Another few days of the market pulling back would do us some good. 88% of stocks are above their 50 day moving average. Normally, at these extreme levels we do get consolidation. Does this mean you act upon thinking a pull back is about to happen? No, pullbacks are apart of the market and we welcome them as we live within this uptrend. If big volume selling takes place we’ll start taking a different tone, but for now, we stay the course and execute our game plan.

BAC continued its tear leading the Dow Jones Industrial average higher. Financials continue to perform well despite the negative press. It is nice to see banks perform well; they tend to lead the market higher in new uptrends. WFC and PNC are two other stronger BIG banks doing well. A bit of consolidation for the bank stocks around their respective 200 day moving averages would do them a bit of good.

NFLX and GMCR two former top quality stock All-Stars continue to mount comebacks. We are seeing quite a few of these old names like AKAM and CSTR come back to life. DNDN is another former high flyer coming back to life. As always, sound money management is a must and cutting losses should not be avoided at any time. Even these former high flyers coming off their lows are not exempt from the plan.

Solid start to the week and would not be surprised if the market continued pulling back. The uptrend remains strong and there is no reason to think otherwise.

Stocks Finish off the Lows as Volume Drops

Top Current Holdings – Percent Gain (non-margin) – Date of Signal

IRE – 64% – 1/12/12
YINN – 37% – 1/5/12
RENN – 35% – 1/11/12
FAS – 28% – 1/5/12
UMDD – 28% – 1/5/12
RF – 24% – 1/5/12
DVR – 23% – 1/13/12
MOTR – 23% – 2/2/12
RAM – 21% – 1/9/12
RGR – 20% – 1/5/12
VNET – 20% – 1/10/12
RATE – 20% – 12/28/11

Big Wave Trading Portfolio Update

The unemployment rate will be the key statistic the market pundits will be paying attention to. Last month’s surprise move to the downside for the rate helped spark some confidence for the market in general. However, the denominator, the total employment pool continues to shrink driving down the percentage of people out of work. It is very difficult to measure unemployment, but judging by the U-6 figures as well as the number of people on food stamps our situation remains weak. Why else would the Federal Reserve hold rates steady near zero percent all the way out to 2015? If employment was actually improving there would be no need to continue to hold rates down. Enough of the economic talk, it’s about the trend.

Trend following is not an art form and trading based upon gut feel is not our style. Disciplined trading, rule –based trading is our game; it’s our edge to outperform the market. I know we harp this one lesson: CUTTING YOUR LOSS SHORT. It is vital, letting losses run ruins capital and ruins traders. Breaking your rules is another major flaw. Jesse Livermore would often break his rules only to see his net worth crumble. If you find yourself in this situation, what separates the best from the rest, the best rise again!

Have a great weekend!

NASDAQ Closes off its Highs as Volume Slides, but Above Average

We have a good start to the month of February as we get ready for Friday’s job report. As usual the talking heads will be looking to find clues of an improving economy. More people are fleeing the job market helping out the unemployment rate. As usual we will not try to predict what the number may or may not be and gauge a plan of attack based upon a guess. Discipline is paramount, we’ll stick to our proper buy and sell rules and let the guessing be handled by others.

What to do about FB? We are going to wait and see how it trades. We’d love to see the stock consolidate and form an IPO base. It’s anyone’s guess where the stock will go. Perhaps it will pull a LNKD and catapult on day one. Truly, it’s anyone’s guess and we’ll wait to attack the stock if it meets our buying criteria.

Our uptrend continues and without any major distribution it is hard to be calling for a top here. Perhaps a major reversal day on mega volume would do it, but we don’t have that situation. Anticipating moves will only leave you on the sidelines. Stay disciplined!

Facebook $FB Files for an IPO as a late day sell-off takes down the S&P 500

Historically speaking February isn’t typically a month where you would expect a big rally to kick off, but we did see in 2010 where February kicked off a sizeable rally. It is anyone’s guess whether or not we take off from here or reverse course and head lower. A sound plan to attack the market is paramount; if this market is to go higher we want to take advantage. On the flip side, we don’t want to be exposed if this market is to turn lower. Cutting losses and your laggards is a prudent course of action.

The Golden Cross occurred on the S&P 500 a bullish “technical” indicator. We pulled data from Yahoo for the S&P 500 and found 80% of the time this is a bullish indication for the market. What you learn by crunching the numbers is cutting your losses improves your performance. Precisely why we stress the need to cut your losses quickly, it is your insurance policy. We now await the NASDAQ to join the Dow Jones Industrial Average and the S&P 500 to experience the golden cross!

Cut your losses short.

January Closes with a Whimper; AMZN Disappoints After Releasing Earnings

New Stock Market Article At The Motley Fool

Yes, the market may be a bit overbought still, but the recent action is quite encouraging. Recent price action in AAPL, INTC, and MSFT (the big dogs) is also very encouraging. A sore spot in this rally is the inability for the IBD 85/85 to show any relative strength. This index has been stuck in neutral for quite some time, but pay attention any pick up in strength would be a very positive signal. As we head into February I would expect a choppy month as February tends to be a tough month for the market. If this type of action continues it will only set us up nicely for a big rally.

The backdoor QE 3, the Federal Reserve dollar swap program is a precursor to what will likely be another round of quantitative easing. It is no secret during election years the government will do its best to prop up the market. You can bet your bottom dollar Obama and his administration will pull out all the stops! The problem isn’t just related to democrats as both sides are guilty. This does mean we’ll likely get a rally from another liquidity injection. QE 2 did produce some big winners including NFLX so it would be a prudent move to stay on top of this market. You do not want to miss out on gains!

Always cut your losses short.

Closing off the Lows, Stocks Show Resilience

New Stock Market Article At The Motley Fool

Big Wave Trading believes that the market may be in tune for a pullback. However, we also recognize that it is impossible to predict what the stock market will do. Therefore, if we continue to grind higher, this would not surprise us. If we do get a pullback, it appears, based on the very strong accumulation in multiple stocks across multiple sectors of the market, that it would simply end up separating the best stocks from the laggards. This would allow us to move the cash raised from the small losses or profit taking to these true leaders. If we pullback on very heavy distribution, obviously, the pullback will not be a buying opportunity. Like we always say, it is impossible to predict the stock market. Those that do are plain fools and usually their results show it in their brokerage statements.

Top Current Holdings – Percent Gain (Non-Margin) – Date of Signal

RENN – 36% – 1/11/12
IRE – 29% – 1/17/12
YINN – 28% – 1/5/12
WPRT – 24% – 12/20/11
FARO – 22% – 1/6/12

Big Wave Trading Portfolio Update

Once again the number of Bulls in the AAII survey was near 50%. Bears dropped below the 20% mark once again this month. Remember, yesterday the percentage stocks above their 20 and 50 day moving averages was above 80%. A pull back here is NOT surprising and is to be expected. What we need to watch for is how we pull back. Can we avoid heavy distribution? Are leaders going to hold up? Sound money management principles are paramount in this market.

Tomorrow we get a look at fourth quarter GDP and it is expected to come in at 3%. It’ll be interesting to hear the debate about the number and how you should respond with your portfolio. Unfortunately, making a “play” will end up costing you dearly. Price and volume are keys to this market and guide us to making proper decisions.

Have a great weekend and stay safe (and that means cutting losses)

Leaders Turn Lower as Stocks Reverse Hard