We are back to being fully invested, following the huge amount of actionable signals we received in high quality stocks the past three sessions. It was quadruple witching on the stock exchanges but lately option expiration signals have been working so these signals will remain true. The last thing you want to happen here is have these signals work, see these stocks run, and realize you are now left behind. Especially when our market models have returned to an operational BUY mode.
Our models went through a trifecta this past week switching from an operational NEUTRAL signal to SELL signal to NEUTRAL signal to BUY signal all in a span of five sessions. That is quite a feat in one week and based on past historical examples of our models switching from BUY to NEUTRAL to SELL to NEUTRAL to BUY in less than 2-3 weeks the outcome is bullish for equities over the next 1-3 months. We shall see if history repeats/rhymes this time around. The volume confirmation on the final signal gives the signal solid confirmation.
It is quite possible that we might enter a priced-out rally. We could also easily reverse all of these signals. Don’t get complacent. If you are not ready for either outcome you still don’t understand this illiquid volatility that exist in this tape. The volatility of the volatility is at new all-time highs on the VIX and the illiquidity is thinner than ever based on NANEX data. We are in uncharted territory and believe it would be outright foolish to just blindly buy stocks thinking that it must go higher no matter what as it is the end of the year.
What we do know is that we have had two explosive sessions on well above average volume and just finished higher for the third day in a row on above average volume. If you lived on an island with only technical analysis as a tool and no ability to receive any news or know that Friday was an options expiration, you can come to no other conclusions other than this was an extremely bullish week.
This is why we received 13 long signals in 3 days and why we are back to being fully invested after getting down to over 50% cash in the cash accounts just one week ago. This recent rally is also another example of why we never fully sell out our long positions working well, despite the market selling off, unless those stocks give us a clear technical sell signal. We do not take discretionary trades at Big Wave Trading on the buy or sell side. We take systematic time-tested proven EOD signals that have a historical track record of working. When the buy signals do not work, our tight stops will protect our capital. When our tight stops get us out of a position and that position reverses higher, we put it back on.
What if all of our long signals fail? We will cut our losses. We don’t risk much for some huge potential moves in our new long positions the past week. Like I said, the money we would possibly lose if we are wrong will be 10x less than if we are right. We have some amazing risk/reward ratio setups right now. Are any of these setups great? Nope. Once again, not by a long shot. There is STILL nothing out there in that “perfect, beautiful, or great” camp. 2014′s theme. No hotties were born this year. We had some very very nice setups and some decent runs. But nothing perfect, beautiful, or even what I would consider great.
If you do not have cheap commissions, do not have the ability to systematically follow as many stocks as we follow, and/or do not have a lot of trading capital, remember to choose the 1, 2, or 4 stocks you like the best via your own personal Due Diligence and concentrate in those positions. The caveat being that you will need even tighter stops to protect your capital. We never would or will risk more than 1% of account capital per trade. That is total $ loss. No matter the size of the trade–a 20% position, a 10% position, a 5% position, or even a 1% position. 1% of our capital is our total max-risk allowed per trade.
It’s always going to be about capital preservation, no matter how strong this market looks, until we correct and can get a real cleanse of the excessive bullishness that is out there. Until that happens, and/or we start getting some perfect, beautiful, or great setups, its going to be about safety first and excessive gains second with our EOD methodology. We can push it intraday on the stocks in play on a daily basis but for this EOD methodology being selective, playing small, and keeping our stops tight is the name of the game.
Have a great rest of your weekend everyone. We are looking quite bullish going into the end of the year and our key index oscillators are in the middle ground to oversold territories. We are no longer overbought and now we are turning higher from oversold conditions on many of these oscillators in an overall uptrending market. Never fight seasonality and history. And never fight that seasonality when price is confirming the trend with many of our oscillators turning higher from oversold conditions. Be like water. Aloha from Maui. Surf’s up and so is the market’s overall trend. Once again, aloha.
TOP CURRENT HOLDINGS – PERCENT RETURN SINCE SIGNAL DATE – DATE OF SIGNAL
VIPS long – +476% – 7/17/13
OVAS long – +373% – 8/8/14
AGIO long – +138% – 9/24/14
VDSI long – +88% – 8/4/14
PAYC long – +54% – 10/30/14
RUBI long – +41% – 10/29/14
RENT long – +31% – 9/24/14
SWKS long – +30% – 10/28/14
TASR long – +26% – 11/10/14
CVTI long – +25% – 11/3/14
