|Well, you can’t catch them all.
After weeks of expressing caution in this newsletter, and even making a small short bet (that I too quickly exited), the market seems to finally be making a move down that the chart technicals had been hinting at. Even after years of trading, missing moves always hurts a little. But, at the same time, I’ve been trading long enough to have confidence in my process, and to just move on and focus on the next trade.
Our focus here will always be on making high risk/reward bets, not catching every move.
In fact, missing some big moves should tell us we’re doing it right – big surprise moves come exactly because they’re high risk situations that catch people off-sides and out of position.
So even if this week is the start of the pullback I’ve been targeting for weeks, if I miss it, no big deal. I’ll catch the next one – whether it’s a long or short. That’s the right trader mentality that will keep us alive and making money all year. As long as more of my trades make money than lose, I’m ahead of the game.
All I care about is my profit when the bell rings on December 31.
Last week we continued to see more of the same: Market made new highs, but with lower buying power and momentum, all the while building negative technical divergence. That technical weakness was the set-up for the big down moves we’re seeing in the overnight futures. Yes, coronavirus was the trigger, but the charts were set up for this particularly nasty reaction.
At the open, we’ll break the weekly up-trendline, with weekly technicals also turning down. So we have a possible multi-week pullback looming. On the flip side, until we close below that trend, nothing is official. And we have additional support below, notably at 3,240. So I won’t be chasing this gap down, nor buying this dip just yet. Any trade right here would be a complete guess, so I’ll wait for a nice set-up.
Remember, news-related spikes work both ways, with intraday news creating panics moves up and down. With earnings news also about to flood the market, this is not where I want to be too active forcing trades.
On top of everything else, I have my overriding bet that the bull market will last well into this year. So it’s possible that we’ll quickly reach levels like the hugely profitable buying opportunities we saw last year.
4 THINGS ON MY MIND
1. Control your FOMO. That’s a mantra I try to emphasize to all traders, old and new. Believe me, even the most experienced traders, have that constant fear of missing out on the next big trade. To this day, it’s still one of my admitted trading weaknesses. Posting all of my market bets live on Twitter and in this newsletter keeps me in check.
2. On the flip side, controlling FOMO doesn’t always mean just sitting on your hands. There’s always some market or stock with an opportunistic trade. In a market with thousands of trading opportunities, there’s usually something to do if you look hard enough. As the market chops around, I continue to play actively in individual names.
I’ve mentioned my bearish bet on semiconductors the last few weeks, and listed several short candidates in previous newsletters. Even without a market bet, I’m obviously glad to have those shorts in my portfolio this morning.
3. Bitcoin keeps checking all the boxes. The weekly MACD and DMI are now officially positive and in a bullish configuration. This is on auto-pilot for now. Let it ride.
4. The cover story for this week’s weakness was the coronavirus. Just like with when Iran World War III headlines a few weeks ago (remember that?) spooked the market, my general view on these sorts of market freak outs is to ignore them. Or more specifically, I mean respecting the charts and not reacting to the emotion of the news. All I care about is whether the market is holding key supports or resistances, and I’ll usually try to take a contrarian view to whatever the panic or euphoria the media and CNBC are freaking out about. And that’s if I even take a trade at all – usually I prefer to be neutral and wait until the dust settles.
A CHART THAT CAUGHT MY EYE
TRIP – TripAdvisor
I won’t completely ignore headline panic when trading, but I’ll always at least look for potential contrarian trades at times like this. This is especially true with markets that are throwing everything out the window and selling first, asking question later. Those are usually opportunities.
TRIP has taken a hit along with other travel-related stocks, But, if nothing else, TRIP still occupies that valuable piece of search engine real estate, showing up as the top or near the top anytime you look up a hotel. That kind of franchise value is always interesting to me.
More importantly, we have a decent set-up on the chart. This has that same set-up that has worked so well historically, and especially well recently – a long, extended low and bottoming process with positive MACD and DMI divergence the entire time.
The stock price will once again test the area of the previous sideways congestion. It has taken a hit already, down for the last week, yet it is still holding multiple supports. Ideally I’ll wait for that MACD line to turn back up into the green (or at least start turning up), which shouldn’t take much of a price move up.