The Big Wave Trading Portfolio is under a BUY signal across the board as the Russell 2000 officially entered this mode during the week joining the rest of the stock market indexes already under this signal. Overall volume remains tame on the major market indexes but the moves in individual leading stocks is leaving nothing to the imagination. For now, it is very bullish, with breakouts in multiple leading stocks across multiple sectors. With the Fed remaining very lax with short-term rates, it does not pay to fight this trend, despite the bullish sentiment in the surveys and VIX.
We continue to not only see our current long positions do well but continue to see many high-quality stocks setting up in powerful bases and following through on earlier breakouts. This across the board positive action, based on past historical examples, should be intermediate term bullish for stocks. This does not mean that it is not possible to top out from this. It just means that historically, especially with low short-term interest rates and a correct yield curve, that this kind of action leads to higher stock prices.
A lot of traders are still underinvested here and with new tensions in Iraq mounting on the short-term many are finding excuses to not buy this market. First, it was the low volume in the indexes. Second, it was Ukraine. Now, it is Iraq. So despite the low VIX and bullish sentiment in the I.I. survey, there is short term fear regarding prices at all-time highs in the DJIA, SP500, and NYSE.
While the noise of the geopolitical situation of Eastern Europe and the Middle East lingers in the minds of some, I will be focused on how the market actually moves. Currently, my two Overbought/Oversold oscillators (Time Segment Volume and MACD) that I follow show the Nasdaq and Russell 2000 getting overbought. If the market can either continue to make new highs or consolidate in a tight price range while these indicators work off their overbought condition, that will be an excellent indication that this rally has legs. If the market pulls back hard from the highs, I will put on some hedges, watch my current long positions, and react accordingly.
For now, the former seems more probably than the latter, especially considering the NYSE, SP-500, and DJIA are no where near overbought on either OB/OS osciallator. If anything it might suggest continued rotation as we have seen from the start of this rally where NYSE stocks were leading to recently where leading small-cap technology stocks are leading.
For now, the trend continues to be our friend. We have earnings season coming up and it is possible that we rally into earnings and then get choppy. Just remember if you try to call another top, if that does indeed happen, that it never pays to fight the trend and especially the Federal Reserve. Until you see interest rates rise, I personally don’t suggest it.
Aloha from a beautiful and very flat summer shore of west side Maui.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE OUR SIGNAL DATE – DATE OF SIGNAL
VIPS long – 402% – 7/17/13
HEES long – 203% – 9/4/12
AER long – 162% – 6/27/13
WDC long – 108% – 1/9/13
TPL long – 89% – 10/22/13
USCR long – 76% – 4/12/13
EOG long – 30% – 2/24/14
