Big Wave Trading Portfolio Update And Top Current Holdings

“Trading is a waiting game. You sit, you wait, and you make a lot of money all at once. Profits come in bunches. The trick when going sideways between home runs is not to lose too much in between.” -Michael Covel

“I’ll keep reducing my trading size as long as I’m losing… My money management techniques are extremely conservative. I never risk anything approaching the total amount of money in my account, let alone my total funds.”
-Randy McKay

The Big Wave Trading Portfolio remains under an extremely weak BUY signal that was triggered on 7/18. The signal was so weak that not a single ETF or leveraged ETF position was initiated. Instead it was a signal that we could increase the size of our new long positions. However, that was not allowed to happen as the most recent long position did not move higher and thus an increase never occurred Thursday or Friday. Following Friday’s sell off on heavier volume, the extremely weak BUY signal is under severe pressure and a move below the 2904.24 level on the Nasdaq will switch it back to NEUTRAL.

The Big Wave Trading portfolio did not have a good week, losing 1.5% bringing us to a -5.5% return YTD. Some may choose to hide from their losses. We would rather tell the truth and bring to light how seriously difficult this current market environment is compared to 1995-January 2011 markets where trendless periods were not nearly as long or complicated as what has occurred the past two years. This period of underperformance coincides directly to volume drying up on the indexes and contracting on the weekly and monthly time frames. Protecting capital continues to be the name of the game. Our returns can be compared with other trend following system traders here.

One interesting note is how closely correlated the trading has been the past 100 days to the same 100 day period in 2011. If history is going to repeat itself in back-to-back years (something you almost never see) then we should expect the beginning of a severe sell off starting some time next week. I am not saying it will happen. It is merely an interesting historical talking point.

The one trade that has been working is going short stocks that gap down in the morning following releasing earnings statements. Going short in the morning and then covering at the EOD has been a high reward/low risk methodology since earnings season started. With guidance not coming in too rosy, you would think, that this data combined with our macro data and action in the overall stock market would mean a market pullback is just around the corner. A lot of things are lining up. Sadly, reality is held hostage by the Federal Reserve and other world banks. Another round of printing can start at any moment. While it is unfortunate the system is not an open free market anymore, it is the environment we are in. We are going to just have to deal with it.

When the market does crack on strong volume, I am sure trend followers are going to make a lot of money. I have a feeling the sell off, when it does start, is going to last longer than just a couple of days. But what do I know. The only thing we care about is price. If it is moving in our direction, it is wonderful. If it is not moving in our direction, it has to go.

Big Wave Trading continues to cut losses extremely quick when we are wrong. We were giving new recent long positions more room to work, as they were producing gains, but Thursday’s negative divergence in advancers to decliners followed by Friday extremely poor action on heavier volume is our clue to go back to being extremely defensive with stocks showing us losses or not moving at all. Losses will simply not be tolerated. If it shows a loss, some of it has to go. No matter what.

Aloha and have a great weekend everyone!

Top Current Holdings – Percent Return – Date of Signal

AVD long – 78% – 1/10/12
BVSN short – 78% – 3/19/12
MAGS short – 33% – 4/18/12
PRXI short – 33% – 3/30/12
CAMP long – 28% – 4/27/12
PHMD short – 28% – 5/11/12
ZLCS short – 25% – 6/19/12

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