Conservative Trading In An Aggressive Market | Podcast Episode #71

0:00
Hey, everybody, this is Ryan Mallory, and today’s podcast episode, being conservative and a very aggressive stock market. That’s kind of what I’ve been in these past couple of months. I’ve been quite conservative. Usually, I’ll take the trend and I’ll follow the trend lines and I will trade the market pretty, pretty strong, especially when we start to get a bounce. I love being part of the bounces. Back in late September, we had a OK sell-off, not a huge sell-off, but it was a respectable sell-off. We went from about 3000 to About 2850 or so. I’m not giving you exact numbers here. I’m just kind of more like estimations. And then we’ve been simply just balancing ever since.

0:36
I thought close to the October lows, I thought we’d probably break the August lows, but that did not happen whatsoever. Instead, we went on this amazing rally. And it wasn’t without its ups and downs, but the first week at least. But then after you got past that, it was quite impressive. It rallied with a 10 day moving average underneath. It blew away the 20 day moving average and the 50 day moving average to where it’s so far below the current price right now, it would take a huge pullback just to, just for it to be tested. But all along I’ve been pretty conservative.

1:08
I haven’t made a lot of trades in the month of October, despite October being up and now hitting new all-time highs as of yesterday. I have been consistently conservative. I haven’t really done too much chasing. I’ve been a little bit doubtful of the market. Now there’s this famous saying that says, the market can stay irrational a lot longer than you can stay solvent, and it’s very true. A market can stay very irrational. And so if you’re trying to short the top the whole time and thinking, OK, this time is the top, and this time is the top. You’re going to, or, or if you don’t even cover your shorts, you think eventually it’s gonna come down. That’s what a lot of people say. Eventually it’s got to come down. It, you can’t see it here forever. Look, I, I shorted the market twice earlier this month, and neither of them worked out well.

1:47
I took a loss on both of them. Now, if I would have said it’s got to come back down, I’d be taking probably losses of 2 to 3 times that amount of what I took earlier this month. Instead, I followed my stop loss. So the market can stay irrational a lot longer than you can stay solvent. I would be irrational with the market if I was trying to say, hey, this thing’s got to come back down. It’s got, it’s got a tank. It’s due for a pullback. I’d just be losing money. However, on the other side of the coin, I’m not going to get super irrational and add 100% capacity to the portfolio in terms of new trades, and then maybe even slip into the margins just because the market keeps going up and it seems like it’s easy money, because, for one, I was very skeptical about whether or not we would break the all-time highs. or not we would rally through it.

2:34
We did. It took a Sunday night gap up because we kept hitting it and we kept selling back lower, but Sunday night, the futures opened and the market just kind of took off. Monday morning, we gapped above the previous all-time highs and the market just went bonanza thereafter, creating a short squeeze effect. And then yesterday, of course, you have like this like gravestone doji candle on the spy SPY. So we’ve made all-time highs, but the market hasn’t really done much since. Now, why did I stay conservative? Well, the previous 3 or 4 times that we’ve tested these levels, we have seen significant sell-offs.

3:06
So if we’re 1 or 2% below all-time highs, does it make sense for me to go and add a whole bunch of new long positions simply because we might add Another 2% on the rally or maybe even more, maybe we’ll break out and add another 1% on top of that. No, it doesn’t. It doesn’t make sense for me. It’s kind of like an a play an individual breakout play on a stock, right? If you’re saying, OK, there’s resistance on a stock at $100 a share. And the price is currently at $98 but it’s tested this resistance level 4 times, and each time it’s pulled back.

3:40
Are you going to go and buy at $98 a share? No, you’re going to wait for it to clear $100 1st because you don’t really have a huge level of confidence that it can break through it without first giving back the gains again. So it’s the same concept with the S&P 500. The S&P 500 had constantly tested resistance overhead. And it wasn’t worth. Worth it for for me as a trader to just go ahead and load up the the portfolio with long positions. Now, did it stink watching the market rally like day after day?

4:11
The industrials rallied like 13 out of 15 days in a row. So yeah, that, that did stink. And like I said earlier, there was a couple of times where I thought the risk reward was more favorable for the Bears in the earlier parts of this month where I thought, OK. There is some weakness here. It’s hitting its head against some short-term weakness or some short-term resistance. I think it’s gonna come back down, and it never did. It just kept on pushing higher. But that’s what my stock losses are there for, because when the reward doesn’t play out on the, on the trade setup that I’m taking, I want the risk to be minimized to where I’m not taking a huge loss.

4:43
So when the market is being irrational, that doesn’t mean that you’d be irrational right there with it. If the market Once they continue to push higher and ride into resistance, that doesn’t mean that you necessarily have to trade aggressively in hopes that it’s going to break through the resistance. It’s better to see whether or not it will break through that resistance. And so right now we have broken through the resistance. There’s still a lot of headline risk. I have added uh one or two long positions just to provide a little bit of exposure, but they’re, they’re very strategic in the sense that, for instance, McDonald’s, I added that the other day. There was some support in the, in the. 1950 to about 193 area. I added a long position in McDonald’s to try and play that bounce. Now I know that McDonald’s also kind of does well if the market does pull back. It tends to be more of a safe haven stock, kind of like your staples in terms of Walmart, Dollar General, Costco’s, Rossors, those kinds of places.

5:37
And while we’re still at all-time highs, you still have a lot of headline risk. I mean, just this morning we saw the market instantly sell off 7 points to the downside, not a huge amount. But it was on some headline that had nothing to do with trade talks, but because the headline came out at Chile about some other kind of trade summit, the market plunged. It had it wrong. So there’s still that headline risk that if it’s serious enough, it’s going to take a big plunge and it could do it over a multi-day period just as we have seen in the past. It won’t take much for the bottom to drop out of this market because the volume is so light, the buyers are pretty much already committed. There’s not a lot of new capital flowing into the market, so you have very low volume levels. The algorithms are sucking up the liquidity, and everybody’s just hoping that somebody else is going to keep buying the market to keep inflating prices even higher.

6:30
Then you had the Federal Reserve. The market is completely drunk on the Federal Reserve. This morning you had GDP come out. It was 1.9%, I think they were expecting 1.6%. The market popped a little bit on that. I’m actually convinced that if they would have missed. The market still would have rallied. If it, it would have gone up if the market beats expectations and would go down if the market missed expectations. It’s that drunk on the Fed because it’s like, oh well, the economy’s good. Oh, the economy’s bad, well, at least the Fed’s going to cut interest rates and gives it further justification for maybe a 4th rate cut later this year. That’s kind of how stupid the market is right now. It is completely drunk. We’re sitting at all-time highs. And we’re talking about cutting rates. This is something that you do, that you keep this kind of like bullets in your clip in order to to weather a a recession. Not when the market’s at all-time highs. For personally, I think Jerome Powell is one of the worst. I used to think Janet Yellen was bad, and I, before that I used to think Bernanke was bad. And before that I used to think Greenspan was bad. I’m not a huge fan of the Fed to begin with. They could abolish it tomorrow and I would be thrilled. I don’t think it’s that necessary, quite honestly. I think it’s just another way for the government to control lives, for the government to be able to have its say in what happens.

7:39
And now, because you have the politicians so immersed in what the Fed does. All of a sudden, normal business cycles are against the law. We’re literally in the longest bull cycle in market history. Since they’ve been trading stocks, there’s never been a rally that has gone on for this long. You’ve got like 108 months of job growth. That’s because the market keeps making money so easy to borrow. But all this eventually has consequences. Yeah, I don’t like Powell. I don’t like, I didn’t like Yellen, I didn’t like Bernanke. I traded some with when Alan Greenspan was around, but I probably. I didn’t like him either. Let’s just, let’s just leave it at that. But the, the market is drunk on the Fed, and I’m not going to just load up a portfolio hoping that the Fed just keeps giving me that, that meth or that crack cocaine that the, the market is so desperate for to keep it going up right now because without the Fed, this market’s going down.

8:33
So again, I’m not gonna get long and now I’m talking about before, before, before the market made. All-time highs when we were 1 to 2% down because we were hitting heavy resistance. There was, there was a resistance level above 3000 that every time it touched, it saw an immediate sell off within the, within 1 to 2 weeks. It would see a selloff. We saw it back in September of last year when we saw the market S&P 500 drop over 20%. Then we saw it again. In May of this year, the market had a pretty good pull back there, 89%. We did rally on June 3rd. It just went straight through the roof from and, and made everybody feel like there was nothing wrong with the, with the stocks. And then we had to pull back in August after we hit new all-time highs there, and then we chopped around for a good solid month before rallying, and a little bit in September. And then in late September, we sold off again, got pretty close to those August lows, but now we’re back at all-time highs again. It’s a nutty thing, I tell you. I’ve, I’ve really never seen a market that looks so desperate for a pullback.

9:30
But again, the market can stay irrational a lot longer than you can stay solvent. So there’s no reason for me to keep shorting the market in general, like taking an SPXU or just shorting the spy or shorting the NASDAQ, when the market’s yet to crack. When it does, I will go ahead and get short, maybe like a spy or maybe QQQ or maybe IWM. I’ll get short at that point. But right now, Why? Why would I do it? It just keeps buying the dip every single time. So until that happens, maybe the Fed. And their FOMC statement creates that scenario, maybe, maybe it comes from something else, a China headline or perhaps something in the political world with Trump and the impeachment query or whatever it is. But I’m going to be patient. I, I know that the markets are rational right now. I know it’s rising probably a lot higher than anyone ever imagined it to. It can’t seem to sell off ever. But that doesn’t mean I’m irrational right there with it. That doesn’t mean I fully commit myself to the long side. That doesn’t mean I go and buy penny stocks or the most volatile of stocks there there is and hopes that the market’s going to keep rising. That doesn’t mean I keep shorting the VIX. It means that I, I take a more measured approach to the market. I protect myself to the downside because I know how bad the market can get. I’ve traded through 2008, and there’s a lot of people here listening today. That has never seen a bear market before. They are bad. It wipes people out.

11:00
Now, I personally kind of like the bear markets. I think it provides a lot of great trading opportunities, but we’re not there right now. We saw it a little bit in quarter 4. I enjoyed that. That was, that was some pretty fun trading there. October was a little bit wishy-washy. I still managed to squeak out a profit that month, but Overall, those kind of climates are really good. So there’s no reason to go ahead and get overly aggressive in your portfolio for the hopes of a 2 to 3% move in the market, where you want to get aggressive in your in your portfolio is when you have the opportunity for a 10 or 15% move. The the best money that was made was the people who got in late December when the market was at its most dire circumstances. And when you go back to to the market since January 2018, There’s hardly been any real new movement in the market. Yes, we’re hitting new new ground this past week here with new all-time highs, but overall, we’re not that much higher than where we were at back in January 2018. We’re talking like 20 months, and the market hasn’t really moved all that much. It has up and down in terms of staying within a sideways trading pattern, but it hasn’t really rallied like what we saw in 2017 when Trump was elected, or in other years before where the market would go up 20%, but it wasn’t. Trying to make up for the losses of, of a quarter 4 like we saw in January of this year when it was trying to make up for the losses of the previous 3 months.

12:15
So to wrap this all up, Remember, the market can stay irrational longer than you can stay solvent. We all get that. I’ve talked about that before. However, that doesn’t mean that you get irrational with the market. Just because the markets are irrational. That means you need to be a little bit more moderated in your, your approach to the market, be a little bit more conservative, because when it gets really irrational, at some point, that’s, that’s going to cool off and there’s going to be a rug pool and you don’t want to be the one that’s 150% uh invested in the market and all of a sudden you’re just losing more, more profits than you can learn, actually not even profits, you’re losing your capital, more capital than you can afford to lose. That’s gonna do it for today. If you have any questions, feel free to hit me up. Definitely try out the splash zone, lots of new changes there. I’ve been talking about that for a while and I encourage you to check it out, become a member, and start trading with me on a daily basis. Thank you and God bless.