Weekend Update And Top Current Holdings - 9/11/2016

Friday’s session was about as ugly as a reversal from 52-week highs as you are ever going to get. Stocks were absolutely monkey-hammered on Friday sending all of the major market averages either through or to their 50-day moving averages on extremely heavy trade. Breadth was terrible, volume was extremely large, volatility expanded greatly, and stocks broke down everywhere. If there is anything positive to say about Friday’s session, I simply can’t find it. It was brutal, it was ugly, and it is a major warning sign of possible things to come as we head into the seasonally most bearish time of the year for stocks.

I see a lot of traders stating that it is possible this was a one-off event and that we saw enough fear that stocks will bottom and rally from here on out. My problem with that hypothesis is that the technical, fundamental, and sentiment data does not confirm this argument as of Friday’s close. The consolidation patterns that stocks have been forming have been anything but beautiful, the macro situation continues to deteriorate on a weekly basis, and sentiment while not extremely bullish is clearly still bullish overall based on the Investors Intelligence survey data (55% bulls, 22% bears) and the NAAIM Exposure Index at 90%.

Now, it is possible with the Put/Call ratio jumping to 1.14 at the close on Friday that we could have capitulated on Friday. I will keep an open mind to that possibility. However, the technical situation of leading stocks and large-cap stocks indicate to me that they have just suffered some massive breaks and/or suffered some serious distribution at their highs that suggest a lot of work will need to be done to “shape-up” their patterns for a new proper run to new highs. If these stocks do not see any support in the next couple of days and instead continue to sell off on large volume, watch out below.

I want to remind everyone that stocks were near new highs when Brexit came out and surprised traders. The selling lasted for one more day and then stocks exploded higher never looking back. I believe the odds of this happening two times in one year is very slim especially when you take into consideration that the S&P 500 has never been 0.5% away from a new all-time high and then made a new two-month low the very next session. We just had that. Something tells me this is going to take more than one session to fix but whatever stocks decide to do from here it simply does not matter to me. I have my rules and I am going to follow them to a T.

Back when the Brexit situation was among us, I came the closest I can ever remember in my career to doing an all-out liquidation. Instead, I decided to be vigilant with my stops and let the individual stocks I was (and still am) long decide if I should stay in or get out with those stops. Thank goodness I did this. Some stocks hit my stops. Some stocks did not. By the time the selling was over, I lost 40% of my long positions but was still 60% long and was quickly back to 100% long in just a couple of weeks as new long signals continued to trigger. In fact, on that Brexit day I got an oversold pocket pivot point reversal long signal in a speculative name. LNTH. I did not take the signal, due to the feeling that more selling was to come. Well it did but LNTH decided to rally 250% from there to its recent highs. So much for trying to outsmart my system.

The point I am trying to make is no matter what happens, I have my rules. If new long signals trigger, I will take them. If new short signals trigger, I will take them. If my trailing stops hit in my current long positions, I will be stopped out. If my trailing stops hit in my current leveraged hedge positions, I will be stopped out. Rules are rules. The important point is to make sure your entries are perfect and that your exits/stops are perfect. There can be zero room for error here. Absolutely zero. If the market ends up crashing, you want to make sure you are out. If the market reverses higher from here, you want to make sure you get back in with zero emotions trying to keep you out. If the market goes nowhere, I’ll deal with that too.

So from this point forward as we head into the new trading week, I plan on only being aggressive with intraday opportunities. If there are few to zero high quality day trade ideas next week, then I plan on not being very active. New long positions on an EOD basis were already being reduced heading into Friday and are now under even more scrutiny. Less money will be at risk and stops will be more tight. Right now, until we find a solid floor with some price reversals in leading stocks, it will be all about day trading opportunities. I will even look to swing trade more oversold RSI (14) long candidates if they trigger. If you are not experienced enough for intraday opportunities, there is absolutely no shame being cash heavy here. Better safe than sorry.

I will be posting a video lesson going over the general market, the oscillators of the general market, and some of the big-cap stocks that will influence this tape over the next few sessions, sometime on Sunday. Make sure you check back here and watch this video to know exactly the situation the market is in in regards to its oscillators and big-cap leading stocks. You don’t want to miss it. If you are not a member of Big Wave Trading and would like to take a free two-week trial or know anyone that would like to take a two-week free trial feel free to come join our team. Your success is my goal. Have a great rest of your weekend and I sincerely wish you all the best with your trading during what is sure is to be an exciting upcoming week. Trade smart. Trade well. Aloha.


EBIO long – +216% – 5/26/16
CLR long – +166% – 2/11/16
GRAM long – +98% – 4/1/16
MIME long – +67% – 7/8/16
AOSL long – +52% – 6/14/16
SIMO long – +51% – 3/11/16
HBP long – +50% – 3/28/16
EBIX long – +42% – 3/17/16
QLYS long – +33% – 5/12/16
HNNA long – +32% – 4/14/16
GGB long – +32% – 7/13/16
APLP long – +30% – 3/31/16
SSTK long – +29% – 7/6/16
JDST long – +27% – 8/11/16

Disclosure: None.

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