Big Wave Trading Portfolio Update
January 29, 2012 | Comments Off
The Big Wave Trading portfolios continue to be fully invested following our full BUY signal on 1/5/2012. Both margin and IRA accounts are fully invested. As we continue to find new longs all that can be done is to sell the losers and place whatever funds remain in new positions as they generate BUY or SELL signals. A quick reminder: Big Wave Trading never carries losses. Every buy signal has a set cut loss level and it is always obeyed. The loss target on any one trade is to never be more than 0.5% of total account value. Once a stock loses 0.5% of the total account value, even if it has not hit its final cut loss target, it will be completely sold.
Big Wave Trading believes that the market may be in tune for a pullback. However, we also recognize that it is impossible to predict what the stock market will do. Therefore, if we continue to grind higher, this would not surprise us. If we do get a pullback, it appears, based on the very strong accumulation in multiple stocks across multiple sectors of the market, that it would simply end up separating the best stocks from the laggards. This would allow us to move the cash raised from the small losses or profit taking to these true leaders. If we pullback on very heavy distribution, obviously, the pullback will not be a buying opportunity. Like we always say, it is impossible to predict the stock market. Those that do are plain fools and usually their results show it in their brokerage statements.
Leaders Turn Lower as Stocks Reverse Hard
January 27, 2012 | Comments Off
The NASDAQ notched its first day of distribution after putting in a new high in the most recent rally. A solid durable goods order number helped push the market higher. However, a bigger expected drop in New Home sales didn’t help and put pressure on stocks. It wasn’t until the late afternoon did we see the selling pressure kick up a notch. A little late day surge helped the NASDAQ close off its lows, but failed to protect it from a day of distribution. Distribution happens and it boils down to whether or not you prepared for what you do next.
Once again the number of Bulls in the AAII survey was near 50%. Bears dropped below the 20% mark once again this month. Remember, yesterday the percentage stocks above their 20 and 50 day moving averages was above 80%. A pull back here is NOT surprising and is to be expected. What we need to watch for is how we pull back. Can we avoid heavy distribution? Are leaders going to hold up? Sound money management principles are paramount in this market.
Tomorrow we get a look at fourth quarter GDP and it is expected to come in at 3%. It’ll be interesting to hear the debate about the number and how you should respond with your portfolio. Unfortunately, making a “play” will end up costing you dearly. Price and volume are keys to this market and guide us to making proper decisions.
Fighting the Fed is Futile; AAPL and Bernanke Send Stocks Higher
January 26, 2012 | Comments Off
Stocks were weak to begin the day as pending home sales were weaker than expected. The weakness didn’t last very long as traders and investors were positioning themselves ahead of the Federal Reserve policy statement. By noon, stocks were at session highs, but it wasn’t until the market heard the news rates would be held down until the end of 2014. Regardless of what you think of the statement the market went higher and with volume to boot. While the market closed off the highs of the session the day overall was very bullish.
During the after-hours session NFLX reported better-than-expected earnings as the stock jumped more than 15%. NFLX had a terrible time at the end of 2011, but the stock has been able to rebound from its heavy selling. The mishap over splitting the DVD business from the streaming business may be behind the company as the stock has had one heck of a ride off the lows.
The biggest concern here is how to handle a potential pull back. I wouldn’t expect today to be the “top” of this market rally, but a potential pull back of 3-5% is always in the deck. How you handle it is the most important. Have a game plan on where you’ll exit your stocks, cutting losses and taking profits should be in your plan. If not, get it in there! We are at frothy levels with 85% of stocks are above their 50 day average and 82% of them are above their 20 day average. These levels are usually met with some sort of selling, but we aren’t going to try and “guess” when we’ll turn. This uptrend is for real and even a small pull back won’t keep it down for very long.
AAPL Blows Away Earnings in After-Hour Session
January 25, 2012 | Comments Off
Another great day for the stock market as again buyers step up and support the market. The market did get help from the Richmond Federal Reserve Manufacturing index as it came in better than expected. However, the market turned its attention to AAPL’s quarterly earnings report. Volume came in lower perhaps due to the Federal Reserve meeting concluding on Wednesday, but it’s anyone’s guess. More importantly, it was AAPL’s blow out quarter taking center stage. This uptrend will continue tomorrow and for the moment it continues to be strong.
There are a lot of people who are fighting this current trend and it is easily understood. Sure, we can have pullbacks, but to be calling for all out Armageddon is quite funny at this stage. It is anyone’s guess where the market will go from here despite what may appear to be “smart” analysis. We only know what is directly in front of us and we have been in an uptrend. A disciplined, ruled based approach where position sizing, cutting losses, and exiting positions is the best way to attack this market.
Tomorrow we’ll get Ben Bernanke’s take on the economy and its rate decision. Expectations are for the Federal Reserve to really keep their stance on monetary policy. Basically, they are going to decide whether or not they need to print more money. The conundrum they are in at the moment is they justified QE2 with a sluggish jobs market and with the jobs market improving they have little justification for another round. At the rate Washington, DC spends money and its inability to balance the budget the Fed will have to at some point soak up excess supply. Of course, do I know the future; no, but given with how we know DC operates not sure how we don’t go down this path.
Volume falls ahead of the Federal Reserve’s two day meeting
January 24, 2012 | Comments Off
The day began with a solid move off the lows and it was looking like the market was going to surrender to the bulls. After the 10 o’clock hour sellers hit the market sending stocks lower, but in a bullish fashion stocks were able to find support. Today’s move would have been better if the morning move did not occur. Perhaps it is a small blemish; we’ll take the pull back as the market consolidates its most recent run up. Our uptrend remains intact and it is without any major distribution or stalling a big positive for this uptrend to continue.
There is some talk about the market being overbought and sure, it is. Given the move since the New Year began it is quite obvious we have a market a bit ahead of itself. The number of stocks above their 50 day moving average is above 81%. 77% of stocks are above their respective 20 day moving average. These figures aren’t at all-time highs, but they are at levels where pullbacks do and can happen. So far, this two day pull back in the overall market is quite normal and is looking very healthy.
Tomorrow kick starts the Federal Reserve’s two day meeting. Many are asking if QE3 is coming and it is a guessing game at this point. The stock market is higher and the jobs market appears to be firming up with the unemployment (as reported by the government) coming down. To make a case for another round of quantitative easing would be a hard sell. I would imagine the Fed needing to step in when demand for US Treasuries dries up. I could only imagine what would happen if there isn’t enough demand to soak up the issuance of debt. It is fun to debate what may or may not happen, but a terrible way to trade and invest.
Big Wave Trading Portfolio Update
January 23, 2012 | Comments Off
Big Wave Trading is currently 100% long in our margin and IRA accounts. The Big Wave Trading market model went into a full buy signal on 1/5/2012 following a partial buy signal on 1/3/2012. Since the full buy signal, multiple stocks have set up and broken out of sound consolidation patterns. The one problem with this rally, however, is that we are not seeing any explosive gains right off the bat. Normally at the start of new uptrends, Big Wave Trading will have a handful of stocks up 20% in just a few days to a couple of weeks. This is not happening this time. This is in part due to the slow speed of this rally as we are only moving slightly higher each day, outside of 1/18/2012. Nobody knows if this rally will continue or will end with a reversal. The only right play is to be completely prepared for both outcomes. If this rally comes under distribution, Big Wave Trading will begin cutting losses and pairing back long positions very fast. As of now, we continue to focus on the long side cutting losers quickly and quickly moving that money into new stocks giving new buy signals or current long positions offering up additional buy points. If the market comes under a few days of distribution in a short time frame the model will switch from BUY to NEUTRAL to a possible SELL depending on how much selling pressure shows up in the market and leading stocks. We will see how this new week shapes up. I expect a pullback. However, what I expect does not matter. It is what the market actually does that matters.
current top holdings – % return non-margin – date of signal
Performance of Big Wave Trading
January 23, 2012 | Comments Off
A big thank you to bjesse a member of BWT for putting this together! It goes to show you the value BWT brings to the table! Take advantage of the value by signing up here.
Performance of Big Wave Trading
NASDAQ 100 closes at an 11 year high; GOOG closes down big in after-hours trading
January 20, 2012 | Comments Off
Positive news for the job market as jobless claims fell hard, but it was the NASDAQ 100 closing at an 11 year high that stole the show. Yes, it is positive claims almost broke through the -300,000 level and the market certainly liked the figure. Even a slightly negative Philly Fed survey couldn’t hold back buyers from scooping up shares throughout much of the day. Volume on the NASDAQ rose again, but once again over on the S&P 500 volume fell. The S&P 500 continued its “wedge” higher as the NASDAQ remains the leading index.
The number of bulls pulled back from last week’s high, but bulls registered at 47%. Bears were able to climb back above 20%, but they didn’t make a big stand. The II survey continues to be bullish, but well off the extremes we witnessed early this year. I wouldn’t consider this market at an extreme level as far as sentiment is concerned. And with the amount of stocks we continue to find popping up this rally should have legs to run for quite some time. Again, we may see a shakeout here and there it won’t derail the rally currently underway.
Every rally will trick traders/investors to chase stocks at highs only to see the stock reverse and shaking them out. It is best to have a sound approach to buying and chasing stocks SHOULD NOT be a part of the approach. Just as important is money management, knowing how much to buy, cut losses, and exit a position is paramount. Without these tools you will be left behind.
Stocks Close Higher Again above October Highs
January 19, 2012 | Comments Off
Another stellar day for the bulls as stocks rose across the board. The S&P 500 closed higher for the 10th time in 13 sessions but volume fell on the index. For the NASDAQ composite the index closed higher with higher volume and it was above average. Clearly the NASDAQ is the leading index of this current rally a sign we’d like to see. Given the run up as of late, it is hard to continue to knock the ball out of the park each and every day. Use the opportunity to cut laggards and stay on your winners. Today was just another solid day in this uptrend.
The market really got going with a big jump in home builder confidence. Finally, after so long we are beginning to see an uptick in confidence from homebuilders. It remains to be seen whether or not this translates into success, but the way homebuilders are acting higher prices are ahead. Banks were helped out as well, with an improving real estate market the situation should translate well for the “toxic” assets banks continue to hold. Let’s not forget the Federal Reserve holds quite a bit of mortgage paper and continued improvement in the real estate market will surely help the quality of paper held on the Fed’s balance sheet. It all boils down to price and volume and it is positive.
I am still looking forward to seeing Sentiment indicators tomorrow. Most notably the AAII survey as it has been quite bullish for the past two weeks. Bears have been decimated below 20% and you have to wonder if this market will have a quick washout to get the weak bulls out of their positions. This would be an ideal situation for us as it will show who the true leaders are in this rally. It would then allow us to focus in on the very best and take advantage of a new rally. Sentiment is an imperfect indicator and usually works best at REAL extremes. I highly doubt we are at one now, but we are at a point where it’d be nice to shake out some weak bulls then proceed with this nice rally. Remember October of 2010 and November of 2010? Quick shakeouts only to have us lead higher. Don’t be easily shaken out, follow the game plan.
Rally Fizzles as Volume ends Mixed; NASDAQ gains but well off the highs of the Session
January 18, 2012 | Comments Off
The morning started off great for stocks, but the day’s gains were unable to grow. Fresh off a long weekend it appeared overseas markets were brushing off S&P’s downgrade of 9 Euro nations. Little ground was covered for much of the session as the market traded within a relatively small range. A few stocks broke out including MSFT and PNRA. PNRA held onto most of its gains MSFT could not. The days action really boiled down to stalling action on the NASDAQ. In of itself, today isn’t that bad, but over the next few days looking out for distribution will be a key indication if this market can power forward over the next few weeks.
Today’s market action isn’t a glaring sell indication, but it does just raise a simple flag that the market may be acting a bit tired. We have plenty of stocks underneath setting up and looking solid. This doesn’t mean we automatically blast higher, but it does help our chances over the next few weeks/months for this market to set up for gains. For now, it appears the general market has been able to shrug off the negative news pouring out of Europe as of late. I should mention at the end of February Greece is set to default again. Don’t fret, have a game plan and execute it with precision. Big Wave Trading has a plan and we’ll continue to execute.
