TOP CURRENT HOLDINGS – PERCENT GAIN SINCE OUR SIGNAL DATE – DATE OF SIGNAL
VIPS long – 479% – 7/17/13
HEES long – 218% – 9/4/12
AER long – 158% – 6/27/13
WDC long – 131% – 1/9/13
TPL long – 103% – 10/22/13
USCR long – 81% – 4/12/13
The Big Wave Trading Portfolio remains under a SELL signal, despite the positive futures reversal and subsequent intraday session on Friday by the major market averages. The current SELL signal does not mean that we are 100% short at Big Wave Trading. It signals that the market is very unhealthy with distribution, downtrends, and failed breakouts dominating the market landscape. It does not mean that you should have your portfolio 100% short.
For now this is a “soft” SELL signal which means losses must be cut quickly when we do take a new position, position sizes must be smaller on the long side when taken, and profits must be taken quicker than usual. It also means it is safe to operate on the short side with stocks that have already broken down and failed at resistance and/or are breaking down on heavy volume.
When we switch to a SELL signal it is normally from a NEUTRAL condition like you just saw where we are already pairing back our winning positions and eliminating any stock not producing gains. Under a NEUTRAL condition we also do not let any stock with gains turn into losses. The most we will lose once we have a profit in a stock under a NEUTRAL condition is breakeven. While under a NEUTRAL condition, if we are heavily long, we also begin to add hedges. This is why we had on short positions before the SELL signal was generated.
This is also why, following Friday’s session, we are exiting–locking in some profits–25% of our short positions that made up about 25% of our total account values. We will hold the rest of our hedges until the market makes it clear it wants to rally higher. One day does not make a new trend and while we are very oversold there is nothing that says oversold markets can not get more oversold. So assuming that a bounce has to occur here based solely on an oversold market is not wise.
The odds of a successful bounce has increased following Friday’s session due to the massive amount of long signals generated in my scans. Friday’s session saw a plethora of long signals and even more stocks have traded in tighter and tighter Volatility Contraction Patterns that now allow Buy Stops to be put on the books. Some of the stocks we are looking to place Buy Stops on include FB, UA, ULTA, MDSO, LUV, TWTR, Z, NTCT, QIHU, GPK, PANW, WDAY, UHS, SLCA, NOAH, SWKS, AMBA, LNG, ALXN, BIDU, and VIPS. As you can see there are a ton of stocks coiled for moves higher. If the market can make it clear it wants to bounce here by following through higher at some point this week we will, more-than-likely, be back to nearly fully invested on the long side. There are simply too many Volatility Contraction Patterns out there.
This all being said, nothing says that these signals and patterns can not breakdown and therefore produce failed signals. So if you are a blind bull here (I feel many are unfortunately) I don’t recommend that as a personal strategy. At some point BTFD is going to turn into OMFGIAB (Oh My Fucking God I am Broke). After six years of a QE fueled manipulated ZIRP bull market I can assure there isn’t much time left for this uptrend to just keep going without a 20%+ pullback. We know the Fed is going to start hiking rates. The mantra of “Don’t Fight the Fed” is the most crystal clear best advice I can give to anyone trading stocks. When they start rising–they already are ending QE in October–the party is going to be over sooner than later.
However, until the Fed starts actually raising rates, I will continue to BTFD along with everyone else as long as that is the methodology that is still in vogue. The bottom line is that just because our model is under a SELL signal doesn’t mean we are hardcore bears and 100% short here. We have no emotions towards the stock market at Big Wave Trading. We don’t give a shit about the bulls. We don’t give a shit about the bears. We don’t give a shit about anything other than price and following our backtested methodology to a T adjusting along the way as the facts dictate. We’ll let the other traders fight it out on Facebook, Twitter, the message boards, and in the chat rooms. We don’t care. We just want to make money. If you do too, don’t be shy. Try us out with a free trial.
OK everyone. It was amazing to watch fear run its course on Maui as 90% of the human beings on this island lost their freaking mind and hoarded everything ahead of these two hurricane misses. It was hilarious to watch. It never pays to act on fear. Calm rational minds always come out ahead. If you plan ahead, you don’t need to worry about anything. That is what we do here. We plan ahead. Nothing catches us by surprise. Not a tsunami. Not a hurricane. Nothing. Thank you for reading. I wish you the best during this upcoming trading week. Aloha.
