you they know where the market is heading. They don’t, look at Warren Buffett if not for the AIG bailout he would have gone BUST! It is all noise, stick with the trend.
“Take That Bulls,” says Mr. Stock Market
November 17, 2011 | Comments Off
Today was looking very constructive. That is until the last hour when the floor just completely collapsed. There was nothing orderly or friendly about that pullback (see: selloff). On top of that, volume was clearly much higher than the day before. That equals yet another distribution day on the indexes during the past month. I think this is like 5 or 6 now. Either way, it is a lot in a short amount of time and now throws the rally into question.
It is all about the next breakout. Higher or lower. I don’t care which way it is. I’ll just be ready and move immediately when it happens. In only two days we have gone from looking like a rally into the end of the year was in the cards to the rally looks dead. As we consolidate here we continue to be in a wait and see mode with our models in neutral.
I have added some short-side hedges that gave signals today which will balance out the longs I am holding. When we move one way or the other, I will cut my losses in the signals that fail and ride my winners higher. I don’t hedge to hedge. I had legit signals. I take them. That is that. This is what a professional trader and not an amateur part-time trader does.
New Seeking Alpha Article – SWI VMW TIBX SPRD
November 16, 2011 | Comments Off
4 Technology Stocks Making The Future More Profitable
