If one had to guess just by looking at a chart of the NASDAQ it is quite easy to see the 200 day moving average is a logical next step for the index. Yes, we are oversold and sentiment is getting quite negative we have yet to see any real panic set into the market. The VIX, a measure of fear has yet to signal real fear in this market. Perhaps a move above 30 would signal enough fear, but it has yet to eclipse the 30 level. Talk of another flash crash is always imminent given the even happened only two years ago. For now we have a market creeping lower and lower and even with FB coming public on Thursday there is very little that can save this market from the inevitable.

The United States has been on a war path regarding spending. Wars, social security, medicare, prescription drug coverage, etc are a big drag on the government budget. Unfortunately, Washington DC will not tell the American public the truth. Spending needs to be lowered end of story. The Buffett tax is only estimated to bring in a few billion dollars a year extra! We have a 1.5T yearly hole at the moment that Obama feels quite comfortable with. This is nuts! The only fix is to overhaul the tax code into a one page simple code and reduce spending. However, the media and Obama administration do a great job distracting the public from the facts. If anything, the United States fiscal cliff is far more dangerous than a Greece leaving the EURO.

As a reminder, this week is options expiry and Friday should be a fun day. Tomorrow will more than likely be a bit more entertaining with FB coming public. We are not planning on participating in the IPO nor trading it on the first day. We’ll sit back and wait for it to base much like EBAY and GOOG did after their debuts. We’ll be patient.

Execute you trading plan and cut those losses short.

Stocks Fall Again As FOMC Meeting Minutes Fail to Inspire

Big Wave Trading has been under a sell signal for a bit here and now we can see why. The market remains oversold, but if the market has taught us anything it is these conditions can last for quite some time. It wouldn’t surprise us if the market produced a rally over the next day or two to resolve some oversold conditions. However, it is quite clear the trend is down and any counter trend rally should be shorted. We can blame the situation in Europe or even point to the fiscal disaster awaiting the United States. It simply doesn’t matter, price wins and we’ll follow its lead.

Just to throw a monkey wrench into the mix this week happens to be options expiry (OPEX). Always appears the market tends to get into a volatility craze prior to OPEX. Today we saw the VIX index multi-month highs confirming the selling we see on the S&P 500. This goes for the NASDAQ too, but the S&P 500 has been leading us lower and given the moves in the VIX it appears the selling isn’t done.

All signals are pointing to this market pushing lower and there is not much we can do about it. Sure a bounce may occur, but it won’t have the gusto it would need to kick off a new market rally. Too much damage has occurred and it will take a lot to repair the damage. Cut your losses and enjoy the ride.

Surprise Greece unable to form Government Sending Stocks Lower

There are plenty of reasons for this market to turn lower. A Greece exit is projected to be a very costly, but may be necessary venture. In the long run it may be the best case scenario to stop endless bailouts. In addition, the market is sniffing out the ramifications of the fiscal cliff the United States is headed towards. Higher taxes and lower spending to curb deficits will certainly lead to an economic slowdown. When you include government spending in GDP (remember, government has to take from corporations and consumer) of course when government spending is contracting so will the economy. There isn’t much other than taking our medicine we can do to avoid the inevitable.

One saving grace in the near term is the oversold conditions we have in the market currently. While conditions can remain oversold for quite some time coupled with the overwhelmingly bearish talk and lack of bulls it would not be inconceivable for a rally to occur. Shorting at obvious times tends to end in disaster for many. Have a game plan and execute it flawlessly.

Over the next 24 hours at some point Greece will decide one way or another if they will pay more than 400 billion dollar principle payment. It’ll be interesting to see if they are going to pay it or not as it will be a significant headline driving the morning buzz regarding the market. It wouldn’t surprise me if somehow the Greeks were allowed an extension or some sort of relief to avoid a potential disaster. Have a game plan and leave the guess work to CNBC’s market pundits.

Cut your losses short and enjoy this market.

Stocks Sink as the European Breakup Fears Grow

“Every once in a while you must go to cash, take a break, take a vacation. Don’t try to play the market all the time. It can’t be done, too tough on the emotions.” — Jesse Livermore

“FYI – JPM $2b loss was someone’s $2b gain.” — Big Wave Trading’s second-in-command, MarketSpeculator

The Big Wave Trading Portfolio continues to be under a SELL signal triggered on 5/4. This has been the strongest SELL signal YTD as multiple confirmations in various futures/ETFs were triggered. However, due to the current choppiness of the market, possible QE3, and frequency of recent false signals, we are moving slower into our ETF positions. Still the bottom line is that the signal remains true and proper price/volume action is following. While we remain under a SELL signal we have been getting a lot of long signals from the Biotech and Housing related sectors of the market. Indeed it remains a mixed tape. There is more bad than good out there but it is still not weak enough to push short positions heavy. If there were not any long signals in quality stocks, this would have us wanting to push. Instead we will be patient and wait for real follow-through to the SELL signal that was produced on 5/4. Overall we remain like water. Very liquid and willing to move from one direction to the next until we get what we need to push us all-in on full margin. Right now, capital preservation instead of hitting home runs remains the name of the game and has been since our large gains in February were completely taken away by March and April false signals. It’s a tough environment but professional traders know that a big trend always follows. This type of tape is meant to wear you out not necessarily knock you out. Those that are patient and careful with their capital when signals are not immediately followed-through are going to do much better than wild and loose trading. If we do not break down here and instead reverse back above the indexes 50 day moving average obviously the SELL signal will be taken off. We remain under the thesis that any rally here to new highs would be even more bearish than before. Volatility is too low and breadth is too poor for any sustainable uptrend to come about. A market being lifted by a few stocks always crashes. Before we can have any real uptrend to make some real powerful gains, this market needs to correct. If QE3 comes to the rescue we believe that it will only lead to a more powerful and vicious black swan swoon. A correction here would be healthy. A rally would not. Only after a correction will we be looking to get heavily long high quality breakouts in stocks or fully long a BUY signal with leveraged ETFs.

Top Current Holdings – Percent Gain – Date of Signal

LQDT – 79% – 2/1/12
AVD – 75% – 1/10/12
BVSN short – 64% – 3/16/12
MNST – 42% – 1/13/12
ABR – 28% – 2/29/12
VRNM short – 27% – 4/10/12

Big Wave Trading Portfolio Update And Top Current Holdings

An interesting development on the sentiment front is not so much the number of bulls or bears, but the number of respondents who are neutral. Investors Intelligence survey pins bulls just below 40% at 38%. Bears managed to come in basically in line with prior week’s number at 20.4%. Neutrality appears to be the new game in town. Quantitative easing certainly has held bears hostage, but now neutral is perfectly an acceptable position. Not as dramatic as the II survey the number of bulls in the AAII dropped to 25%! Quite the drop as bears jumped to 42%. Given the drop in bulls I would have expected to see bears jump to 50%, but we didn’t see this come to light. Sentiment is negative which will likely lead to some sort of bounce. Until then, sell mode is in effect.

It won’t be long till the market will turn its attention to the fiscal cliff set to derail the US at the start of 2013. What a way to bring in the New Year! More taxes! Fiscal restraints must stay in place as spending has been the main issue for the fiscal mess we have been in. Spending must be brought back in line with revenues to produce surpluses to reduce the debt outstanding the United States currently has. It will be a bumpy ride and with an election year to toss in confusion anything will be possible and it is important to stay disciplined.

Get out and enjoy the weekend ahead.

CSCO and PCLN Weigh on the NASDAQ as Stocks Stage a Lackluster Session

The Dow Jones Industrial average has finished lower 7 out of the last 8 days and it appears given the after-hours action it will go for 7 straight down days. However, it is not a reason to say we are going to go higher or lower. There is always the possibility for the index to continue lower. Use a solid discipline to trade this market and not one based on feel. Have a plan and execute it.

Europe continues to be on the forefront of everyone’s mind as the entire European Union hangs in the balance. As last night’s commentary stated Germany should be the ones to leave. Why should they be held accountable for bailing out the rest of the union? Nevertheless, you are going to continue to see much stress placed upon the entire union until the debt outstanding is liquidated to a point where countries are able to service the debt. In addition, spending must be brought in line with revenues as to not add to the current debt load. Will Europe be able to break away from its current nanny state and reduce its spending? Luckily, the answer is no and we have price to guide us in the market.

Unfortunately the wild card to all of this happens to be the world central banks. Given the current correction and the need to bailout Spanish banks (Portugal and Italy will be next). How will the central banks coordinate an effort to do one massive bailout nationalizing all banks in the European Union? It is highly doubtful Big Ben Bernanke and the rest of the Central Bankers would allow the market to head into free fall.

We are living in the ZIRP/QE world where anything is possible. Cut your losses short and no matter the nonsense occurring around us will simply be background noise.

CSCO Face Plants in After-Hours after Stocks Reverse to the Upside for the Second Day in a Row

We are certainly not going to get ahead of ourselves and declare this to be the bottom of the move off March highs. It is encouraging to see the amount of volume coming into the market today. However, if it is just one day wonder we’ll know sooner rather than later. To recap, today was day one due to the amount of volume and the major indexes closing near their highs of the day. We’ll be looking for the market to follow-through on a strong day with big volume over the next few days.

Who is going to leave the Euro this summer? It appears the masses believe the Greeks will leave the Euro. However, Germany is the one who should leave the ill-fated currency. Why should the Germans be forced to bailout the Eurozone? Will the people of Germany continue to vote for bailouts of countries that are irresponsible with their spending? Germany should be the country to leave the Euro just on principle alone. In the end, it all boils down to price and we’ll react accordingly.

Remember, today was a solid day for the markets. We need to see more from this market before we can confirm a new market rally. Volume is very important here and if we are to confirm a new market rally volume will need to rival today’s level. Keep in mind, cut your losses!

Stocks Finish Well off the Lows as Volume Jumps

The one bit of economic news of the day came at 3pm when the government released figures on consumer debt. It grew and quite big. Economists expected consumer credit to grow by 9 billion, but only to see it grow by 21 billion. This comes at a time when the public should be reducing debt and growing savings. Most private businesses had to adjust to the downturn in 2008, but the government and consumers have yet to experience a similar reduction. Rather than take the medicine now we are running the risk of a much larger problem requiring much more than just medicine.

Over in Europe the people have had enough of austerity and pushed toward socialism. The only problem is no one will lend anyone in Europe any money. It will boil down to the ECB getting the nod to print more Euros. Endless deficit spending has caught up with Europe and no one is willing to deal with the consequences of it. Kicking the can down the road will only lead to greater problems and more angst amongst the people of Europe. Take your medicine and move on.

The market still remains in a very dangerous area with the S&P 500 and NASDAQ below their 50 day moving averages. It would not surprise me to see today’s low taken out over the course of the next few days. Stick to your game plan and execute.

European Elections Give a Scare, but the Market Rebounds

“Most traders who fail have large egos and can’t admit that they are wrong. Even those who are willing to admit that they are wrong early in their career can’t admit it later on! Also, some traders fail because they are too worried about losing. I’m not afraid to lose. When you start being afraid to lose, you’re finished.”
-Brian Gelber

The Big Wave Trading Portfolio switched from a weak BUY to a NEUTRAL to a strong SELL signal on Friday. The weak BUY signal was generated by CANSLIM stocks breaking out and the Homebuilder indexes (ITB, XHB). The nature of the BUY signal was problematic and it is no surprise we are now under a SELL signal.

What was surprising was the shocking (almost stunning) amount of CANSLIM quality stocks that broke out during the recent signal. This caused our portfolios to definitely be way too long the recent move and thus subjected us to more cut losses than what would normally happen. The mistake was taking any breakout that came within two weeks of earnings. This will now be a hard rule in our methodology. New breakouts in high quality stocks within 10 days of earnings are now completely off the table. Had this one rule been observed the small losses we did take would have been cut by nearly 50%.

As for the current market condition, the breakdown we just saw in the market was on above average volume on the Nasdaq. This volume was also higher than the recent upside volume in the index. AAPL, CMG, and PCLN are beginning to see some serious distribution problems. Other CANSLIM quality stocks have reversed their previous breakouts on heavy volume. Other CANSLIM quality stocks failed late-stage basing patterns. Even other CANSLIM quality stocks had total and complete devastation following earnings misses. This all came on top of a horrible jobs report. This definitely weighs on our model.

The only problem we have with this SELL signal is that our internal indicators are not confirming the move. They are, however, beginning to have a rollover type look and if the market does continue to selloff these indicators will go into confirmation.

Overall, the charts in individual stocks have gotten very ugly very fast. The old market axiom of sell in May and go away appears to be intact. The amount of distribution in this market since February has been very large in comparison to the accumulation. Now that we have the market breaking down below the 50 day moving averages on above average volume it appears everything is in line for a rough May to October period.

In all fairness to the stock market, we do know that it can and will do anything it wants whenever it wants. Therefore, if we selloff and then rebound on huge volume and get a massive follow-through day on accumulation, we will go long. This despite Big Wave Trading’s opinion that a serious correction is in our very near term future.

I penned an article that was denied publication by Seeking Alpha due to the “technical” analysis nature of the article. I believe it is worth a read for anyone who has recently gone long this market and believes this is the start of a normal pullback. It could be but it probably is not.

Top Current Holdings – Percent Gain – Date of Purchase

SWHC – 81% – 1/3/12
AVD – 68% – 1/10/12
BVSN short – 57% – 3/19/12
MNST – 32% – 1/13/12
PRXI short – 25% – 3/30/12

Big Wave Trading Portfolio Update And Top Current Holdings

LNKD posted its earning after the market close and the stock responded positively. The company has posted amazing sales growth the last few quarters and the past two quarters of EPS have been outstanding. Not too many companies can sport more than 100% of sales and earnings growth like LNKD has. It is no question companies are turning to LNKD for hiring purposes, but will it translate to jobs growth? We’ll certainly find out tomorrow if this economy has been able to produce any jobs.

Facebook (FB) hits the market soon and with the IPO set to price anywhere between $28 and 35 will make Mark Zuckerberg an instant Billionaire. Quite the story and amazing what you can do with a business. LNKD came to market and my recollection of the day was LNKD pricing near $45 and catapulting to more than $120 a share. It would not surprise me one bit FB does not do something similar. Don’t bet on it, but it isn’t out of the realm of possibilities.

Tomorrow will be just another day, the jobs report is something the CNBC/Bloomberg/FBN talking heads can fill the airwaves with. Their job is to (this is key so remember) sell advertising and not to make you money. Have a sound game plan and execute it. Money management is so pivotal in this process and without it you will be left out to dry. Cut your losses and have a great weekend.

Distribution Hits the Market; LNKD Jumps After the Market Close