The Big Wave Trading Portfolio Model remains under a BUY signal in every index except the Russell 2000 which is under a NEUTRAL condition. The Russell 2000 switched from a SELL to NEUTRAL signal following the powerful price move on Thursday. There are still two major resistance levels for the Russell 2000 to fight through before it will switch from a NEUTRAL to BUY condition.
That being said, the model on this index will switch to BUY if it does have a powerful 1.25% price gain on well above average volume. If volume remains below average on this index, it will take a breakout above the March/April highs before this model switches.
While the same concerns remain about the length of this six-year uptrend with lame volume, the price action the past week has been extremely bullish for individual stocks. While we are very much aware and concerned about the VIX trading below an 11 handle and the overall bullishness coming from the Investors Intelligence, AAII, and NAAIM surveys/exposure indexes we realize that this is only a concern. Until price action confirms this sentiment, it can last longer than you can stay short and solvent.
The good news for Big Wave Trading members is that if you have obeyed our signals the past two months in NYSE stocks then you came into Thursday already fully invested. Unfortunately, I know from interacting with some members that some are 100% cash. This recent action in the stock market is why you can never ever marry your opinion on the stock market. It did appear we were setting up for another flash-crash or quick-crash back in March and early April. That clearly did not happen.
By mid-April it became clear that the NYSE and DJIA had other plans and we began receiving very solid technical buy signals in NYSE stock names that had both solid fundamentals and strong dividends. These three data points, combined, allowed us the ability to increase the size in our new long signals. We did this despite the evidence suggesting that the market should pullback hard.
As these new long positions built up, we were slowly decreasing our hedges, due to our trailing stops, that we put on in March/April. As we head into Monday, Big Wave Trading only owns a very tiny remaining hedge in the Russell 2000 (SRTY in non-margin accounts; IWM In-The-Money Put contract in margin accounts) with the rest of the portfolio invested long. So despite us thinking this market should have cracked hard, it did not, and we took our signals along the way, ignoring our built in human bias.
Being fully invested here obviously sets us up for a potential nice return if the market continues to go higher. But like I just stated, we are also ready for a turn at any moment with the complacency and bullishness so lofty. If a reversal comes, we will take our cut loss signals or profit taking signals and move that money into hedges. Until this reversal comes, we will continue to move along with the trend of price.
Remember, for all we know the VIX might have to hit 5, the I.I. bulls might have to hit 70-80%, the I.I. bears might have to hit 10%, and the NAAIM exposure index might have to come in at 150% long before we see a top. If that is the case, we have a lot more upside left. I know I don’t want to miss out on those gains, if that is the case.
Have a great rest of your weekend and I wish everyone a successfully profitable upcoming week. Thank you and aloha from the beautiful shores of west Maui.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE
VIPS long – 395% – 7/17/13
HEES long – 213% – 9/4/12
AER long – 176% – 6/27/13
WDC long – 110% – 1/9/13
TPL long – 89% – 10/22/13
USCR long – 73% – 4/12/13
