MARKET SUMMARY (3/9/20) – BEARS IN CONTROL

Are we having fun yet?

Some might think that the wild market fluctuations and extreme volatility would make my analysis longer, that I’d have much more to say.

Actually it’s the opposite. 

My trading style has always focused on discipline and patience. This is an environment where you want to be making less trades, not more. Sure, if you throw some bets out there, you might catch some huge moves if you’re right. But it’s pure luck, and that’s not a great recipe for long-term success.

Even this week, when I had no “official” market bet on, there were days when I casually guessed at what I thought would happen, and would have correctly caught some big swings, both long and short. They would have made money, but I’m fine leaving it on the table. They were high risk set-ups and would not have been smart trades.

Remember, it’s only March. We have many months of trading ahead of us.

Interestingly, despite another week of breathtaking market moves, with 150-point SPX swings becoming the norm, the overall big picture hasn’t really changed since last week’s e-mail. 

The near-term trend is down, with a bearish MACD and DMI, and weekly RSI not even wildly oversold yet. This will put pressure on the markets for a few more weeks. When the weekly trend is pointing down and in a bearish configuration, you have to realize its dangerous to hold longs for too long – as we’re seeing in the pre-market futures this morning.

Longer-term, I’ll stick with my view that the bull market is still alive and that we’re in the middle of an ongoing correction. A few weeks ago, most would have agreed. Even as recently as a week ago when the correction first started, this didn’t seem too crazy.

But we’re getting to a point where most are jumping off this idea. If you’re a long-term bull, that’s a good thing. Bull market pullbacks have to be bloody, they have to shake everyone off the bus. The charts have to look convincing that they are breaking down, that the next “obvious” trade is to sell the rallies. The fundamentals have to be bleak.

Clearly we’re getting there.

After a few 10% corrections the last few years, would another simple 10% pullback cause anyone to question the bull market? We need something like what we’re seeing now to make even the most hardcore buy-the-dipper fearful.

Meanwhile, as we monitor this sentiment, we’ll continue to trade what the market gives us. 


5 THINGS ON MY MIND

1. One year ago, almost to the day, I posted my first Tweet as @marketmind3It was on a whim. I saw an interesting market direction trade that went against everyone else on my Twitter feed at the time. So I banged out a quick tweet and threw it out to the Internet.

A few months and a few more good bets later, I started this e-mail newsletter. It’s become a regular part of my daily trading routine, posting my daily and weekly thoughts. I appreciate all of the great feedback. It helps when most of my calls have been profitable, which won’t always be the case. Thank you all!

2. This is a great time to remind everyone that I only expect to have a 50% hit rate on my market direction calls. If you’ve been following me, you know that I’ve blown past that goal this past year, even in this crazy volatile time. But I only need to be right half the time, as long as I catch big moves, let winners ride and limit my losses. Maybe this year my hit rate will revert a little (hopefully not too much) to the mean. But my goal will still be to be profitable at the end of the year. 

3. Bitcoin is following through on its bearish set-up from the last few weeks. I was worried about the overly bullish sentiment many weeks ago, even before the chart broke, and now the chart is clearly confirming the set-up. Supports are all breaking, and pointing even further lower. I’ll continue to hold my long positions – these are long-term holds so I’m not trading BTC actively right now. Ideally, I’ll look to add on further dips. For active traders out there, I think it’s too early to go long.   

 

4. As you know, even when I have no market call, I always have numerous individual long and short positions. These are usually close to being hedged – equal longs and shorts. In this market environment, it’s critical to be balanced and as market-neutral as possible. Yes, there are still charts that look decent as longs. Like with my market bets, I have cut my exposure dramatically in these individual stock plays. Small bets only.

5. I really only focus on trading in my Twitter and e-mails. But like anyone with experience in the markets, there’s another portion of my portfolio that is all long-term buy and holds. The numbers don’t lie – buying and holding stocks over a long-term (10 years-20 years+) is profitable. So yes, as the market collapses and I try to trade the daily and weekly gyrations, I’m also setting aside money to just buy and forget. 


A CHART THAT CAUGHT MY EYE

SPOT – Spotify

It’s slim pickings looking for long positions in this market, but if you squint, there are chances to take some shots. In fact, if a chart isn’t a complete disaster, it makes it that much more interesting.

I’ll stay away from the obvious trades that the average, uncreative trader CNBC trader is touting like Costco and Zoom. And I’ll also stay away from trying to catch a falling knife in broken charts. They might be set for a monster reversal, but they are all high risk trades.

Spotify looks decent. On a fundamental basis, they have a strong base of subscription revenue and installed base of subscribers – this gives them a little more visibility during a recession. Yes – there’s the competition threat and yes, it’s a non-essential expense that consumers might slash in a recession. Those are obvious risks, so let’s assume the market knows that and it’s in the price.

As the market hits new lows and swings wildly, SPOT has held in strong, basically holding its months-long support range. If you ran a chart of SPOT relative to the market, you’d see it’s actually breaking out.

Even its recent breakdown below short-term support was quickly recovered. Daily MACD is in bullish territory, while weekly charts look bearish, but could turn bullish easily.

So with the market crashing, I’m looking to see how this closes. If it can close above that black support line, it would be a strong relative move and I’d take a shot long. That same black support line could be my easy, not-too-much-damage stop out.

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