The Big Wave Trading Portfolios remain under a BUY signal on all major market averages. While the Santa Claus rally did not show up and we closed out 2014 and started 2015 with down days for the first time since 2008, all major market indexes are trading above their 50 day moving averages (NYSE is on it). This price action, along with the way our current holdings are behaving during this recent pullback, tells us that for now the pullback is orderly.

Obviously, any experienced market professional, will immediately tell you that orderly can quickly become unadulterated fear. However, until we actually start waterfalling below the 50 and 200 day moving averages on the indexes, we will continue to look for ideas on the long side in high quality stocks that setup in proper reward/risk patterns that allow for maximum profit with the least amount of risk.

We continue to see how important risk plays in this market as we were given an EOD long signal (and a lesson for new traders) in LOCK on Monday. LOCK was our only EOD long signal in the last six sessions leading into Friday’s trading day. LOCK closed at 18.23 that day. The proper buyable pivot point was at 18.00. So already the stock is extended from the proper entry signal. Then in the morning on Tuesday the stock was gapping higher thus making it too risky for a market order. Therefore, limit orders were set between 18.00-18.23. Obviously, they were not hit on Tuesday and the orders were canceled by the EOD.

Fast forward to Friday and you can see that LOCK got drilled by 14%. If you chased, you got burned hard. If you chased and you did not set Sell Stops following your entry, you got a 3rd degree burn. That kind of loss is unforgivable on our end. Which brings us to another point that we constantly want to drill home. Having Sell Stops on every position in a low volume and illiquid tape is mandatory. There are no ifs, ands, or buts about it. Sell Stops are required to protect you from the steep sell offs that occur more frequently post-2008.

Following the lack of long signals, we received three high quality signals on Friday. A potential sign of an upcoming good week following the poor showing during the holidays? We have no idea. We only have our signals and the data that tells us to take the signals as the odds are on our side of receiving outsized profits when we are correct in relation to the minor losses that occur when we are incorrect on our analysis.

Alright everyone. Back to reality. Volume should pick up and hopefully we see some more strong trends head our way as we just saw in the final quarter. What an end of the year for Trend Followers. Thank you. Aloha.

TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL – SIGNAL DATE

VIPS long – +472% – 7/17/13
OVAS long – +353% – 8/8/14
AGIO long – +118% – 9/24/14
VDSI long – +91% – 8/4/14
PAYC long – +47% – 10/30/14
RUBI long – +40% – 10/29/14
TASR long – +40% – 11/10/14
CVTI long – +32% – 11/3/14
SWKS long – +31% – 10/28/14
PLNR long – +30% – 11/7/14
RENT long – +25% – 9/24/14
LE long – +25% – 11/6/14