Joshua Hayes'  Instablog

Another new high set by the market despite uninspiring economic data. Personal savings rate hit a new low as incomes could keep up with spending. In addition, the Dallas Fed survey dropped well below expectations. The Federal Reserve has been pumping billions into the market and we continue to see disappointing economic figures. Starting tomorrow the Fed will begin its two day meeting and all eyes will be on the Fed chief. Regardless, it is difficult to argue with the market and we'll continue to go with the trend. Hard to fight the power of excess liquidity and it is best to stick with trend following.

Friday's GDP report was quite disappointing showing a reading of 2.5% when economists and the market was expecting 3.0%. Excuses were plenty and the market took it in stride and followed through today. Volume wasn't there, but it isn't a big surprise to us as we have not been blessed with institutional volume. We only get volume at the end of the month or option expiry. Price has ruled the day and will always rule. Follow it.

The last two weeks has been quite a ride for the markets. Just a little over a week and a half ago it appeared the market was ready to keel over and begin a new leg down. Never doubt a liquidity driven market as we have just witnessed a market being able to retrace more than 100% from its move to new lows. We now have a situation where we have lower highs and higher highs. Not exactly the prototypical trend confirmation.

Tomorrow we'll get another read from the Case-Shiller Index as well as a reading from Chicago PMI. Flash PMIs across the globe have been disappointing. Given the weakness in GDP if estimates have not come down it wouldn't surprise us to see another disappointing economic piece of data. The trend is still up and despite the distribution in the middle of the month.

Have a great week.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

The Big Wave Trading Portfolio remains under a NEUTRAL condition, following this week's action. While the price action was very strong with many stocks producing large moves, the overall indexes are still trapped in a trading range between their respective recent 1-month highs and lows. While a resolution to the upside does appear to be imminent and all but certain based on the action of stocks, it is still not guaranteed. There
fore, the situation remains fluid and the next switch in the model will occur once prices either breakout or breakdown out of the current consolidation range.

Overall, despite all the noise that has been flying around the market lately, the trend still remains up in this QE environment. As long as we are in a world where central banks can print their way out of short-term problems, we must respect that any selloff will be contained and supported. Until interest rates begin to rise or the Fed hints that they are about to rise, we must assume that a real floor (ie…reality) will not be found. There is a major bifurcation between economic reality on the ground and the economic reality of the stock market. There has never been this much of a divergence between macro and micro in the history of US markets and I think it is about as clear as an example that you can have in regards to the USA becoming a serfdom where 3% of the haves control the 97% of the have-nots.

So as long as this is the reality we are in, it is the reality we must deal with. Low volume rallies, low volume support, and new highs on low volume following heavy and constant distribution will continue to be the norm. It is not historically what market historians are used to dealing with but we have never had a global economy where every nation basically moves in lock-step ever before. The bottom line is that it is what it is. It would be extremely nice to go back to the way it was before 2009. However, that is wishful thinking and does nothing for our bottom line.

What does help the bottom line? A disciplined, no-emotion, back-tested approach to price action. As you can see below, we are dealing with the market quite nicely. What is unfortunate is that these positions are not there usual 10-20% each across the board in the BWT portfolios. However, when you have a market where price and volume metrics that you have used your entire career continues to not work, you have to trade according to your risk tolerance. In this kind of out-of-sync price/volume environment, I don't mind keeping positions smaller and more diversified. It continues to be too risky to get heavily invested in any one signal as we were constantly before the 2009 rally. It is what it is. It isn't bad. It isn't good. It just is.

Have a great upcoming week everyone. Great luck in your personal investing/trading. Aloha from the beautiful island of Maui.

Top Current Holdings - Percent Gain - Date of Signal

EAC long - 141% - 12/17/12
HIMX long - 123% - 12/19/12
POWR long - 114% - 12/11/12
RVLT long - 113% - 3/26/13
CSU long - 96% - 9/4/12
CAMP long - 90% - 4/26/12
GNMK long - 73% - 11/16/12
FLT long - 69% - 9/6/12
ASTM short - 65% - 7/17/12
HEES long - 63% - 9/4/12
SBGI long - 51% - 3/22/13
WAGE long - 45% - 1/8/13
V long - 30% - 8/31/12
CHUY long - 30% - 1/10/13
INSM long - 28% - 4/19/13
BBSI long - 28% - 2/13/13
AXLL long - 28% - 1/4/13
PFBI long - 28% - 11/19/12
HTA long - 25% - 1/2/13

CPSS long - 25% - 1/31/13

Disclosure: I am long QQQ, DIA, SPY, IWM, EAC, HIMX, POWR, RVLT, CSU, CAMP, GNMK, FLT, HEES, SBGI, WAGE, V, CHUY, INSM, BBSI, AXLL, PFBI, HTA, CPSS.

In just 5 days the market has been able to regain almost all of the prior week's loss as volume jumps on the day. Jobless claims were better than expected helping boost futures. The only other economic release was the Kansas City Fed Manufacturing Index and it disappointed. Economic news continues to tip the scales towards disappointment possibly setting up a disappointing GDP report. Towards the end of the trading session sellers took hold the market knocking it off its highs. While it was quickly kicked saved by a few buyers you have to wonder if the GDP report was leaked. Conspiracy theories aside the market was able to withstand sellers. We still remain in neutral mode even with the market recovering gains and we'll stick with our process.

Investor sentiment is now being dominated by neutral respondents. AAII sentiment survey shows bears still in the majority although down 9 points from last week. Neutral respondents jumped 8 points while Bulls jumped 1 point. AAII Bulls remain under 30% despite this move off the lows. II survey saw bulls drop below 45% and bears drop below 20%. NAAIM survey is a bit more believable as it is a survey of actual positions investment managers are taking. Survey respondents were net long 69.9% slightly higher last week. Although not ultra-long the survey does favor the long side. The recent move in markets has certainly impacted sentiment.

The focus all day tomorrow will be the initial look at the first quarter GDP. Estimates for the first quarter GDP are in at 3%. It really is anyone's guess what the number will be and even the expert "economists" are simply guessing. How the market reacts is the most important piece to this puzzle. Just do not fight this market and make sure you cut your losses.

Stay disciplined and stick with the process. Cut your losses and ride your winners.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.