After last week’s selling a bounce was certainly not unexpected.  Volume could not match Friday’s levels, but Friday was the first of the month where volume is typically elevated.  Price action was solid for much of the day after the morning dip as European stocks moved lower.  After the European close the US market began to see buyers step up and push prices higher.  At the close, sellers crept in knocking the indexes off their highs of the session.  All-in-all today was not a bad bounce off the lows, but the S&P 500 remains under its 50 day moving average a sign of weakness.  It will take further evidence to flip our market model into neutral than just one day. If this market has any chance to go forward we’ll need to see more evidence than just today’s move.  For now we stick with our market model and proceed as such.

2014-08-04_SPX_Daily

Over the weekend there were articles covering why this market was about to break wide open to the downside.  One such problem with this thesis is we had severe oversold conditions in the near-term and it appeared everyone and their grandmother was looking for further downside or so we thought.  However, as we look out in the Twitter and Stocktwits world we see plenty of traders looking to buy-the-dip.  There is no denying the strategy has worked, but it does not work all the time.  Not to mention how do you quantify the dip?  You just hear pundits say to buy-the-dip, but they never say how to.  We aren’t going to guess when the dip is big enough to “buy.”  We use time-tested trend following process to identify trends in stocks.  There is no guess work with Big Wave Trading.

There were nice moves out there by some leading stocks like FB and PCLN.  PCLN reports early next week and given earnings are within a week it adds quite a bit of risk to get long here.  Since FB has already reported earnings we do not have the risk of a blow-up like we see with some post earnings moves.  A former leader continues to disappoint and it appears lower prices are ahead for KORS.  KORS has been a favorite of IBD traders with its niche products and growth.  However, the market simply does not want to support higher prices for now.  Outside the leadership we follow GRPN is always interesting ahead of earnings.  GRPN is a stock that has always attracted attention and today it nearly ended higher by 9%.  The stock reports earnings tomorrow after the market close and should provide some fireworks.  We need to see a bit more out of our market leaders for this market to push higher.

Food inflation continues to be a topic of discussion.  Recently, the CRB Food index has been cooling off and trending lower.  Helping out as well is Crude Oil falling below $100 price level.  If you go to the grocery store you know prices continue to rise.  The fear over inflation is it will force the Federal Reserve to prematurely raise rates causing stocks to fall.  We do not have any fears as we follow our process and if stocks head into correction mode we’ll simply short the market.  We do not need to guess where the market is headed we simply follow its lead.

2014-08-01_CRB_Food

One day does not make a trend and while today appears to be positive for these markets we aren’t out of the woods just yet.  Stay patient and stick with Big Wave Trading.  We’ll get you through this market and capitalize on what the market gives us.