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Closing off the Lows, Stocks Show Resilience

Big_Wave_Trader — Tue, 31 Jan 2012 02:08:43 +0000

While market pundits wait for a Greece and its creditors to come to an agreement, stocks quietly put in a solid day. At the open it did not appear stocks would have a good day as the market pulled back nearly one percent. Small cap stocks were having a difficult time, but a solid reading from the Dallas Fed helped spur buyers step up to the plate. Volume ran lower for much of the day and helped the market avoid a day of distribution. This is the type of action you want to see as the stock market consolidates its gains and if the market continues to act like this it will bode well for the future.

Yes, the market may be a bit overbought still, but the recent action is quite encouraging. Recent price action in AAPL, INTC, and MSFT (the big dogs) is also very encouraging. A sore spot in this rally is the inability for the IBD 85/85 to show any relative strength. This index has been stuck in neutral for quite some time, but pay attention any pick up in strength would be a very positive signal. As we head into February I would expect a choppy month as February tends to be a tough month for the market. If this type of action continues it will only set us up nicely for a big rally.

The backdoor QE 3, the Federal Reserve dollar swap program is a precursor to what will likely be another round of quantitative easing. It is no secret during election years the government will do its best to prop up the market. You can bet your bottom dollar Obama and his administration will pull out all the stops! The problem isn’t just related to democrats as both sides are guilty. This does mean we’ll likely get a rally from another liquidity injection. QE 2 did produce some big winners including NFLX so it would be a prudent move to stay on top of this market. You do not want to miss out on gains!

Always cut your losses short.

Last Hour Surge Sends Stocks Higher

Big_Wave_Trader — Wed, 05 Oct 2011 02:20:58 +0000

A wild day on Wall Street as stocks whipsaw all day long, but finally closing higher on the highs of the day. Hitting bear market levels the S&P 500 was able to bounce back along with the rest of the market. The big winner on the day was Small Cap stocks followed by the NASDAQ. At 3:11pm EST the NASDAQ was at 2300, by the close the NASDAQ was at 2404. A hundred point swing at the end of the day was a tremendous move flipping the short-term trend to neutral. For now, cash remains king and we are now on day one of an attempted rally.

It is entirely possible we can build on today’s move and push higher. However, we are lacking the necessary stocks setting up in sound bases. Many remain wide and loose and the few that look good EVERYONE is seeing. For now, patience and cash is the best course of action in this market.

The positives here are obvious, a big volume reversal. If anything today’s move was a warning shot to shorts to get out of the way for the time being. I do want to point out the top 4 gainers on the NASDAQ were the following: ACMR DLGC WHRT BIDZ. Not the picture of quality there. Not one of those stocks trades above $3! Normally, CSCO AAPL ORCL MSFT GOOG dominate the list. This could very well be a blip and turn out to be nothing, but it is interesting the top 4 stocks are junk. Remember, we want to see quality growth stocks lead a new bull market. We had that situation in September of 2010…not the case now.

Covering shorts is a good idea here. We could rally another 4-5% and if you are long the 3x inverse ETFs a 12-15% haircut is a significant. Let’s not forget time decay is another killer for these inverse ETFs. If you are able to be nimble enough to take profits and losses in quick fashion then do so. However, if you are unable to handle the volatility cash remains the best place here. If you miss the first few days of a solid new uptrend, you can certainly make it up with stocks breaking out.

Stay prudent!

Despite Euro Troubles, AAPL Shines as Stocks Bounce off Market Lows

Big_Wave_Trader — Tue, 20 Sep 2011 00:04:40 +0000

More troubling news from the housing market was overrun by continued fears in the European nations. Greece is the cornerstone of the controversy. They need cash badly and their budget efforts continue to fail expectations. European stocks continue to be weak sending US stocks lower at the open. Sellers fear a Greek collapse would render the assets on the books of European banks worthless. The market continues to adjust to the situation and in the United States financial stocks continue to be weak. The market was able to garner support at the end of the day sending the NASDAQ into positive territory. Although the NASDAQ failed to close positive the intraday reversal is a bullish note. We have positives, but it will take a bit more time as AAPL stock being a big positive.

AAPL stock broke out of its recent price consolidation. Volume was just about 32% higher than its 50 day volume moving average. Not as much as we’d like to see, but it is something to take not of. AAPL stock appears to be the market’s savior as it helped thrust the NASDAQ higher after opening lower on the day. AAPL is in a later stage base tends to be prone to failure and with volume not being gigantic it sends a signal AAPL stock has a higher probability of failure. Will AAPL stock fail this breakout? It is anyone’s guess, but the price action and volume (lack of big, big volume) says it will at least go higher over the next few days. Ideally, volume would have been 40-50% higher.

NFLX stock once again finished lower on the day as it failed to gain any traction. Cutting your losses is very important and NFLX stock is a great example of why you must cut your losses short and not let them run. It is easier to recover from a few small losses than it does from very large losses. Check your ego at the door; it is not how to invest in the stock market. Always cut your losses short and let your winners run.

There continues to be positives in this market. However, we do need to see a bit more from this market prior to getting overly excited about a possible move higher. We are looking for a bit more sideways action to tighten up price action. Tight consolidation is a positive for the market and is needed here.

Stocks Close Lower Despite Big Earnings out of AAPL Stock

Big_Wave_Trader — Wed, 20 Jul 2011 20:04:43 +0000

AAPL stock blew out earnings estimates and gave an impressive earnings release. There is no denying the power of that stock, but its gains failed to lift the market for a second straight day. Volume dried up across the board, excluding AAPL from the mix. The action in many stocks have become troubling and today we saw some nasty reversals like VMW leading us to believe this rally is being sold into and not bought. AAPL too reversed from its gap this morning giving pause to could the stock actually have topped? (Hate comments are to be expected) While the indexes still remain somewhat ok, the action in leaders is not inspiring.

We have been talking about the right side of the most recent bases and how volume has really been anemic. Wedging as we like to refer to a rising stock price on lower volume and it simply means demand for the stock is waning. We have seen in the past this situation, but it has become increasingly NOTICEABLE. Earnings are one thing, but we sell on the technicals. Fundamentals are used in the buying decision and not the sell decision. Remember in November of 2007 when those fundamentals looked so darn good? Selling on technicals left you with plenty of cash on hand to use in 2009 and not to mention a huge leg up on the market.

Today’s last hour was filled with wild swings, but the key was the inability for the market to find buyers. The most recent rally did clear out any oversold conditions that existed and there is a possibility we could still work our way higher here. If underlying stocks, our market leaders were acting better it would be much easier to say we are going higher. However, without those leading stocks this action will only amount to churning. The prudent action here is not to get caught up in the churning.

Cut your losses short and stay nimble

AAPL Stock Shines as IBM Stock Reports Earnings After-Hours

Big_Wave_Trader — Mon, 18 Jul 2011 20:24:28 +0000

AAPL stock surges on big volume as buyers rushed into the stock. In the meantime, the NASDAQ and the rest of the stock market were in trouble for much of the day as sellers took ahold of the market for much of the day. The late day surge in AAPL stock helped lift the NASDAQ from its lows and avoid closing below its 50 day moving average. Small caps took the biggest hit of the day closing down more than 1.5%. Volume did come in lower on the day, but remember Friday was option expiry inflating Friday’s volue levels. A fair comparison? We still remain in a shaky environment here and we’ll need to see come positive action here as the market flirts with key moving averages.

A bit of positive economic news came from home builders as the NAHB Housing Market Index was released at 15, better than expected. The bad news of course is over supply as more than 2 million homes remain unoccupied. Until supply can be met by demand Case-Shiller sees a drop of 20-25% in home prices are likely. A bet on the homebuilding sector is a dead bet for now and until supply is met by demand. Look for this trend to continue.

IBM stock reporting earnings in the after-hours session here are the headlines:

IBM 2Q OPER EPS $3.09, EST. $3.02
IBM 2Q REV. $26.67B, EST. $25.35B

At 4:14pm EST IBM stock was trading down .71%. It’ll be a key indication of what we can expect when normal trading resumes tomorrow. After-hours trading tends to be erratic. For now, the market is not chearing the news out of IBM so far. IBM will have a big effect on the Dow Jones Industrial Average, it is the only reason to mention this stock it is by far not a leading stock despite its size.

In other notable after-hours news CSCO stock put out this headline:

CISCO TO CUT 6,500 JOBS, TAKE PRETAX CHARGE UP TO $1.3B

This is never a good headline to read during this terrible job market.

A few market leaders held up well today, but we need a whole host of new stocks looking to breakout not just those who are holding up. At this juncture we have the NASDAQ flirting with its 50 day moving average and we could go either way. A show of support would certainly signal another run to the upside. For now, stay cautious and wait for the market to confirm another upside move.

Cut your losses short.

Stocks End Mixed; NASDAQ Gains

Big_Wave_Trader — Tue, 05 Jul 2011 22:38:19 +0000

Coming off a long weekend stocks opened mixed and ended mixed. There was no question volume was lower, giving the S&P 500 a solid day of consolidation. The NASDAQ was helped along by NFLX, AAPL, and GOOG. NFLX announced it was expanding its service to Latin America and the market cheared that decision. Technology lead the way with the Russell 2000 not far behind. It will be important over the next few days to see the market consolidate and power higher. Today was a good day for the overall market. More importantly we need to see continued strength from leaders to keep this market going higher.

Our summer rally is upon us and the market is poised to continue higher, perhaps taking out previous highs. The breakdown we saw in May and June has not phased the market here. Rebounding from the 200 day moving average, volume has been lagging, but price gains have been solid. If you were bearish and short you have been burned. I can not blame anyone for sitting on the sidelines waiting for this market to prove itself. It is one thing to have the wrong opinion, but it is complete and uttter stupidity to be on the wrong side of the market. Staying wrong will only live your account dwindling in value and unable to recoup your stake.

There was decent price action amongst leadership stocks. However, majority of this move has been done on light volume. Unfortunately, even if we can surpass the previous high it is highly unlikely we will be able to sustain the high. We need volume in leaders to be confident in a sustain move. Not too mention we are going to head into second quarter earnings and the dog days of summer. Be prudent and always cut your losses.

Market Falls in Late Trade on Bernanke Comments

Big_Wave_Trader — Tue, 07 Jun 2011 21:40:46 +0000

For the fourth day in a row the NASDAQ ended lower, but volume fell on the day. AAPL stock fell more than 1.6% weighing down the NASDAQ and continues to be a sore spot for the NASDAQ. Although the market was shaking off AAPL’s weakness for much of the day and it wasn’t until 2:30 when weakness began to cause havoc for the market. Once Bernanke indicated further stimulus was not going to be the situation stocks dropped hard. Sellers took to the market with no QEIII insight and supporting this market. Another negative day for the markets and we continue to see weakness continuing to signal cash is king.

Despite the late day sell-off the measure of fear, the VIX ended lower on the day. Option traders continue to bet on a bounce. Sellers remain complacent as fear continues to evade the market. It is quite interesting with so many leaders breaking down and the market under distribution we are not seeing ANY fear creep into the market. It is quite extraordinary to see this reaction, but we will continue to take our ques from the market.

If you look at the number of stocks above their respective 20 day moving average it would appear the market is DUE for a bounce. However, the number of stocks over their respective 200dma suggests further downside before we see a meaningful bounce. Regardless, it is speculation on whether or not the market moves higher. We want to be focused on what we have in front of us and that continues to be a weak market with leaders breaking down. This equates to us looking for the shorts in the market and leaving the long side alone.

We completely understand this market could bounce here and bear markets tend to have their fair share of big percentage gains. This means we need to be prudent when going short. In addition, we are going to be maintaining our list of stocks holding up and when the market turns we’ll be ready.

Stay the course!

NASDAQ Drops Hard as Leadership Stocks Fall; Volume Rises

Big_Wave_Trader — Mon, 16 May 2011 20:27:07 +0000

The most important indicator of the day was the nasty selling seen in Leadership stocks. Market leaders are the number one-tell in a market and ignoring them is doing so at your own peril. NASDAQ led the entire market down today closing down 163 basis points with the Russell 2000 index not far behind (down 153basis points). Volume rose across the board indicating institutions were out selling stocks and selling the leaders. A big warning sign going forward. The S&P 500 and Dow Jones Industrial Average were able to hold up, but I wouldn’t hang my hat on these laggard indexes. Red flags and warning sirens are going off from the market, are you going to listen?

Big stock leadership like NFLX, AMZN, BIDU, AAPL are telling a story (there are a few more, but why pile on?). They are, Leadership stocks foreshadowing further selling in this market over the coming months. Remember, the market CAN rally a day or two, but for now this appears to be the beginning of a deeper correction. A bear market could occur here and the likelihood of this occurring appears to be VERY HIGH. Leading stocks ALWAYS tell a story of the market that is to follow and it is up to you whether or not you are going to listen. With that said, we are going to be operating on the short side of the market. However, cash is an acceptable place to be. Waiting the storm out isn’t such a bad idea, but for those who can and are willing to short we have a great opportunity ahead of us.

Sell in May and go away is certainly looking to be the theme this year. While it did not work out the last two years using favorable time frames is this time different? Perhaps, but we haven’t seen this widespread selling for quite some time. It really boils down to: are you able to adapt to this market environment before it is too late?

All these questions and now it is time to act. Inaction, unless you are in cash is the inappropriate action.
Cut laggards, raise cash, and as always CUT YOUR LOSSES.

AAPL Stock Blows out Earnings as Stocks Zoom Higher in Increased Trade

BigWave_Trader — Wed, 20 Apr 2011 20:58:45 +0000

Running out of the gate stocks zoomed higher as volume swelled after the market had pulled back from the reaction move off the Japan Crisis low. The action near the most recent highs called into question the whether or not the market would be able to support higher prices. IBD even put their market outlook as “uptrend under pressure.” A few leaders had held up, but it was the big stocks like AAPL and GOOG stock concerned many traders. Given the recent earnings report from AAPL stock it is clear this uptrend has legs. We will continue to pile into leaders here and ride the next wave higher.
There were plenty of positive earnings releases yesterday like VMW stock, but today we had stellar reports. AAPL stock was an obvious winner, but QCOM stock posted great earnings. Mobile smart phones continue to be a hot item for QCOM and its earnings report/subsequent action proves there is demand for the stock. Another superior earnings report was FFIV stock. It wasn’t so much its earnings, but its guidance was spectacular. Cloud computing continues to be a hot sector for technology revolutionizing the way enterprise handle data. The cloud is still in its early stages, just be aware of the leaders and use price as your guide.
Today’s move certainly relieved any oversold condition existed from the prior sell-off. Given the action in the market leaders any overbought condition that gets signal will probably only get worse. Meaning, overbought conditions will likely become MORE overbought. Pay little attention to these types of indicators and focus on the market leaders here.
The S&P 500 would have had a better day if it weren’t for Banks. Financial stocks did very little to keep up with the market as it was Banks closing down by 1.05%. Leading the way was Technology followed by Oil and Gas as crude oil finished up more than 3 dollars. The poor, who get squeezed by inflation continue to be hit by high oil prices, but the rise in oil prices have certainly helped out oil and gas names.
Stick with the leaders and leave the laggards for the birds.

Stocks Slump Again Led by AAPL Stock and Small Cap Stocks

BigWave_Trader — Mon, 11 Apr 2011 20:39:15 +0000

Another gap and trap day where stocks weren’t able to hold the gains seen at the opening of the day. Gap and traps aren’t bullish movements, but bearish ones and today’s move came with increased volume on the NASDAQ as volume slide on the NYSE. A few mergers in the morning helped boost the mood of traders, but sellers were able to wrestle control away from the bulls. Continued bearish action on the NASDAQ with AAPL stock leading the way certainly has put a dark cloud over the market.

Since the middle of February we have been under institutional selling. After the lows seen after the Japan crisis the market did confirm a new uptrend with leading stocks breaking out. A few have held, but overall the reaction is simply not OVERWHELMING bullish. TZOO stock has had a climatic run and did put in a nasty intraday reversal. TDSC stock also succumbed to heavy selling today gaining support at its 20 day moving average. It is a blemish on the stock, but far from being bullish. The biggest of them all being AAPL stock has been experiencing heavy volume selling. A true sign of institutions dumping the stock is when you see big RED BARS in the chart. So far, not the ideal state for the market here and with options expiry Friday volatility will reign supreme.

Sentiment numbers will be interesting this week to see if the bulls were able to back off from their lofty levels. It is true the AAII investor is not as bullish as it once was prior to the Japan crisis, but it is now back above 40. The II survey continues to show readings of UBER BULLISHNESS. In addition to sentiment, breadth is waning. The McClellan Summation indext continues to notch lower highs and lower lows a sign these rallies are becoming less and less powerful.

We can still move higher here despite what we are seeing in terms of weak action. The market aims to fool making stock market trading very difficult. It is precisely why a game plan of entry and exit is needed. Prudent stock market trading takes time to develop and apart of the development is learning to when to cut your losses SHORT. Without this type of “insurance” on your portfolio over the long run losses will pile up and render your account useless. Lesson: Cut your losses and ride your winners.