The Big Wave Trading Portfolio remains under a BUY signal with zero pressure measuring against its signal. The past week was extremely constructive as stocks pulled back on lighter below average volume with bullish intraday reversals off the lows. This constructive action is positive for bulls that expect the market to continue to resolve itself to the upside.
Overall, the week was quiet with little market moving new to report. With it being August it is vacation time on Wall Street and what we would like to see at Big Wave Trading is for this type of action to continue through the rest of August. While we are not placing any bets on that happening, it would be very nice to see stocks continue to consolidate the gains on lighter volume. This would allow for some very long tight price patterns to emerge that could lead to powerful upside moves. This would also allow the 200 day moving average to catch up and reduce the inherent risk that exist currently in new long positions.
In regards to new long positions, the past week was a good week, if you discard to small gambles that we made ahead of earnings that normally would not be made. GMCR and SCTY decided to breakout before earnings and thus killed any possible straddle opportunity. However, since their trends were higher, a risk was taken to go long a small amount of account capital and it did not pay off. Thus the lesson of taking outright long positions that breakout ahead of earnings continues to be learned the hard way on my end. Fortunately, we are extremely disciplined and these positions are so small that even if they did work it would be a bragging right issue only and not an economic game-changer on our end.
Many other stocks, however, made for some great straddles the past week. WAGE, XOMA, AIRM, and GRPN were strong winners. However, there were some flops to go along with those winners like AGO and EPAM. So it wasn’t perfect but it was still profitable. There are many more opportunites in the upcoming week. If you are not familiar with what we look for with a great potential straddle, I will review it with you. We want CANSLIM high-quality or just plain old higher quality liquid stocks that trade either high volume on their options chain or allow us to work limit orders in the bid/ask spread of illiquid options. However, the most important item is a low implied volatility. If Vega is high, even if the stock moves greatly in one direction or the other, it will not pay off. Therefore, quiet trading in stocks is what we look for ahead of earnings. Quiet price trading in the stock ahead of earnings, high short interest, low implied volatility, and CANSLIM to near-CANSLIM quality fundamentals in the underlying equity. All of this needs to line up to be worthy of a straddle.
Next week is a new adventure. I would like to see the market continue to consolidate the gains over the next week or two. That would allow for some excellent launching pads for price to blast out of. Until Monday, have a great rest of your weekend. Aloha from a very wet Maui where the rain is much appreciated (not so much by the tourist). Aloha!!
Top Current Holdings – Percent Gain – Date of Signal
CAMP long – 180% – 4/26/12
POWR long – 172% – 12/11/12
RVLT long – 136% – 3/26/13
WAGE long – 129% – 1/8/13
FLT long – 121% – 9/6/12
HEES long – 85% – 9/4/12
CSU long – 81% – 9/4/12
ADUS long – 80% – 4/22/13
WDC long – 54% – 1/9/13
CHUY long – 51% – 1/10/13
TECUA long – 43% – 2/5/13
LGF long – 43% – 4/19/13
ADS long – 42% – 12/11/12
INSM long – 41% – 4/19/13
TRLA long – 41% – 6/28/13
V long – 40% – 8/31/12
SBGI long – 40% – 3/22/13
GMCR long – 39% – 4/23/13
GLL long – 39% – 2/14/13
WST long – 39% – 1/22/13
VIPS long – 38% – 7/17/13
BEAV long – 36% – 3/5/13
MEI long – 33% – 4/10/13
OCN long – 30% – 5/8/13
CCF long – 27% – 6/28/13
DDD long – 25% – 4/30/13
