The Big Wave Trading Portfolio remains under a BUY signal across the board. The BUY signal remains despite the short-term weakness in the overall market. For now, all major market averages are trending above their respective 50 day moving averages. This keeps the signal true due to the lack of extremely heavy volume distribution from the recent highs.
This being said, we are very neutral on the most short-term and we recognize that some leading stocks suffered some pretty extreme damage rather quickly. The quick brutal damage has been made up in bits and pieces over the past three sessions but the damage still remains. It is going to take a little more time to heal the deep damage some of these stocks suffered in a short amount of time.
If the indexes can continue to consolidate here, work off their overbought conditions, and then breakout higher, we will be well positioned for a further continuation of the current rally. However, if we start to see too many weak earnings and estimate revisions down following earnings and stocks react to this negatively, then we can expect the market to weaken further and for our model to switch at least to a NEUTRAL conditions.
The Russell 2000 is sitting right on top of its 50 and 200 day moving averages and if this index breaks below both key levels on above average volume this model will switch to a SELL mode. That being said, we still have QE, even though it ends in October, and it never pays to fight the Fed. Especially, if interest rates are going to remain low for an extended period of time.
On the short-term we still have a lot of NYSE related stocks that show absolutely no signs of damage and we will continue to stay long these stocks that are working. And like always, the stocks that we go long that do not rise immediately, we will cut our losses on and move the capital either to the sidelines or to the next great reward/risk ratio setup. In this current short-term tape, having some cash on hand would be a very intelligent proposition. If this market breaks out higher, you can put it to work in the leading stocks leading the advance. If the market breaks down, you can operate on the short side by buying protect via index puts.
Alright everyone. It’s earnings season time and we should start to get a sense of which direction this market wants to go. However, remember, the market can do anything it wants at anytime so there is always the possibility of a head fake. It’s best to be ready for anything and everything instead of preparing for only one outcome. Think of every outcome. Even the improbable and the impossible. One day, it’s going to happen. Black swans always do. Aloha from Maui.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE OUR SIGNAL DATE – DATE OF SIGNAL
VIPS long – 434% – 7/17/13
HEES long – 199% – 9/4/12
AER long – 159% – 6/27/13
WDC long – 123% – 1/9/13
TPL long – 86% – 10/22/13
USCR long – 81% – 4/12/13
EOG long – 26% – 2/24/14
