The Big Wave Trading Portfolio is currently under a NEUTRAL conditions in all of the major stock market averages. The Nasdaq 100 has returned to a BUY condition following its switch to a NEUTRAL condition on Thursday. The Russell 2000 is returning to a NEUTRAL condition following a switch to SELL on Thursday.
Overall, the market is still consolidating the recent gains as the NYSE, SP-500, and Nasdaq are still range bound in between the July highs and lows. The Russell 2000, however, has broken down hard below the 50 and 200 day moving average on Thursday and thus technically in a downtrend on the short-term.
The good news for the Russell 2000 is that it was able to retake the 200 day moving average on Friday which is a short-term very bullish development. The quicker an indexes price retakes a key moving average after breaking it is usually a key reversal pattern. However, the RUT did not also retake the 50 day moving average so the verdict is still out on this reversal being a outright bullish development.
The market remains very mixed with cash being the best investment right now for new traders. For experienced investors that understand how to trade and navigate this market, there is still money to be carefully made out there on the trend following side. Despite the sell off on Thursday, we only received a handful of sell signals and made no rash sell decisions based on the fearful nature of that sell off.
We remain very long NYSE names and are currently invested 60-65% invested here in these leading big-cap names. We also have about 10% of our accounts in hedges against our long positions. This leaves us with around 25-30% cash on hand to deploy in either buyable gap ups or breakouts following earnings, if the market resolves itself higher from this trading range. If the market resolves itself lower, we will continue to operate our hedges on the short-side evaluating the situation of the market in real time.
It is not clear which direction the market wants to go on the short-term but it does appear following Friday’s re-reversal higher that the market might to move higher. If it does, we will be ready to immediately get long leading stocks that lead the market higher, following earnings season. If the market doesn’t get its bearings back, like I just stated above, we will move into a defensive position and let the market tell us what to do.
For now, the intelligent play is to keep an open mind and have a high level of cash on hand for better setups. Right now, getting oneself fully invested here ahead of earnings in a range bound market is not a smart proposition for those traders that prefer to have the odds fully in their favor.
Have a wonderful rest of your weekend and great luck during the upcoming week of earnings. It should be eventful and exciting. Like always. Aloha!
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE OUR SIGNAL DATE – DATE OF SIGNAL
VIPS long – 455% – 7/17/13
HEES long – 212% – 9/4/12
AER long – 165% – 6/27/13
WDC long – 127% – 1/9/13
TPL long – 89% – 10/22/13
USCR long – 86% – 4/12/13
EOG long – 28% – 2/24/14
