The Big Wave Trading Portfolio remains under a BUY signal in every major market index except the NYSE. The NYSE model switched from a BUY signal to a NEUTRAL signal following Friday’s sell off on heavier volume. All of the other models remain under a BUY signal but the distribution days are piling up placing significant pressure on the current signal.
Heading into the sell off on Friday we were overbought in all four of the oscillators I track on every single major market index. When that is combined with an overall below average volume rally with macro data that suggest the Fed is going to need to hike rates in the USA, you can expect to see what you saw on Friday. Especially when sentiment is as bullish as it is in all three surveys we track.
The good news, for now, for the bulls is that outside of some early morning sell stops triggering all of our long positions held up rather well as the market sell off got worse. The stocks that did get taken out were some of our weakest holdings. For the bulls, hopefully, this pullback is going to be nothing more than something that separates the wheat from the chaff.
That being said, even though we are heavily long here we are not heavily complacent. We continue to move stops higher as the rally unfolds and now after Friday’s sell off we are going to tighten them up even more. New positions are not going to be allowed any wiggle room now either. Until the market makes new highs or makes a clear bullish reversal, we will want to see new long positions perform immediately or else they will have to go.
Along with raising our stops, we are going to initiate a hedge against our very long portfolio. We are going to use inverse leveraged ETFs but buying an ITM Put contract on the market will work as well. Our stops will be tight on this position, just in case what we saw on Friday is a one day event and nothing more. While it seems hard to believe that being the case, with us still overbought on all oscillators on an intermediate time frame, it still might be all that it is. One and done. I doubt it but it is always possible.
The important thing is to just let price do what price does. There is no point in taking sides in this tape. The rallies continue to be on low volume, valuations continue to be high, sentiment continues to be bullish but that has been the case for quite some time now. Eventually, a reset will come but trying to call a top here, just like the other 48x the past six years people have tried to do that, is probably a high risk and low reward trade. The opposite of what you want to see in your trade ideas.
The trend remains up, despite the sell off on Friday. One day does not make a new trend. Until a new trend is established we will continue on with the status quo. Have a great rest of your weekend. I wish you the best of luck and skill in the upcoming week. Thank you and aloha from a very cold and windy west side of Maui where even our island chain got some snow.
TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL – SIGNAL DATE
VIPS long – +609% – 7/17/13
OVAS long – +315% – 8/8/14
AGIO long – +107% – 9/24/14
PAYC long – +84% – 10/30/14
RUBI long – +66% – 10/29/14
SWKS long – +62% – 10/28/14
VDSI long – +56% – 8/4/14
AVGO long – +51% – 10/28/14
CVTI long – +50% – 11/3/14
CBPO long – +48% – 10/24/14
VRX long – +45% – 11/17/14
SERV long – +43% – 11/7/14
ANAC long – +37% – 1/20/15
EA long – +36% – 11/10/14
PANW long – +29% – 11/10/14
KITE long – +25% – 12/17/14
