The Big Wave Trading Portfolio remains under a BUY condition across the board. This past week was further confirmation on the current strong technical condition of the overall market. While it is not perfect and we can argue about volume on the days we do rally, it is what it is and that is a strong current rally favoring all sectors and market cap size across the board.
While this rally is incredibly strong right now with barely any selling able to move the market anything lower than .96% on the Nasdaq, when we do pullback, there are plenty of items out there that could be better. To start off with we hear a lot of chatter about the low VIX. While the VIX is low indeed it is still quite a bit away from the lows it was able to set in 2007 below 9. So to say it is extremely low is a bit of a stretch. However, we do realize that even though individual stocks are creating amazing patterns it sure is not like the amazing patterns we saw in 2003 when the VIX was around the 35 levels. That market had fear in it. This market is very complacent. But it is not an extreme.
Also we note that cyclical stocks with dividends are doing better than growth stocks here on a Relative Strength basis. After four years of a market without a 20% pullback it is safe to say we are long in the tooth and if a final run is occurring it would historically match up with cyclical stocks leading and not growth. We can not predict when the market rally will end, and we certainly will place zero capital on that guess, but we do know that these stocks lead near the end of a long cycle. However, it is QEinfinity, the world is printing, and China is growing like mad with exports up 16% in the most recent report.
Another item we hear talk of is the Investors Intelligence bull/bear survey. Currently the survey shows 51% are bulls compared to 23% that say they are bullish. That is in stark contrast to the powerful rally that started in 2003 when there were around 40% bulls and 55% bears. Once again, not a market full of fear that produces a fresh new bull market. While this is all interesting it is, once again, something you can place no capital on. It is just food for thought, in case everyone thinks that we are in for another 4 years of straight up prices. However, sadly, once again, we might, knowing the insane sociopaths that are in control of the economy and country.
The one last talking point we have heard is that mutual fund inflows for the week were the highest in 13 years right when the market topped back in March 2000. In contrast, mutual fund outflows peaked and continued leading into the 2003 rally. Once again, food for thought, but it is not actionable. Why? Simple, let’s say funds decide to put all that money to work and rally the market 25% before the top. Do you want to miss that 25% rise before “a possible” peak? Of course not.
This is why all that matters right now is price. You set your buy stops and execute them when price breakouts of a trading range or a key moving average. It is that simple. You cut your losses if it does not work and you ride the trend until it ends or a trailing stop is hit. The key to this market is to not think. Just follow price. When you start running into bad luck, cut back on your trading more and more and more and more until things start working again. Once that happens, then begin to increase size. When you get the “perfect” or “best” or “most opportune” signal (as Jesse Livermore would say picking up a bag of money in the corner just sitting there) then you press. If you have not gotten that signal yet, maybe the market will consolidate and then breakout higher producing that signal. If this is going to be a real rally then we should rally into March, historically speaking.
If this rally has left you behind, you still have plenty of time, if it is real. If it is not, you will be thankful you did not break your rules and chase price. In saying that, a lot of traders that missed YCS and DXJ have been waiting for a pullback. They are still waiting.
Have a great weekend everyone. Aloha.
Top Current Holdings – Percent Gain – Date of Signal
NTE long – 121% – 8/17/12
CSU long – 61% – 9/4/12
VRNM short – 50% – 4/10/12
HEES long – 47% – 9/4/12
CAMP long – 44% – 4/26/12
ASTM short – 31% – 7/17/12
FLT long – 27% – 9/6/12
POWR long – 27% – 12/11/12
V long – 25% – 8/31/12