From the Trading Desk

Big Wave Trading Portfolio Update And Top Current Holdings

“The whole secret to winning and losing in the stock market is to lose the least amount possible when you’re not right.” — William J. O’Neil

“It is when the unimaginable occurs that the systematic trader remains calm, presciently knowing when to buy, sell, or adjust their exposure.” — Mark Abraham, Quantitative Capital Management, L.P.

Following last weeks switch from BUY to NEUTRAL to partial SELL to NEUTRAL, the Big Wave Trading Portfolio switched back to a full BUY signal on Tuesday. New longs leading up to Tuesday and new longs following Tuesday continue to act very well indicating that the rally has a high chance of continuing on the short term. The most unfortunate part of this entire uptrend has been, once again (as has been the case following 2008), the lack of new long positions immediately exploding and producing 20% gains within 2 weeks or 50%+ gains in 2 months. The lack of huge upside moves in individual stocks continues and does not appear to be in any hurry to change in the new QE environment we find ourselves in. Chart patterns that produced explosive gains from 1982-2007 simply do not produce the same huge moves (study my past big winners from 1998-2008 to see the evidence). This remains the one unfortunate problem with the new uptrend. The good news, however, this year, is that individual stocks move less with the overall market and finally have a mind of their own. It appears, during this uptrend, forcing yourself to be long leveraged index ETFs is not the only way to make money for the first time since the 2009 uptrend started. Overall, there was not much action out there following the BUY signal and that is an overall positive. It would have been much better to follow-through on the gains immediately but the indexes across the board are a bit extended away from their 200 day moving averages and history tells us huge moves are not going to happen when the indexes are around 10% higher than their 200 DMA. Some sideways consolidation would be a very bullish situation here. Especially with the upcoming Facebook (FB) IPO. A black swan event could happen at any moment so we continue to be completely ready for the uptrend to end at any day. Picking a date, however, would be foolish. We will let the price action of the indexes tell us when the uptrend is over, instead of our flawed egos. Have a great weekend everyone. Aloha.

Top Current Holdings – Percent Return (non-margin) – Date of Signal

KORS – 64% – 1/17/12
SWHC – 50% – 1/3/12
RF – 41% – 1/5/12
LHCG – 40% – 1/19/12
AVD – 38% – 1/10/12
CERS – 28% – 2/10/12
CRMT – 26% – 11/30/11
SUNH – 25% – 3/9/12

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