Managing Headline Risk | Podcast Episode #462

0:00
Hey everybody, this is Ryan Mallory with shareplanner.com’s Swing Trading the Stock Market.

0:04
In today’s episode, we’re going to talk about managing headline risk. I got a e-mail from a guy and we never use people’s real names on here.

0:12
I always tell people, hey, give me the name that you want me to call you by, or just give me a good Florida name.

0:17
But in this case, he gives me his own name that he like to go by, which, yes, we call Uncle Bubba. So we’ll call him Uncle Bubba.

0:24
Never used that one before. I’ve used Bubba but not actually Uncle Bubba.

0:28
But he has some questions about headline risk as he’s slowly getting back into the market and into swing trading again.

0:36
So Uncle Bubba writes, Hello Ryan, fellow Space Coast Florida man here. That’s great.

0:42
You’ve had a Bubba in recent episodes, so please use my full name. Uncle Bubba.

0:47
I’m a 50 something tech savvy investor just returning to swing trading with a new focus and discipline.

0:53
Your podcast has been both informative and affirmative. On every episode I’m learning something new and reinforcement for things I’ve learned before, often the hard way.

1:01
I work remotely and I do have time for research and listening, but reaction time during the active session varies greatly depending on meetings and workloads so I’m looking for multi day long positions.

1:13
I don’t mess with options and haven’t had experience yet with margin or shorting. Sticking with the basics for now and taking it slowly and steady this time around.

1:23
So I’m going to stop right there. I used to work in corporate America too.

1:27
I quit a long time ago. I guess it’s like a couple of decades ago now, but I used to work in corporate America and it was a challenge.

1:35
It was a huge challenge trying to be able to balance work life and work responsibilities with trying to be successful in the stock market.

1:44
I, I struggled with that quite a bit.

1:48
I always was, had one mind on what I was doing for my work and my, and the other thinking about my, my, my next trait and when and how I was managing the risk and so forth.

1:58
And it, you know, did that stop loss? It did I get filled?

2:00
Because often times I would be filled on my trades when I was in work meetings and it would, it could be really, really difficult at times just trying to be focused on both aspects of life.

2:13
So I get that you want, and I always talk about this in my podcast when when you’re developing your strategy for trading, you want to make sure that it’s built around your lifestyle.

2:24
You know, I remember there was a time where I did Futures Trading when I was in corporate America and it really didn’t work.

2:30
I mean, I had alerts going off all the time. People be walking into my office and and I’d have a Buzz Lightyear sound going off for for when I should get long on something.

2:37
And I would have a Charlie Brown depressing alert sound going off when I needed to get short on something.

2:44
And people were like, where are those sounds?

2:47
What is what am I listening to here? And you didn’t really want to tell them what you were doing because then, you know, a little too much curiosity in the workplace can do a lot of harm, you know, when people start talking about what you’re doing.

2:59
So it’s so important that the exact strategy you have is complementary to your circumstances, to your lifestyle.

3:08
And that’s one of the things that swing trading affords is that it allows you to be able to customize your trading strategy around your lifestyle.

3:15
So good, good questions. He wasn’t really a question.

3:18
He was more or less asking me building up to his actual questions, but I wanted to stop there and answer that one.

3:26
So here’s his questions. We’ve all heard by the rumor.

3:30
Sell the news. What if you want to avoid the news altogether?

3:34
I know you don’t hold through earnings. That’s one of the things that I’ve had to learn the hard way.

3:37
But what else do you do to avoid getting surprised by a headline driven price movements? Are there stocks that you count on as being less susceptible?

3:46
Conversely, what do you do, if anything, to take advantage of the news? How about rumors?

3:51
Are there stocks you monitor that you know will move reliably on new announcements or events? I’m glad to hear that you say you weren’t monitoring CNBC these days and don’t follow the self promoting CE OS and bag holders.

4:02
I’ve tried being a financial TV guy and it just isn’t for me.

4:07
That said, I’m curious if there are some better sources for the same type of information that you do monitor or subscribe to and what overall impact this has on your trades in addition to to purely technical setups.

4:17
Thank you for your good vibes and upbeat tone and touch of redneck presentation style.

4:23
Thanks again. Much obliged, Uncle Buck.

4:26
OK, so there’s a lot of good questions here and even some questions too that he didn’t necessarily ask, but I still think it’s worth addressing.

4:34
First of all, he talks about how he doesn’t have much experience yet with margin or shorting. And I’ll tell you this, you don’t need to do those things in order to be successful in the stock market.

4:45
A lot of people get way too leveraged to begin with.

4:49
And that’s a surefire way, especially early on in your trading to, to blow up your accountant. So you want to avoid that kind of trading mentality where you feel like you have to get leveraged,

5:01
You have to get long to, to an extent that if you’re wrong about the trade, it’s going to completely blow up your, your account.

5:10
You don’t want that. And and then the shorting I short, I think shorting can be really helpful tool.

5:15
I do it a lot, but I wait for the right conditions in order to do it. But I will also just say this to be successful in the stock market, even in bear markets, you don’t need to be a a a person who’s short stocks, you don’t have to do it at all.

5:25
So you can really go through your whole trading for and not use margin or have to short.

5:34
If you’re shorting, you are using margin because you’re borrowing the shares to to short. But the reason why I say you don’t have to short stocks because in a bear market, some of the best long opportunities are actually in a bear market because when the markets bounce, those dead cat bounces, when they bounce, they can bounce like 5 to 10% within like a few days.

5:58
The gains that you can make off of those dead cat bounces are insane. Even with like just stocks like Apple or Amazon, now you can make a, a, a killing off of those.

6:10
So you don’t have to short stocks in order to be successful in the stock market. In fact, I would probably say for most people, you, you don’t you, you, you probably shouldn’t even consider shorting it all because one of the things that shorting will do is that it’ll make you want to short when you shouldn’t be because there’s that like contrary nature and traders, I believe that says that, I don’t know, there’s some kind of like dopamine or something that that releases when you think that you’re short when everybody else is long and all of a sudden you’re losing money when everybody else is making money.

6:40
And that’s like 10 times worse.

6:43
So I don’t think that you need to be short in the market if you don’t have to be. I, like I said, I I do short stocks, but I do it far and few between when you compare it to how often I’m long on stocks.

6:56
And that’s because over time the market historically goes up.

7:00
You really just want to short stocks when the market is changing its tune, when it’s trending lower and when it’s becoming much more bearish.

7:09
With that being said, he says he also wants to take it slow and steady this time around. So this is like his, he’s re emerging into the marks here, Uncle Bubba is and he’s, he’s wanting to take it much slower than he did before.

7:19
And that’s, that’s admirable.

7:23
I I think it’s a thing of beauty to take it slow and to take it steady because today the, the tendency is to be complex and leveraged.

7:32
And we’ve, we’ve taken trading and made it a much more of a casino type atmosphere. And that’s a very dangerous approach to trading because now it’s not so much is this a trade that I can manage the risk on?

7:47
Is this a trade that’s breaking out? Is this a solid trade setup? It’s more about like I’m buying in this stock because I believe in it.

7:55
Apple’s great, Nvidia’s awesome. It’s going to the moon, I’m getting long, I’m going to leverage myself.

8:01
Yolo that. That’s the mentality with a lot of traders right now is that there’s not a lot of thought process into their complex trading and they’re over leveraged accounts.

8:09
And so they’re blowing up counts daily.

8:17
And right now we’re in a in a bubble in this market. And what you’re going to see even more as this bubble increases is the mentality and the mindset of these people are going to get far worse and far more sloppier.

8:27
And so when everybody else is getting crazy with their trades, getting far too complex and leverage, be like Uncle Bubba and take it slow and steady because you’ll, you’ll stay in the game when when you’re taking it slow and steady when you’re, when you’re making your trading boring and not an adrenaline rush.

8:47
Because the adrenaline rush, folks, they’re they’re only in the market for a limited time.

8:55
And I haven’t got to Uncle Bubba’s questions yet. So I’m actually getting to him now.

8:59
He said, we’ve all heard by the rumor, sell the news. But but what if you want to avoid all of these things together?

9:05
Well, the bad part is that you really can’t avoid them all together. I wish that was the case.

9:10
I wish you could say that you could avoid all the headline risk events, but there’s so many headline events nowadays that you really can’t afford it to, to just be out of the market every time that there is a, a news report or a, or a economic report that’s being released.

9:22
I mean, you think about it, you had the CPI, you have PPIPCE, employment, jobless claims, GDP, you have the FOMC reports, you have the FOMC minutes, you have the Beige Book.

9:39
I know I’m forgetting a bunch of them here.

9:45
But there’s so many economic reports and news events that are coming out that if you try to avoid them all together, you’re, you’re hardly ever going to be trading.

9:58
So it’s really just a fact of the matter that you have to, to put up, put up with some of these headline events.

10:06
Now, if there’s ACPI report coming out at 8:30 the next day, am I going to probably, and, and it’s historically been a volatile previous two or three CPI reports, am I Because the CPI report is not always volatile.

10:21
I mean, until inflation started kicking in, people didn’t really pay too much attention to CPI.

10:27
But now we started getting inflation, you know, like 789 percent people are paying attention to. And by the way, I think inflation’s way higher than than than what it was back in those days being reported.

10:38
But when, when it is of a very volatile nature, yeah.

10:45
I’m probably not going to go at a new long position right at 3:45 PM knowing that I’m only going to be in the trade for 15 minutes before it hits a major headline event.

10:53
But if it’s like a couple days in advance, I’m not going to sweat that too much because I may have some gains beforehand that I can go ahead and lock in some of those gains and let the rest ride through that report.

11:00
But one what?

11:04
Well, sometimes though too, when you’re in a bear market, those, those events, those headline events are much more volatile.

11:11
So you take CPI during 2022 versus today. CPI today still can be pretty volatile, but it’s nothing like it was in 20/22/2022.

11:21
You could get 345 percent moves in the market because of the CPI report. So sometimes during those particular periods in the stock market, yeah, it’s, it’s probably better to avoid some of those major drivers.

11:34
Would I avoid, you know, the employment report during 2022?

11:40
Not really, probably not even GDP, but CCPI definitely one that I, I tried to avoid, especially taking positions right beforehand.

11:49
I did hold through CPI at times, but I didn’t necessarily want to take new positions right before CPI report came out.

11:56
So you can’t avoid, you can’t avoid the headline risk all together. That’s just that’s just not happening.

12:05
Like I said, if you did, you’d never be able to trade. So his other question was, are there, are there stocks that I can count on as being less susceptible to these headline risk events?

12:15
You go back to 2022, that was that was the most recent, you know, bear market that we had when we were getting market bounces. Often times what I would do, I’d play like SPY SSOI would play UPROI would play play some of the ETFs and some of those were leverage.

12:32
And so depending on how I could, you know, manage the risk, if the if the risk was tolerable, I would get into a little bit more of a leverage ETF, but I would still keep my same position sizes.

12:38
But if I was playing individual individual plays.

12:49
Now remember, when you’re in a bear market, stocks are declining much more usually than the overall market.

12:54
You could have Apple down 3040% when the S and P 500 might be only down 25%. So when the market does start to bounce, I don’t need to be jumping into something like Sofi or Square SQ or you know, Mara MARAI.

13:08
Don’t need to be buying into the speculative names or more speculative names.

13:18
I should probably get more into the, the more stable, more dependable names like Apple, like Amazon, like Google, Microsoft, because if the markets going to truly bounce, those stocks are going to lead the way.

13:31
The markets not going to be able to bounce if you have $10 trillion of market cap that’s continuing to tank.

13:37
So in order for the market to bounce, those names have to participate and they give you a little bit more beta probably than the overall market because that’s the names that everybody else, especially on Wall Street is going to be flooding into to, to put some capital to work.

13:52
So those are the names they’re, they’re, they’re the ones that I feel like have better odds of participating market rally because the worst thing would be to time the bottom of a market.

14:03
And then you’re right about it. And I, I don’t believe that you tied the bottoms necessarily.

14:08
I think you want to wait for there to be a basing pattern for it to be showing signs that it’s bouncing off the key support levels, something of a technical nature that you can manage the reward risk ratio with.

14:16
You don’t want to just say, oh, it’s falling far enough. I’m going to go ahead and get long here.

14:19
You definitely don’t want to do that.

14:22
But what what what I don’t want to have happen is for me to say, OK, the market’s bouncing here. I’m going to go ahead and get long on Wayfair or I’m going to get long on, I don’t know, just some random, you know, high growth stock.

14:37
And then all of a sudden the market does bounce.

14:44
But those stocks don’t go anywhere. They they fall apart still.

14:47
That would be, to me insanely frustrating and something I don’t want no part of. I want to be in the apples and the Googles and the metas during those times because when the market rallies, it’s going to be because of those stocks that are taking off.

14:57
So and that goes for like long term investing too. When the market finally hit some historical lows or a major pull back like what we saw in June and again in October of 2022.

15:12
Yeah, I’m not looking to get into these like $100 million market cap stocks. I’m looking to get into the the trillion dollar market stocks, market cap stocks, the ones that have pulled back significantly, Those are the ones that I really want to be getting into.

15:22
So conversely, he writes, what do you do, if anything, to take advantage of the news?

15:34
How about the rumors? Are there stocks that you monitor that you know will be more reliable on new announcements or events?

15:40
Well, like I said, I don’t, I don’t trade earnings at all.

15:44
That’s one of the events from a individual stock standpoint, I’ll never hold a stock through earnings.

15:48
Now, long term accounts are different. You can’t have a long term account with stocks in it that you’re holding for the long term unless you hold it through earnings, because you you can’t have a long term stock unless you hold it for more than a year.

16:04
And earnings happens every three months. So that’s impossible.

16:06
But from a swing training standpoint, this is what this podcast is about. I never hold a stock through earnings.

16:12
Now you will see through different periods of time, there’s different themes in the market. Like for instance, in 2023, it was all about how much is the Fed going to be cutting rates in 2024.

16:24
And so as those odds for more rate rate hikes or rate cuts increased, the, the, the market started to rally and the market would rally off of those expectations for future rate increases.

16:36
So if we got a good economic report that showed inflation was coming down, then all the sudden people would price in two or three more Fed rate cuts for 2024.

16:45
Now we only got, you know, like four of them here in 2024. We got three so far and one more possibly which would be the 4th one expected in December here.

16:57
However, at the time, the market was rallying on those expectations for, you know, 6-7 rate cuts in 2024.

17:05
So as the market’s running higher on the rumors of those rate cuts, you can benefit from that, but you don’t want to be sold out to it.

17:13
And yes, there is a, a buy the rumor sell the news kind of effect in the market to where, when, when the reality of those rate cuts start to kick in or when or of any news event starts to kick in,

17:24
there tends to be more profit taking, whereas the money was made in the run up and pricing in those the, the, the reality of that news event.

17:31
So buying the rumor sell the news is definitely a reality in the stock market. Again, Uncle Bubba here is asking a lot of important questions.

17:44
And we’re talking about the Fed rumors for the FOMC rumors. But one of the other things too that I would tell him is that when it comes to themes, and you’ll see this in the upcoming Trump administration, because he does a lot of things that does impact the stock market can make it very difficult at times too, just from a day-to-day basis.

18:02
Because if he puts a tweet out that can rock the markets, you’ll see a lot of people say, what did he tweet now?

18:07
Because he’ll say something about tariffs and it’ll instantly cause the market to go down. And vice versa.

18:12
He could say something like, you know, trade war solved or fixed and all of a sudden the market will take off out of nowhere.

18:19
But you’ll start to see like when we get into into the tears, he’ll tweet something out about the tariffs inevitably, and that will cause the market to go down.

18:26
And then you’ll start seeing the headlines of improved relations or increased optimism about trade relations between the United States and China.

18:33
And all of a sudden you’ll start seeing the market rallying again. And so they will keep recycling the headlines.

18:39
And that could be a really frustrating thing for shorts is because when they’re on the short side of these, these headlines in these these rumors, they’re like, they just they said the same thing yesterday.

18:48
Why is the market rallying on the same news as the day before?

18:51
It makes no sense. And that’s true.

18:52
You will get those kinds of events where the markets just where it feels like the rock markets rallying off of the same news as it rallied off of before.

19:01
But that’s just part of the cycle. Yes, they do recycle headlines, but you will see those rumors kicking in, especially during the Trump administration where he’s taking a hard line approach because the market does react to tariffs.

19:14
You will see that there is some heavy, heavy movement to to his tweets and to what he’s doing and on the on the trade relations stand front as it pertains to tariffs.

19:27
Tell me that I’m glad that you know, I’m glad you’re not listening to CNBC. I, I don’t, I don’t listen to CNBC at all.

19:33
I used to even turn it on for the FOMC statement and to listen to the presser. I can’t do that now either.

19:40
I, I really don’t, I, I may just like stream it through like Twitter, which, or x.com, which I, I love.

19:47
I think X is probably one of the best sources for stock market news. Some people may not agree with that, but for me, I find that it’s far more instantaneous than anything that you’re getting off of CNBC or Bloomberg.

19:56
Now there is the Bloomberg terminals, which are, you know, extremely pricey.

20:02
I think they cost something like 25,000 a year. I don’t have one.

20:06
I don’t, I don’t rely on the news. So.

20:09
I think the other thing too is it’s not being too beholden to news events. Whereas yes, earnings, that’s a news event.

20:16
I’m not, you know, stepping, stepping foot into a earnings report with an individual swing trade. But just in general having that TV on and and trying to trade off a headline news when those news events kick in or when you see them, they’re already getting priced in far before you ever saw them.

20:29
And so you’ll, you’ll see these algorithms, they, people aren’t even reading the news reports.

20:43
The algorithms are reasoning and responding instantaneously to them, the, the, the machines. And I think you’ll see more of that as AI continues to progress.

20:51
They’ll be incorporating AI into it. And so they’ll be relying on AI to make some of these trading decisions for them, which is kind of scary.

20:58
You just don’t know what that, what that entails.

21:00
I think you’ll see a lot of fat finger trades as a result of AI in the in the decade ahead. But for us as, as commoners, I don’t think there’s a lot of benefit to having a real time news feed.

21:13
I use x.com.

21:18
I think that’s good. I think thinkorswim has a pretty decent news feed as well.

21:18
But X usually I can find out most especially as it pertains to market related events. They they, it provides some really fast news.

21:28
So yeah, I would say x.com is my preferred. My my preferred news source.

21:34
Now some of you guys might be trades like what you don’t have a Bloomberg Terminal? No, I don’t need a Bloomberg Terminal.

21:38
There’s it’s really just wasting money If I was to get into a Bloomberg Terminal, there’s no real reason for that.

21:44
Is it fancy? Yes.

21:45
Do I wish I had one? Yeah.

21:46
It’d be pretty cool. I could probably make some pretty cool charts and tweets out of it, but in all I don’t I don’t think it’s really worth my time.

21:52
So any case, we we talked about a lot here.

21:59
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22:05
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22:09
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22:14
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22:25
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22:31
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22:37
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22:45
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22:54
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22:59
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23:03
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23:08
And make sure to send me your questions, ryan@shareplanner.com. I can’t tell you enough how much I appreciate the emails, like you know, this one from Uncle Bubba here, he sent me a great question.

23:16
Lots of stuff and material to cover on that.

23:21
And I hope I I did it justice. But tell me your stories.

23:24
Tell me your backgrounds, what’s perplexing you, what’s troubling you. I want to hear about it.

23:29
Thank you guys and God bless. Thanks for listening to my podcast, Swing Trading the Stock Market.

23:35
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23:43
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23:49
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24:00
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com.

24:10
All the best to you and I look forward to trading with you soon.