A Warning To Traders | Podcast Episode #482

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Everybody, this is Ryan Mallory With shareplanner.com’s Swing Trading the Stock Market. In today’s episode.

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It’s going to be a warning to investors, a warning to traders, a warning to anybody who is a participant in the stock market and that is the theme of today’s show.

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Now what is the warning? Well, let’s back up a little bit to the beginning of the year.

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Beginning of the year, we saw a stock market that was that was at the all time highs and it fell 20% of those.

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Ice even tinkered with going into correction territory or bear market and it has since rallied 18% back.

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Now that doesn’t mean it’s 2% off its highs. For instance, if a stock drops 50%, it takes 100% for it to get back up to its previous price.

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So when it drops 20% and rallies back 18% still has a long ways to go. But what you’re seeing right now is a lot of retail piling back into the market.

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And I want to talk about the warnings that should come with that kind of mentality as it pertains to trading.

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You take a look at that rally off of the April lows, that 18% rally. And in in that you have stocks like PLTR, Palantir Technologies that prior to its earnings had

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essentially doubled in share price over the over just a few weeks off of its April lows. You take a look at MSTR and it’s rallied as much as 71% off of its lows.

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And you can go on and on about NVIDIA with massive rallies. You can go on about Meta and and so many other stocks at particularly when it comes to the text

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place. And that’s because retail is participating at a rate that is incredibly feverish right now.

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If you look at the dip buying that took place in April, it was historically strong for retails, in fact the strongest on record.

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But if you look at the volume, the volume is not that strong. Especially over the past week, week and a half, the volume has been insanely light.

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So how do you have historical buying from the retailers? But overall, the volume is very light.

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It’s because the institutions are are sitting out. This is all retail driven that we’re seeing here.

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Retail is jumping in the institutions or not. And if you look at over the course of history, do institutions ever get it wrong?

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Yes. But I would be willing to say they don’t get it wrong at the expense of retail getting it right.

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And so even you go back to like the GameStop phenomenon, ultimately the institutions got it right. They cheated, but they got it.

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They they figured out how to come out on the upside. And that’s what happens is that you’re not going to be able to fool the institutions and there’s not

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institutions that are buying into this rally. Your hedge funds aren’t buying into it.

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Your banks aren’t buying into it. It’s retail.

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It’s the people down the street from you. In fact, there was a fellow at a car dealership, but not I don’t, I don’t have first hand experience

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of this, but a friend was telling me that he goes to a car dealership just the other day and his his his the car dealer.

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He was going there to pick up a, a new car and all the dealer wanted to talk to him because he knew that he was interested in the stock market was about the fact that he keeps buying 0 DT ES every day

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for the past two weeks and he’s making 5 to $800 per trade. And he continues to do it on a daily basis and he thinks it’s basically foolproof.

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You just do it. There’s there’s no concerns there.

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But even the zero DT ES, even though you’re getting in and getting out, that is an insanely high risk proposition, probably the highest risk there is because if you’re not right, those options like

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instantly go to 0. So the most speculative names, the most speculative strategies are taking place right now.

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And it’s right after we just saw a 20% drop off in the market from its all time highs.

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Now, why is that? Why is retail so emboldened? Well, it goes back to about five years ago.

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OK, Doesn’t take a genius to remember where we were at five years ago. We were in the middle of the COVID pandemic and sports were dead.

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Nobody was watching sports because all the the games have been cancelled for at least a little bit. It was basketball, baseball, all these things have been halted.

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And then with that, gambling was dead, OK? People weren’t going to casinos.

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People weren’t betting on sports. That was dead as well.

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There was nothing to bet on, right? So if you don’t have sports games, you don’t have anything to bet on.

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And then just recently during that time, commissions had gone from being like 6-7 bucks a trade to being free.

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So all of a sudden that trading became a little bit more appealing to the masses because it was Commission free trading.

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And then you had big names like Dave Portnoy. He was getting involved.

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He was the Davey day trader, global thingamajig that he called himself, I can’t remember yet. Like he was throwing like a green hammer and just throwing money at everything in the world.

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And retailers bought the dip during that time. They you saw a six week sell off, a six week correction that took this actually into a recession.

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But yet the retailers bought the dip at a feverish clip. I’ll, I’ll never forget because my neighbor at the time said, oh, I just bought RCL And I was like,

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huh. I mean, it wasn’t a bad trade in retrospect, but he bought RCL.

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He bought like Norwegian Cruise Line and he bought Carnival and he bought a bunch of airliners. I said man, they’re not even getting up like a foresight of my part because he ended up doing pretty

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well on those trades. But what that did is in that emboldened people.

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The reason why I tell people don’t ignore your stop loss is even though if you know for sure that it’s not going to blow you up on this particular trade, what it’s going to do is it’s going to

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embolden you to ignore your stop losses in the future. Don’t take high risk trades, even though you may be very confident that it’s going to work out

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because you’re going to have even more confidence down the road on lesser quality trades. You have to be systematic.

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You have to be disciplined. You have to be consistent from 1 trade to the next and how you’re trading.

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And So what happened here from the COVID experience where all these people are jumping in, they’re all of a sudden feeling very emboldened because it did work buying that dip when they, the economy

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was artificially shut down and then it was reopened. It created some incredible buying opportunities, created a lot of misplacements when it came to

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price and, and value as well. I mean, I remember during that time as well, oil went down to -37 dollars a barrel -37 dollars.

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I’ve talked about that before on the show. But what, what a crazy pricing that we saw there.

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Now, it only lasted for like essentially like a few minutes right before the contract closed. And then you could have offloaded them on the next contract, assuming that you took delivery because

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that’s really what they were paying for you to do, to take delivery of the oil. But there was money to be made there because of all this price displacement.

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And then after the retailers bought the dip, you had the emergence of Wall Street bets and the Reddit boards and the the mania that came with GameStop and came with AMC.

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And then after that you had the meme coins and you had the NF, TS and the SPAC’s. I mean, the SPAC’s were essentially like worthless companies that were using venture capital and

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other, other sources of capital buy up other companies. And then they would wrap them up into the SPAC and, and a lot of those went belly up.

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NFTS definitely went belly up. I mean, things people are buying these like digital pictures that really all you could do is you

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could have the same thing by just taking a screenshot of it online. And people were paying millions of dollars for it.

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And now those things are like worth pennies on the dollar. So we saw a lot of craziness that came out of that COVID pandemic.

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And then you Fast forward to 2022 where you had a significant 10 month sell off in the equities and then a lot of people didn’t buy the dip there.

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And then they saw it go right back up over the course of the next year and saw 23 and 2024 just become an incredible market rally.

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And they said, man, if I would have bought back then. So then they’re looking back and they’re saying, OK, I should have done that.

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Others did buy the dip and they made a lot of money too. So further emboldening that crowd as well.

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And so now you get into the regional banking crisis in 2023 where the Fed bailed out all the banks, all the regional banks that was with the BTFP program.

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All they had to do was change, change the P to AD and you had a, the, the perfect program for the perfect time of, of buying the dip.

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And then in 2024, you had the dollar collapse against the yen, which caused a huge gap lower was like 200 points to the downside of the S&P 500.

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And that same day the dip buyers jump back in and, and, and got into it. You had the 0 DTE traders coming back in in full force as well.

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So there’s a history over the last five years of retail really profiting from buying the dip.

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Now all of this is simply makes traders ignore everything else, ignore the risks, ignore risk management more following your stop losses. I’ve had more people over the last five years come to me blowing, tell me about the stories about

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them blowing up their accounts. And any other time that I can ever imagine in my trading career, I’ve never seen so many people blow

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up their accounts. You’ll hear about the the story here and the story there about how people made all this money

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investing in the stock market. But what you don’t hear is the amount of people that took on some crazy risks and it backfired on

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them. We had just even recently, and this isn’t to get political or anything, but you had the Trump mean

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coin that came out. I think it was like the day before his inauguration and, and it went to like incredible heights.

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I think it went to like $40 a share or something like that. But if you look at it now, I think there was like 58 people who’ve made millions on it, according to

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one headline and like 764,000 accounts that are that are taking on heavy losses from it.

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And so that just shows you the, the fact that, yes, there’s some people who made money off of it,

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but there was tons, I mean, thousands, hundreds of thousands of people who lost money on it.

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And so the retail tends to be wrong.

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The retail tends to be incredibly wrong when it comes to trading. And it’s the wills that usually will make the money.

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And, and they’re the ones that also get in early as well. You don’t see Congress because they’re, they’re always Privy to the insider trading.

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They, they insider trade like crooks and what you see them do is they always get in ahead of the

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news releases and then you see the retail crowd follow after the news release comes out.

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And what are they doing? They’re selling to the retail crowd.

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They’re making you buy their shares so that they can profit and that you can ultimately lose.

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Before I dive too much deeper into my warning for retail traders and investors, I would encourage you to check out swingtradingthestockmarket.com.

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It takes you to my SharePlanner site and it’s going to give you a list of different offerings that I have to where you can get all my stock market research, even some of my trades if that’s what you want as well.

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And so you can go there you can pick out the plan that’s best for you, whether it’s all my market research or market research plus trades, you pick out the one that’s best for you.

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You’re supporting the podcast in the process and I think you’re really getting a an incredible resource in return plus access to my Discord.

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So check that out. swingtradingthestockmarket.com.

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Now this warning, what does it mean? Does it mean that the market’s crashing tomorrow?

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No, I know I’m going to get some pushback on this podcast because I’m issuing a warning. I don’t even know if I’ve ever really done this before, but I’m not a permit bearer.

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I’m really just trading the whatever direction the market’s trading in. But I also noticed too, when the markets are getting way overzealous, way over excited.

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And then when you start to see it backed up with real hard data, like the record amount of retailers that are buying into this market right now.

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What is the Max Payne scenario is that the market comes back down again, the institutions come back in, they sweep up the cheaper shares that retail had to panic trade out of or panic sell into.

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And then as a result, the institutions, they’re getting your money. They’re they’re getting your cheaper shares while you panic sold.

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And I’m not trying to say that you shouldn’t sell. You should go into every trade with the plan that if it doesn’t work out right, you know exactly where you’re going to get out at.

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And most traders won’t do that.

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And so they’re yellowing their money into this market rally right now with really no concept as of risk, only to to believe that it works.

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That’s why you see so many people trading about with options. If they really took a step back to understand the risks that are associated with options trading,

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they would say to themselves, no, I’m not going to do that. I’m going to get into just trading equities because in the options market, there’s way more risk than anything you could get from the equities market.

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I know a lot of people say, well, the only thing I can lose is my premium, but people overload on the premium. That’s just a given.

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You don’t you don’t see people buying options contracts that equals the number of of shares that they could have just bought out right with echoes.

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Otherwise, why would you buy options? So my warning to investors, my worrying to traders is that this market is in a very precarious scenario right now.

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You have things like tariffs, you have new leadership in Washington, which that can be both good and bad as well, but it brings about change in the first two years of a presidential administration, of a new presidential administration tends to be the most volatile, tends to be the the worst performances for the market as a whole.

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And so I would, I would very much caution people to be very careful about how much they’re Yoloing into this market right now, Not to be chasing just because you see the market going up or because you feel like you’re missing out on a generational buying opportunity.

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The fact that so many people are buying into it, it’s showing me that they still don’t respect that what this market can actually do to them.

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They don’t respect that there could be another 2008 scenario or another 2000.com scenario where the market completely falls apart and takes years to come back from.

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And in fact, if anything, we’re overdue for one because really the, the Fed has bailed us out at every turn.

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The politicians have bailed us out at every turn. 2020 should have been far worse, but we stimi checked our way out of that.

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We, we dropped rates down to zero and created record inflation.

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So it’s really, we’re either going to inflate our troubles away continuously or we’re going to let finally allow the Roosters come home to roost or the chickens come home to roost.

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I, I usually mess up so many of these sayings, but I think it’s the chickens come home to roost.

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But let the chickens come home to roost and let an actual recession take place. We just got our first negative GDP print.

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So the fact is we’re on our way to a recession. If that happens, that’s going to have a huge impact on the markets.

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So again, careful, be very careful with this market right now.

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It feels like it’s unstoppable, but when you take a step back and you realize that the retail record amounts of buying is actually being done on low volume, that is retail that’s driving this market higher probably with the aid of some buybacks as well, because we have record amounts of buybacks is going on in this market too.

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But in general, it’s not the the big institutions that are driving this rally up.

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And when they’re absent from the from the market rally, that’s the time to be concerned.

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Let me know what questions are perplexing you, and I’ll make a podcast episode out of it. Love to hear from you, love to know what’s troubling you, and let’s figure it out together.

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Thank you guys, and God bless.

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All the best to you and I look forward to trading with you soon.