From the Trading Desk

Big Wave Trading Portfolio Update And Top Current Holdings

“When you are starting out, it is very important not to get too far behind because it is very difficult to fight back. Most traders have a tendency to take risks that are too large at the beginning” – Gary Bielfeldt

“Professional traders manage their trading to assume that each trade may be a loser.” -Peter Brandt

The Big Wave Trading Portfolio is currently under a BUY signal after having to suffer through three straight SELL signals that were followed by cutting losses and returning to NEUTRAL. The current BUY signal is mainly being produced by the mere fact that the market will not sell off following all of the recent distribution days and is back above its 50 day moving average. Volume on the upside continues to be well below what we would consider a strong BUY signal and it remains a BUY signal basically due to CANSLIM quality stocks. A lot of CANSLIM quality stocks have built or continue to build quality bases. On the day of the BUY signal on Thursday tons of CANSLIM stocks broke out of very constructive base patterns. Despite these very high quality long signals, Big Wave Trading is not investing up to the capacity that it should be due to the recent false signals in our model which in the past has not produced three false signals in a row in such a short amount of time. This is 100% a function of the current market and not our model as 1976-1978 did not even produce this kind of low volume misinformation. Clearly, price is the only thing that matters when stocks are trending up. Volume is irrelevant in a QE environment. At the same time, even if the chart is in perfect order, our portfolios will not tolerate losses and pair back anywhere from 10% to 25% of our positions in stocks if they show losses. Overall, it appears these breakouts are stronger than the breakouts in January as the current consolidation period has given many of these stocks base-on-base patterns or ascending base patterns. The bases these high quality stocks broke out of in January while sound came from the very volatile July-December period in the market thus making some of them suspect. This recent consolidation has tightened many of these charts up. While saying all of this, we are completely aware that the whipsaw market may throw us back into a NEUTRAL signal at any moment. Also, we realize that we are deep into our third year of a QE led uptrend and it remains in our view that we are near the end of this big bull market rather than a start of a brand new bull market. However, we do not trade off of our opinions. We trade off of real price signals based on 130 years of stock market history and 200 years of futures history. We may think we are near a top but if the market wants to move higher and we have signals we are taking them long.

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

SWHC – 84% – 1/3/12
AVD – 71% – 1/10/12
LQDT – 53% – 2/1/12
BVSN short – 48% – 3/19/12
EPAM – 33% – 3/1/12
CPWM – 30% – 3/13/12
MNST – 30% – 1/13/12
SUNH- 27% – 3/9/12
PRXI short – 22% – 3/30/12

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