The Big Wave Trading models remain under an across the board SELL condition as we head into the final week of September. Major market averages rallied straight into resistance and this past week we observed just how weak this overall market really is. The current technical condition of the overall market and leading stocks is very weak and we are going to need to see some serious accumulation in the short-term to reverse course.

Thursday’s solid session was a potential positive for those that want the 8/24 lows to hold. Stocks reversed off the lows on higher volume giving bulls some hope. Unfortunately, for the bulls, Friday saw the market gap up and reverse mid day on heavy volume with the Nasdaq producing another clear distribution day. This is definitely not the kind of follow-through you want to see if you believe that we just successfully tested the 8/24 lows.

More concerning for the market over the intermediate term is the condition of the Russell 2000 and the Biotech indexes. Small-cap stocks lead at the start of real strong uptrends. They do not lag with the DJIA leading like we saw on Friday–DJIA led thanks to NKE. Biotech stocks have been our leading sector since the 2011 market uptrend commenced. Biotechs got rocked a little in the early part of 2014 but if you compare that selling to the selling we are seeing now on a weekly arithmetic chart you can clearly see that this is much more severe and volatile.

This combined price action in small-caps and Biotechs does not bode well for the market not only on the short-term but the intermediate term. Biotech stocks do not have technical patterns that suggest that they want to form the right side or a bottom of a consolidation pattern any time soon. Unless we see some serious accumulation in the short term it is going to take weeks to months to fix these patterns and have them become symmetrical to the current left hand sides of any consolidation pattern they might even be trying to form.

If we do not have the Biotech stocks to help lead us higher then it is always possible that we are undergoing a rotation into a new leading industry group. Unfortunately, for now, that data is not supported by the facts on the ground. The recent sector leadership in the market is your typical bear market leading industry groups where safety is a higher attribute than growth. There are currently no real growth industries taking the leadership from the Biotech sector yet. Another hint that a market uptrend is probably further away than near.

We continue to operate with a very heavy cash position here. We have some leveraged short position in the overall market along with a few long positions that are still uptrending despite this rough tape. We have been churned up a tad in our recent long positions but that was to be expected under the current market environment. This is why all new positions on the long side remain as small as we allow per our asset allocation rules and why our stop levels remain so extremely tight. As long as we operate under an operational SELL condition, the short side will continue to be the preferred side to operate on in the short term.

For new investors, we continue to recommend a 100% cash level. If you are under capitalized, pay a lot in commissions per trade, and/or are not a systematic trader then this is definitely a market environment you need to stay away from. Capital preservation remains the main goal here, for new investors. When the tape calms down and we re-enter an operational BUY condition under a Follow-Through Day then we can look at taking larger positions per trade on our end.

Until then, however, we will remain cash heavy and trade very small. Unless we get a big fat juicy fastball right down the middle of the plate short setup. If we continue to back and fill here and eventually break down right at the downtrending 50 and 200 Day Moving Averages on strong volume, we will gladly increase our short position in this market. Something tells us we will not get such a clear-cut short setup/signal but we are prepared for it if it happens.

Have a great weekend everyone. Congratulations to the NY Mets for making the postseason for the first time since 2006. Aloha from Maui where this displaced NY Mets fan is cheering just as loud as if he was in Flushing.

TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE

ANAC long – 249% – 1/20/15
SKX long – 131% – 1/26/15
PAYC long – 96% – 10/30/14
DXCM long – 68% – 12/3/14
TREE long – 60% – 6/2/15
TVIX long – 55% – 8/20/15
COKE long – 51% – 6/16/15
EDAP long – 49% – 9/9/15
ADPT long – 47% – 5/18/15
AMSG long – 42% – 2/26/15
FIX long – 41% – 3/11/15
ABMD long – 39% – 7/10/15
AVOL long – 39% – 4/21/15
BIS long – 33% – 8/6/15
LHCG long – 29% – 6/11/15
SRTY long – 29% – 7/23/15