Aloha everyone. I hope you are all enjoying your weekend. It was a great week the past week on the island of Maui and in the overall stock market. The surf was huge on the north shore and the uptrend wave got right back into the swing of things this week for the market with all of our models switching to a BUY signal.
The recent action in the overall market should, once again, be a reminder that top calling is a sport best left to amateurs. Just like in June and October, I read too many articles and saw too many stocktweets about how and why this market has topped. Unfortunately, price does not agree. We will top when we top but until we see some real confirmation of lower highs and lower lows on serious distribution it is all for naught. I don’t recommend fighting price ever.
The unfortunate part about these quick breaks that take us to NEUTRAL mode is that it forces us to cut our losses faster on top quality stocks that are recently purchased right before the breaks. Across the board, every full sell we made on the most recent break, is now above where we fully sold out. While it isn’t the greatest scenario it is necessary because you can be sure one of these breaks will hit and will not stop hitting. If you are not cutting your losses all the time, eventually one of these breaks is going to hit you with some major capital crushing losses. It isn’t worth it.
This scenario above, along with needing to add hedges against the very long portfolio (which are now out with the model back under BUY), has us sitting on 20% cash. While not ideal when hitting new highs, it is fine. This allows us to hunt for new long signals. Sometimes you will have capital tied up in slower moving stocks and then a great opportunity arises and you miss out because you are already invested. Then a stock like ONVO (+100% in a month) comes along and you can’t purchase it because you are stuck in stocks moving 2% that month. So having some cash is good for that reason.
It is also nice to have in case we do get that big break. This will allow us to take a larger hedge against our long positions that would help mitigate the losses that occur from a big reversal when you do get that top.
For now, all is well on the home front. Stocks continue to trend higher and the indexes are making new all-time highs and 13-year highs on the Nasdaq. That is all we need to know. Buyers are in control and they are buying on above average volume in the market. That is very healthy, no matter what you think about the political or economic environment.
Have a great rest of your weekend everyone. Aloha.
Top Current Holdings – Percent Gain – Date of Signal:
CAMP long – 338% – 4/26/12
WAGE long – 208% – 1/8/13
POWR long – 173% – 12/11/12
FLT long – 165% – 9/6/12
VIPS long – 142% – 7/17/13
HEES long – 141% – 9/4/12
DDD long – 109% – 4/30/13
ADUS long – 108% – 4/22/13
ONVO long – 105% – 10/17/13
ADS long – 72% – 12/11/12
LOCK long – 72% – 5/20/13
WDC long – 72% – 1/9/13
WST long – 70% – 1/22/13
USCR long – 60% – 4/12/13
V long – 57% – 8/31/12
BEAV long – 56% – 3/5/13
ARC long – 54% – 10/16/13
FLDM long – 52% – 8/28/13
CHUY long – 48% – 1/10/13
CMG long – 42% – 7/3/13
