The Big Wave Trading Portfolio remains under a BUY signal produced on 3/5/13. The only change to the model is that the Russell 2000 has switched to a NEUTRAL signal. Overall, all other market indexes remain under a BUY signal. There are individual items weighing on the indexes but overall the trend is still clearly up.
In saying that, there are problems that we have discussed with the recent uptrend. The most obvious is the lack of volume during the rally attempt. The other obvious recent problem is the divergence between the DJIA and the Russell 2000. Defensive and big-cap stocks are lifting this market since February. This is not the dynamic technology and innovative growth industry are that you would normally like to see leading while the market makes new highs.
Still, for now, all that means is that the focus on new long signals that continue to generate during the uptrend should be heavily favored toward big-cap defensive industry related stocks. If growth is not leading, then that is not where you focus your capital, as long as the overall market is trending higher. That being said, buying blindly up in the stratosphere with low volume in the indexes without using stops or some methodology of cutting one's losses is a sure recipe for disaster.
With the Federal Reserve and the rest of the world in a race to see who can devalue one's currency the fastest, it is simply going to be a matter of time before a nasty reversal hits this four-year long below average volume uptrend. If history is any guide what so ever, this rally is going to destroy many late-to-the-party investors without stops.
But as long as the Fed and the rest of the world is going to print to oblivion then there is no ample respectable way of being able to tell when this is going to end. My feeling is that it is going to end around the time interest rates finally begin to rise off the floor. Historically, stocks do not do well when rates rise. I am sure this time it will not be different. Especially if it is this ZIRP policy that is keeping the whole house of cards up on a foundation of quicksand.
Until it ends, the trend is our friend. Be aware and on the lookout for a reversal and further selling. However, until your long positions or methodology tells you to sell, stay long. Don't try to outsmart the market. Use your price signals and obey them in a time of uncertainty where normal market price and volume metrics mean absolutely nothing and have limited reliability.
One day price combined with volume will lead to huge gains, once again. Right now, it is only price and gains will be limited. In a low VIX and bullish sentiment environment it is hard to come by 300%+ annual winners a year. For now, be happy with the 25% winners and occasional 50% to an even less occasional 100% winner in this kind of environment.
Have a great upcoming profitable week everyone.
Top Current Holdings - Percent Return - Date of Signal
HIMX long - 125% - 12/19/12
EAC long - 112% - 12/17/12
CSU long - 100% - 9/4/12
POWR long - 89% - 12/11/12
CAMP long - 80% - 4/26/12
FLT long - 69% - 9/6/12
ASTM short - 61% - 7/17/12
HEES long - 61% - 9/4/12
GNMK long - 56% - 11/16/12
CPSS long - 51% - 1/31/13
WAGE long - 35% - 1/8/12
CHUY long - 34% - 1/10/13
AXLL long - 32% - 1/4/13
V long - 28% - 8/31/12
MNTX long - 25% - 1/17/13