The Big Wave Trading Portfolio is once again heavily long as our market direction model on the Nasdaq and Nasdaq 100 returned to BUY signal this week. This is following a series of switches from BUY (signal given in May) to NEUTRAL to SELL to NEUTRAL to BUY all in the past month. It has been a wild ride for our model but the strength in leading stocks has remained consistent through these changes. This is why we find ourselves basically fully positioned on the long side, despite the NYSE, SP500, DJIA, and Russell 2000 all being under a current NEUTRAL signal.
Despite the Nasdaq and Nasdaq 100 being under a BUY signal we are still operating all of our exit signals as if we were in a NEUTRAL condition or SELL condition in the overall market direction models. The reason for this is that there are simply too many high quality stocks either breaking out or setting up in tight Volatility Contraction Patterns.
If we go long a leading stock and it does not produce gains immediately, this means we are selling some of it to all of it. Why? Because there are too many stocks moving higher. If most of our portfolios go up but a few stocks do not and then we have the choice of potentially being long stocks that are moving higher that we do not have positions in then obviously we would rather be in the stocks moving higher.
Therefore, we continue to operate under a no-losses-allowed condition. This means that if we get long something and it does produce gains immediately, then we place a hard Sell Stop just above break even so that gains do not turn into losses. This also means that if we get long a stock (like BIDU and FB, for instance) this week and it does not move higher immediately even if everything is fine with the technical condition of the stock we will begin pairing back the position.
For instance, we have 5 partial sells on Monday but none of them show any signs of any problems. They simply are not producing gains immediately. There are too many stocks that moved higher on Friday to remain fully positioned in these five stocks that did not. Its all about rotation here into the best of the best performing leading stocks.
Now, even though we are basically fully maxed out (I have a couple Buy Stops that need to be filled to be fully invested), this does not mean we are bullish. We are never bullish or bearish at Big Wave Trading. We simply follow and obey price and volume. We use history as our guide to tell us what the probability of a certain outcome might be in the future. We never “believe” that it must work. We know that black swans do happen and thus we are always prepared for a black swan event.
That being said, we still have QE until October, we are not supposed to get rate hikes until after Q1 2015, and corporate EPS, sales, and margins continue to be extremely impressive. These are trends that we do not feel like fighting. I know that our model switched to SELL in the past month but once again BTFD was in full force and there was no follow-through to the initial round of selling. Until you see QE end and rate hikes being, this will more-than-likely continue to be the trend of the market. You will know that the trend is near an end when everyone is telling you to BTFD. Oh you say they already are saying to buy every single dip. Well I guess it is only going to stop working when even the people you know that do not invest or trade stocks start telling you to BTFD.
We shall see what the upcoming week has in store. We are heavily long here with a couple Buy Stops left to go on my end. Subscribers also have a list of extremely high-quality stocks setting up for potential breakouts. If the market blast higher, there is no excuse to not be heavily long here. If the market breaks down, we will be leaving our recent long positions with either small gains or break even. Gains are not allowed to turn into losses until the whole market direction model turns into a BUY signal.
Right now, it is in an overall NEUTRAL condition, so even small losses are not tolerated. A NEUTRAL market can turn into a SELL market in just one missile. As long as you have the Russia and Ukraine uncertainty in this market, anything can happen. The market doesn’t like uncertainty. A wall of fear to climb is one thing. A confused and uncertain market is a whole different story.
Thank you. Have a great upcoming profitable trading week. Aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE OUR SIGNAL DATE – DATE OF SIGNAL
VIPS long – 510% – 7/17/13
HEES long – 222% – 9/4/12
AER long – 171% – 6/27/13
WDC long – 129% – 1/9/13
TPL long – 117% – 10/22/13
USCR long – 81% – 4/12/13
