The Big Wave Trading portfolio underwent a few changes last week. By the end of the week, our models in the Nasdaq, Nasdaq 100, and Russell 2000 remained under a BUY operational condition. The SP 500, DJIA, and DJ-Transports switched from a BUY to a NEUTRAL operational mode and the NYSE finished the week under an operational NEUTRAL mode. The NYSE has been busy the past week switching from an operational BUY mode to NEUTRAL mode on Friday then switching to a SELL mode on Tuesday which was then ultimately followed by a re-switch to NEUTRAL mode on Thursday.
Despite this volatility we have remained nearly fully invested the entire way. We have had a few names hit sell stops here and there. However, we continue to receive fresh actionable signals in leading stocks that then cause us to return to fully invested by the next day. There have been a few leading stocks that have hit stops, reversed shortly after, and then leave us behind as we move the capital into new signals. However, in aggregate the sell stops are getting us out of weaker names and into stronger names.
When our current holdings continue to trend higher producing solid gains while the market chops around you know you are in a strong tape and that pullbacks remain buying opportunities. At some point in time this is obviously going to change and bite some traders in the ass but for now as long as we are getting signals while the market pulls back we will continue to see that as a net positive for the overall market.
While our holdings and other various leading stocks continue to perform well we also have some market internals starting to turn favorable. Sentiment has turned favorable in the AAII survey with bulls registering only 31.6% which is the lowest number since July 2014. The NAIIM survey of Manger Sentiment came down from 95% to 70% the past week. The II survey also saw bulls come down to 55% from 60%. Considering that I have more stocks qualifying in my top scans (My CANSLIM scan & Perfect Speculator and pre-Perfect Speculator scans) on Friday than I did the prior week by Friday, this should be bullish on a contrarian basis.
On top of sentiment finally pulling in from frothy levels, all of my momentum oscillators (Wilder’s RSI, Stochastics, Time Segment Volume, and MACD) have worked off overbought conditions in every single major market index I track. Most of these indexes have their oscillators now in the mid-range levels. However, the NYSE, SP 500, and DJIA have their various oscillators now in oversold levels. Considering how well the market is holding up as we work off these overbought readings this too must be considered a bullish data point.
As we enter the upcoming week we are no where near complacent in our investing/trading. We realize there is still some short-term overhead resistance in the stock market, a number of distribution days, and there is always a potential for a nasty unforeseen event. This is why we always operate with stops. In the most recent pullback, some of our stops have proven in hindsight to be too tight. That being said whenever a market is in the middle of pulling back it is always best to be more cautious than careless. However, in realizing this is not a rising interest rate environment and that we have a lot of long positions with solid gains we can definitely be more lenient with our stops on those positions.
Some of our longer term winners like SWKS are far away from the lower end of their most recent box. It sure would be disappointing to see some of those gains disappear before that lower end of its most recent Darvas Box is hit. However, to get the truly large gains you have to know when to keep your stops tight and your stops loose. It is all about market context and that is something that takes years of experience to fully get a feel for. Being fortunate enough to start this game in the mid-90s along with learning the CANSLIM methodology helped early on. But it has taken almost two decades to get the sort of feel for the market that we have been able to develop at Big Wave Trading.
As we head into the upcoming week, the key levels to watch on the SP 500, DJIA, DJT, and NYSE to flip them back to a BUY mode is last Friday’s (3/6) HOD. A close above this level will switch our models back to BUY modes in all of these indexes. Not that it matters when you are already fully invested. The NYSE would move back to a SELL mode if it closes below Wednesday’s LOD. The other indexes are far away from triggering any SELL mode outside of an outright random one or two day crash that then takes us below their 200 day moving averages. A highly improbable event. Still, not impossible.
Have a great rest of your weekend and I wish you the best in the upcoming trading week. Thank you. Aloha from a very chilly and windy west side of Maui.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL – SIGNAL DATE
VIPS long – +616% – 7/17/13
OVAS long – +337% – 8/8/14
AGIO long – +113% – 9/24/14
PAYC long – +78% – 10/30/14
CVTI long – 74% – 11/3/14
SWKS long – +66% – 10/28/14
ANAC long – +61% – 1/20/15
RUBI long – +57% – 10/29/14
VDSI long – +49% – 8/4/14
AVGO long – +48% – 10/28/14
CBPO long – +45% – 10/24/14
VRX long – +44% – 11/17/14
SERV long – +43% – 11/7/14
EA long – +34% – 11/10/14
PANW long – +29% – 11/10/14
AFAM long – +25% – 1/8/15
