Before I get into the overall market and my portfolio I first want to say that there is some good news and that there is some bad news. Let’s get the bad news out of the way first. Stocks continued to sell off on Friday and while volume was lower than Thursday’s session it was still above average across the board indicating that large investors are selling. Even worse, stocks started off strong early on and yet again failed to hold on to their early morning gains. This is a pattern of a weak market and not a strong market.

This is why our entire operational model is back to a SELL signal following Friday’s losses. The fact that we are back to a SELL signal following the Nasdaq 100 and Nasdaq switching to a BUY signal on Monday is quite a statement. To hit an all-time high and immediately reverse once is bad. To do it twice is more bad. To do it three times is very troubling. That is the situation the Nasdaq 100 is in following its most recent failure. The last two times this happened, leading stocks still had solid technical patterns. Now, not so much.

Even more troubling is the Russell 2000. The RUT is hitting more short-term lows despite already being in oversold territory. In strong uptrends once an index gets around oversold levels there is usually a bounce attempt or one has started already before the oscillators get to the lows. This time around there is no bounce. All of the indexes are trading below their 50 RSI (14). Even worse the RUT’s MACD is hitting new lower lows on the short term despite already being in oversold range in a strong uptrend.

Since these lows did not hold and the indexes are trading below their RSI (14) 50 levels it is means that we are operating under a trend change. To see the last time that happened take a look back to January 2016. You will notice that we are at a similar situation that we are at now back on January 5th. We all know what happened next. The market absolutely tanked closing off nearly 20%. This is not to say that this will definitely happen this time around but all of the technical developments suggest that this outcome is much more plausible than us finding the lows here and rallying to new highs in the short term.

The good news is that the stock market has never had a crash in the month of November or December. I looked at the data going back to 1869. The bad news is that there is still one more day of October to go and it is Halloween. So if the market does crash on Monday it should only be expected. But if it crashes in November it would be the first time ever. That sounds about right for this market. I cannot ignore the setup in the Russell 2000 now compared to the Russell 2000 in January. I also can not ignore the constant failures of this market to hold new highs and the recent inability of all of the major averages to hold their 50 day moving averages.

Then let’s not mention the fact that all of the big cap technology related stocks seem to be reversing their most recent move to new highs and leading stocks have been failing their 50 day moving averages on large volume left and right without any new leadership showing up at all. When you take all of this on the whole, to me, it doesn’t matter if we are going into one of the most seasonally bullish times of the year. Price is all that matters to me and price is telling me that rough times are ahead.

Now for the good news! The good news is that we have been long this market since those February lows and despite the wild volatility Big Wave Trading overall has done extremely well. The daytrading opportunities continue to show up daily with GRVY being the earnings winner of choice on Friday. The EOD trend following positions that we have been calling on all year while not making large gains made decent enough gains that as their stops have been getting hit lately due to the weak market we have been able to leave with sizable profits. With all other names we are realizing small gains as clear levels of support have built up as the market chopped around.

The EOD trend following names that have failed like the recent new long positions not only have been smaller positions relative to the earlier positions due to the overall make up of the market but our stops have been tighter allowing us to leave almost ever new long positions with extremely tiny losses. Only PFPT got me for any kind of loss that can bother me on any level. The reason for these small losses? Its due to the most important rule I have implemented this year in my trend following trading and it is now starting to pay off and if the market does indeed sell off will really pay off.

That methodology that was added this year was this. Whenever I get up to 75% invested on the long side, I must take any signal triggered in any leveraged inverse ETF position. I must also take any short sale position that triggers in my margin accounts. That means when I am 95% invested already and get a 5% long signal and a 5% hedge signal, I must take the 5% hedge signal and forget about the long signal completely. By doing this I have been initiating hedge positions since the market sell off on September 9th. Following the 9/9 sell off, every single week has seen at least 2-3 hedges trigger. At this point I am 60% long, 20% in leveraged hedge positions/shorts, and holding around 10% cash overall in my accounts. Obviously on the long short side this places me at neutral overall.

However, the good news is, that if this market does sell off, my long positions stops will be hit with over 85% of them for small to large profits with the other 15% hitting for small profits to small/tiny losses. If this happens, my hedges and short positions will produce substantial returns that at some point will allow me to sell for excellent profits. What if the market stops falling on November 1st and starts a vicious rally to the upside? Obviously, I will still win. My hedges will hit their tight stops and I will be stopped out for small losses, my current long positions will continue to appreciate hopefully turning some into long-term capital gains, and I will hunt for new long positions in leading stocks with the best fundamentals with the best technical setups.

And that is how you do it folks. It’s a lot of work but it is worth it. I see so many bulls and so many bears but do not see a lot of traders on social media. There is a huge difference. That is what allows some of us to make a living at this game. Before I go I want to mention that sentiment suggest that to be honest more chop is to be likely rather than any trend overall in the short to intermediate term. Short-term we have gotten a bit skittish with the Put/Call jumping to around 1.20. That is very high and usually leads to a reversal. However, the AAII survey has bulls at 25% and bears at 34% while the II survey has bulls at 47% and bears at 23%. No fear there. That is also seen in the CNN Money Fear/Greed index which stands at 32. Extreme fear is 0.

OK. Whew! That was a long commentary. I have more hedge positions listed below for Monday (if you are not a subscriber feel free to take a two week trial by clicking the banner below this post). You know the routine by now. I am buying all of them using limit orders with the HOD being my personal limits. Once those orders are filled–if they get filled–I will split up my stops as listed below. If the positions work they should produce some large gains as this market looks very weak. If they don’t work, I will be out with tiny losses and my long positions will hopefully benefit from this outcome. Either way win/win, considering the market we are in. Have a great rest of your weekend and I wish you the absolutely best with your personal trading in the upcoming new week. Trade smart and obey those stops. Aloha.

Overall Stock Market Video Lesson:

Video length: 00:09:58

TOP CURRENT HOLDINGS – PERCENT GAIN SINCE SIGNAL DATE – SIGNAL DATE

CLR long – +168% – 2/11/16
GRAM long – +100% – 4/1/16
MIME long – +92% – 7/8/16
AERI long – +79% – 8/9/16
HNR long – +70% – 8/25/16
GGB long – +63% – 7/13/16
EBIO long – +51% – 5/26/16
XRS (now TAL) – +48% – 4/13/16
AOSL long – +42% – 6/14/16
JDST long – +40% – 8/11/16
QLYS long – +39% – 5/12/16
EBIX long – +38% – 3/17/16
DRV long – +36% – 8/2/16
APLP long – +35% – 3/31/16
CYBE long – +32% – 8/3/16
GENC long – +31% – 2/26/16