The Big Wave Trading portfolio is under an operational NEUTRAL signal across the board, following Wednesday’s surprise no news heavy volume sell off. It is extremely rare to almost non-existent to see our model switch from a BUY signal to a NEUTRAL signal right after new highs are set in the Nasdaq and Russell 2000. While it is not rare to sell off following new highs in such a dramatic fashion when the market is overbought. It is rare, in our data, to see this when the market is not overbought on the main oscillators we track.
There were a few technical situations that caused this signal change. The DJT did not confirm the DJIA new highs in February (Down Theory 101), there was no news on Wednesday to “give reason” to the sell off, our long positions with long-term gains made some extremely volatile moves that day, all new long positions failed that day, there are a lack of “hot” technical setups in leading stocks currently, the sell off came right after we set new highs in a non-overbought condition on all of the oscillators we track, and we did not see any fear enter the market despite the very negative price action.
We remain around 60% invested and we still have a lot of our long term winning positions. However, a lot of the names below have started to trigger partial profit taking signals by selling below their most recent key support levels (Darvas boxes). That being said, a lot of the positions below have still not triggered any sell signals and as long as they are trending higher we will not be selling these names. The biggest problem is we are starting to see some very volatile moves in some of these names which makes it less likely these stocks will hold up if the market gets into some trouble here.
Obviously, we would like the market to continue to move higher and go full-on parabolic so that every last retail “sucker” is sucked into this market. We would love to see all of our current long positions go parabolic like our ESPR and OVAS did. OVAS is still trying to hang on but it is looking bleak following Friday’s session. However, while we would love to see the market continue to move higher and for our stocks to go parabolic we do see some problems on the horizon.
The biggest issues are obviously valuation on multiple metrics and the extremely weak economic data. However, the biggest issue for me is always going to be the amount of good looking technical setups I have in my CANSLIM and Perfect Speculator scans. If there are beautiful consolidation patterns or breakouts in these scans, I know we are good. When these scans turn a bit ugly (yellow to red on my charts), then I know we are in some rough waters. The market is strongest when these two scans have plenty of setups and then my BOP scans confirm this with “hot” speculative stock price action. We have not seen a full confirmation in every scan since the mid-00s. It’s been 10 years. So that tells you the overall magnitude of the power of the six year bull market. Nothing short of lame.
We remain unable to predict the future at Big Wave Trading. We would love to see this market continue higher but we have enough evidence that it might be a rough ride here. The technical damage on the short-term has made my once nice CANSLIM/Perfect Speculator setups now look a bit choppy. If we are going to fix this, it might take some time for us to back and fill Wednesday’s losses. The most bullish scenario following Wednesday would have been if we immediately reversed higher to end the week. We didn’t and we couldn’t even rally. When we did on Friday, there was no volume. Not a great sign for the short-term.
We have moved our trailing sell stops on all of our current holdings and will be ready to exit the positions when the stock market tells to exit our positions. For now, our models make it clear that it is best to keep a high level of cash and wait for the market to reassert itself to the upside by taking out the Wednesday HOD before we place any of our hard working capital to work in the short-term. If we get signals ahead of this time, we will take them with smaller positions sizes and tighter stops. We have our rules for every market condition and outcome. To survive in this tape, you better have rules.
OK. We enter the week very NEUTRAL on our end. We are hopeful that the uptrend can continue but are skeptical of the setup and would not be surprised if we get stopped out of our remaining long positions (basically everything you see below) if the market weakens here. Have a great upcoming week. We wish you the best. Thank you and aloha.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE
VIPS long – +699% – 7/17/13
OVAS long – +330% – 8/8/14
AGIO long – +92% – 9/24/14
PAYC long – +80% – 10/30/14
SWKS long – +77% – 10/28/14
CBPO long – +63% – 10/24/14
ANAC long – +59% – 1/20/15
VDSI long – +58% – 8/4/14
CVTI long – +57% – 11/3/14
RUBI long – +53% – 10/29/14
AVGO long – +52% – 10/28/14
VRX long – +44% – 11/17/14
SERV long – +41% – 11/7/14
EA long – +41% – 11/10/14
ESPR long – +34% – 3/9/15
AFAM long – +34% – 1/8/15
PANW long – +34% – 11/10/14
CNC long – +29% – 1/8/15
LCI long – +25% – 2/5/15
NCFT long – +25% – 11/21/14
