From the Trading Desk

Weekend Update: Price Trumps Emotions

This market rally just gets more and more impressive by the day and week. Stocks rallied again on Friday with the market racing higher in the final hour to close at the HOD. Volume might have been lower on Friday but the final hour moonshot in the overall market, with the market already at new all-time highs, is about as good as it gets. These strong late-day closes have been the norm the past month and if you are a bull this is exactly what you want to see.

For what it is worth, I am not a bull. I am a trader. I trade my signals. My signals have been very strong and consistent since the election. Some serious unrealized (and some realized) gains are starting to pile up and I am starting to get more and more overbought profit taking signals here and there. At the same time, fresh new long signals continue to show up but they are definitely slowing down as the rate of ascent in the overall market has increased dramatically in the short-term. As long as this is the case, I will continue to trade my signals as they generate.

That being said, I have been fully invested for the entire year as I continue to take profits, have stocks hit trailing profit stops, or have stocks hit trailing small losses sell stops and then move that capital into any new long signal that is generated. There has basically been at least one EOD trend following signal every session so finding new places to move the capital has not been a problem. The sessions when there are not, normally some kind of inverse ETF hedge signal triggers. So trust me this has been great and I expect it to continue but lets be honest it is starting to get a bit ridiculous.

I know there are a ton of underinvested bulls here so I do expect any pullback to be accumulated at some point but on the short-term we are very overbought and sentiment continues to be bullish overall. All of the major market indexes are in all-time high ground with the Nasdaq and Nasdaq 100 RSI(14) over 80 and the DJIA SPX and NYSE over 70. The RUT and DJT still have RSI(14) lines in the 60s and the market can stay overbought longer than shorts can stay solvent. However, once again, let’s be honest. This is extreme. Maybe this is why I received and took two VIX-related hedge signals on Thursday that happened to be higher on the session Thursday and Friday despite the market being higher both sessions.

Sentiment remains out of whack with Investors Intelligence bulls at 62% and bears at 18%. The NAAIM exposure index is still high at 95.89 and the CNN Money Fear/Greed Index is at 77. Neither is at the top of the extreme levels but both are still extreme. Then there is the IBD Put/Call ratio which is still pretty high around .89 and the AAII Bull/Bear survey which shows 33.10% bulls to 32.4% bears with 34.6% coming in at neutral. Neither are at extremes but neither is fearful either. The overall take away, the crowd is clearly bullish.

So we shall see. I have my trailing profit and cut loss stops. I have my signals and know when to take profits on the upside if this market continues to get crazy. I also have my hedging methodology that will ensure I am already exposed to the short side of the market before it all tops out. I don’t expect one any time soon. I just want to make sure everyone knows I will be ready and will not get caught flat footed when the eventual proverbial shoe does drop. Until then, the trend is my friend and I am going to continue to ride this bullish bucking bronco for as long as new long signals generate and work.

That is a long weekend update! Whew. Enjoy your long holiday weekend. Take care of yourselves and I wish you all the best in your personal trading. If you have any questions whatsoever please feel free to send an email to admin@bigwavetrading.com or leave a comment below. Once again, have a great long weekend. I’ll see you in the chat room or back here on Tuesday. Aloha.

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