The Big Wave Trading model switched to a BUY signal on Thursday. This signal was generated thanks basically to the performance of earnings winners, the Relative Strength of the Russell 2000, and a volume surge on the Nasdaq. There was no confirmation with volume in any other index or ETF.
Sadly, overall, there continues to be a lack of any momentum in the market following a stock price breakout. The good news is that there is a lot of momentum in earnings winners gapping up on very strong volume. Almost every single stock recommended at Big Wave Trading, in the pre-market, for the past two weeks, has worked and continues to work. This is a very encouraging sign for the possibilities of higher stock prices and a sustained trend.
The argument against a sustained uptrend include the low below-average volume on this rally and lack of leadership by the big high priced stocks. The argument for a sustained uptrend include the recent outperformance of earnings winners to earnings losers and the extremely high short-interest ratio on the NYSE.
The NYSE is ending the week at or near 5-year highs (can I please have one day where the data corresponds to other data providers across the board. Sheesh.) according to MarketSmith. This ratio is currently around the 19.50 area which is kindle for a huge possible stock market fire. If algorithms continue to lift this market on low volume, it is possible that this will cause a painful short covering rally for those that are simply too bearish here. If a short covering rally does start soon and money continues to come out of bonds possibly finding a home in the stock market, it could be quite a move. On top of this high level of short interest, we are almost out of summer time and that means a possible September and October stock market rally.
The stock market usually likes to start strong moves in one direction or the other in October. Crashes happen in this month a lot and a lot of sustained rallies start in this month. If we rally here, pullback in September, and start moving on strong volume in October it could lead to a very exciting moment where we finally produce some big winners. However, all of this is speculation so no conviction will be put into this.
Overall, the market remains healthy, despite the absolute lack of volume, and as long as this continues there is nothing to do but go with the trend. There are a couple of weeks left in August so we will probably have to deal with the low volume for a little while longer. After Labor Day we should see some volume return to this market. Or not. I can't predict the future. I only know the now. Right now, we are melting up slowly on no volume. It is what it is.
Have a great weekend everyone. Aloha from everyone at Big Wave Trading.
Top Current Holdings - Percent Gain - Date of Signal
AVD long - 104% - 1/10/12
BVSN short - 82% - 3/19/12
STX long - 44% - 6/29/12
CLGX long - 40% - 6/19/12
PHMD short - 39% - 5/11/12
PRXI short - 35% - 3/30/12
MAGS short - 26% - 4/18/12
VRNM short - 26% - 4/10/12
Additional disclosure: I am short MAGS PHMD VRNM BVSN PRXI