Sector Overexposure and Shorting Stocks | Podcast Episode #142

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex ever-changing, world of Finance, learn what it means to trade, profitably and consistently managing risk, avoiding the pitfalls of trading and most importantly, to let those winners run wild, you can succeed at the stock market and I’m ready to show you how?

0:30
Hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market. Got a good episode. Here that we’re going to tackle. I don’t know if you’ve noticed some of my most recent episodes have been like to subject matters. I mean you guys are cramming a lot into your emails, not a lot, but I mean usually I only tackle one subject matter but I hate to leave like open ends on some of these emails that you guys are sending me.

0:52
So I tackle both of the subjects if time allows for me to do so. So in this one, we’re talking about sector exposure plus struggling with the need to be bearish and shorting the market. I can relate to that quite a bit because it’s probably been one of the Things that I’ve struggled a lot with over the years as a Trader of like wanting to get short and then regretting that I got short.

1:11
So we’ll tackle that and more in this episode here. The email today comes from a feller on Instagram and I’m going to go with the name Ralph and Ralph. He sends me a pretty pretty succinct email. He says, first off, thanks for your contributions to the trading Community.

1:28
It’s very hard to find swing trading and full amongst all the day, trading stuff out there. And there is a lot of day trading stuff out there a lot of Of people, they live for the day trading and it’s not that you can’t be a successful day trader. It’s much harder to be a successful day trader because I mean even if you just look at the gains from the market over the last 10 to 15 years, the majority of the gains have come from holding overnight.

1:49
It’s just how it works day. Trading is often times much more difficult. You have to find some of the most volatile stocks to be able to capitalize on and if they don’t work, they can go against you. And then all of a sudden you find yourself going from being a day trader to a swing Trader than a long-term bag holder. If you don’t practice the necessary diligence, but that goes Swing trading to if you don’t Matt manage the risk and be prudent with the stop losses.

2:09
Then yeah, you could be a long-term bag holder there, too. But I think if you’re looking for like a long-term career, I don’t always think that day trading is the way to go. I think, swing trading is a much better option because there’s not this need to have to perform each and every day. Sometimes you don’t even trade it all, but Ralph here, he says it’s very hard to find swing trade amongst all the day, trading stuff out there.

2:28
I’m not a new Trader, but I am newer to stocks, okay? So he’s been doing it for a little bit, you know, he’s not starting just yesterday. He says do you have rules to help you not be Overexposed to a certain sector? I also struggle going bearish with stocks never had that problem with crypto or Forex.

2:43
That’s the other thing too. I really think that too many people rushed into like the 4X and to the crypto and they really don’t get that. There’s a lot more risk in so many ways with like the Forex. It trades, 24/7. So it’s not like stocks where you only need to be in front of your computer between 9:30 and 4 p.m. this is trading all the time, and you’re also much more When you’re trading those Vehicles.

3:07
Now, cryptos a little bit different, but I think a lot of people would do so much better if they would just start with stocks. It’s so much smarter to go with that. And as for my drink, I got a real treat today because a listener, a member of the SharePlanner trading block, sent me a bottle of Blanton’s and you can’t even find this stuff down here.

3:25
It is really, really hard to find but it is like cream of the crop bourbon. It really is. And I’ve been looking for this stuff forever. Can’t find it. So this is my heart. Melt When this was showing up at my front door, I was just really thrilled and Bill from Boise Idaho sent this to me and I am very much thankful to him for doing that, it’s forty six and a half percent alcohol, 93 proof single barrel and let me tell you on a scale of zero to ten.

3:53
Blanton’s is a 97, it’s the highest rate and I’ve given out yet, it has this smoothness and the subtle heat. I mean, it’s it’s something that you just want to dance with. I mean, it is really that good, it’s romantic. But nonetheless, Let’s get talking to this email here, overexposure is a silent killer in your portfolio.

4:11
You have to acknowledge that if you don’t acknowledge that, you’re going to be in for a world of hurt. Because so many times people get caught up in like what’s hot, right? I mean it’s the same thing of going all in on one stock saying. Okay I’m putting 100% into the stock and then the stock falls apart and you’re just getting hammered.

4:28
Well, there’s sometimes where a particular sector, just completely falls apart. We saw it in the energy sector this year. We’ve seen it in numerous. Sectors over the years like financials, right? I mean if you were playing Just financials and energy on the rebound back in March, you grossly underperformed, you did way worse than you should have, because those sectors did not perform at the same rate that like your Tech and discretionary and Industrials.

4:53
All performed they struggled after the market bottom. So, overexposure can be a very much a silent killer. It’s almost like you don’t even realize what you’re doing to yourself. Because there’s also rotations in the So, software and Technology might be good one day, but then that might start rolling into utilities and Staples the following day, and that can create a heavy frustration, when you’re seeing the stock market rally, and then you have nothing to benefit from that rally because you’re in the wrong sectors.

5:21
Now, there’s going to be times we were in stocks that aren’t doing as well as the rest of the market. Like, right now, I have one Energy play and this past week, it’s not been doing that great relative to the rest of the market. I also have the Jets ETF Jay. ETS. It’s the only bread stock that I have in my portfolio right now I’m down like two plus percent on it and it’s just not moving like the rest of my stocks like T TD and Spotify, and Shopify and lows and some of these other plays that I have in the portfolio and it’s okay to be tilted in a sector, right?

5:54
Usually in a strong bull market, I’ll be more tilted towards technology stocks and discretionary stocks then I will be like utilities and financials or real estate. But you don’t want to be solely dependent on those sectors and when you start getting solely dependent on a sector like it’s your ride or die.

6:13
That’s where you’re going to start getting into some trouble with your portfolio because take a look back in the late 90s when the tech bubble popped, right? The S&P 500 did not take us near the beating that technology. Did the NASDAQ dropped 87 percent off of its heís. Not in one day, but over a period of time it did.

6:30
But the S&P 500 didn’t see nearly the pullback that technology in the NASDAQ. Saw. So, a lot of people during that time, that’s all they cared about. They cared about their cue calm, declared about Sun micro, which is not even trading anymore. They cared about AOL. They care about all of those tech stocks, right?

6:47
And then, when that bubble popped, they would have been much better if they had exposure in, Like, Home Depot or McDonald’s or Walmart, but no, they were completely sold out to the tech sector and they were, they were Overexposed. And so as a result they took massive, massive hits to their portfolio.

7:05
You, you don’t want that, you don’t want it on a on a day-to-day basis and you don’t want it over a period of time, so that’s for me. I’m never going to have more than like two to three full positions. And one particular sector, I have a propensity to trade technology stocks, I understand them, I get them.

7:22
It’s kind of like what Warren Buffett talks about trade, what, you know, or invest in what, you know, in his case. But it’s much more easier to be enthralled by a tech stock for me, then a re it or a utility stock.

7:45
So I have to be careful that I’m not just loading all up on software stocks. And like right now I have like, four different stocks but none of them are full positions and because none of them are full position that makes it a lot easier to have multiple tech stocks in my portfolio is long as they’re not full positions because I’ve been taking profits along the way as they become more and more profitable as Come more and more profitable and I’m taking a little bit of more of my Capital off the table in those trades.

8:10
It opens the door for me to be able to add another text Doc here and there and you really got to be careful about industry exposure because the closer you get to the actual stock itself, the greater risk that there is so far more risky to be Overexposed in an industry than it is in a sector.

8:26
Just as much as it’s far more risky to be Overexposed in one particular stock than it is in a particular industry, because the closer you get down to the stock, the more potential risk there. Is with that individual play. So, for me today, for instance, right? I saw there was like, stocks they were setting up and like a vlr and some other plays night.

8:44
Man, I really like some of these plays, I’d like to get into them, right? But I already know, I don’t need to add any more texts, Tech exposure to my portfolio and I particularly don’t need to add any more software exposure in my portfolio. So, my having to pass on these really nice setups because there’s nothing in my portfolio that I’m willing to dump for them and you got to be willing to pass up on trades and that’s sometimes the hardest part because you’re saying, okay, there’s trades everywhere.

9:04
There’s trades for days and you Get into those traits but you can’t do that. You have to hold back. You have to say, okay, I don’t need to keep adding more and more software stocks in my portfolio because you take an industry like software, you take an industry like semiconductors it mean, it can have some pretty brutal pullbacks and the individual stocks can have some very brutal pull backs of Their Own.

9:25
By the way, I’d be remiss if I didn’t talk about swingtradingthestockmarket.com, that’s the companion website, that goes along with this podcast with it. You’re going to get my market research each and every day that’s going to include. Multiple updates on the S&P 500, the Russell and the NASDAQ. You’re also going to get access to my watch list multiple times each week, as well as daily setups, and the most intriguing charts of the day, including weekly updates on all the fangs, stocks, plus Microsoft, and plus Tesla.

9:49
So go to swingtradingthestockmarket.com for that. So, now, the two in this is worth, discussing, as well as diversification diversification is important. I don’t necessarily agree to it at the same level that Warren Buffett believes in it. He believes that you should have a piece of everything, right in the sense that, you know, completely spread Across the board.

10:06
I’m not into that. Kind of diversification, I’m into diversification, that’s going to yield me. The best profits at the least amount of risk. And what I like to do is Target the sectors that are actually routing right now. It’s tech stocks that are running now, couple weeks ago, I really didn’t have much Tech exposure.

10:21
Right now, I do, I have a lot more than I’ve had in a while but I’m not going overboard with that Tech exposure for most of the year. I had no oil stocks and my portfolio over the last couple of months. I’ve had a number of oil stocks at my portfolio. So when I’m getting NG into sectors. I’m not just getting into them because hey, I don’t have a utility stock my portfolio, which I don’t have right now.

10:40
I haven’t had a utility stock for a long time and really because utility stocks have not been that great of late. It’s basically like diversification with a Twist. I don’t want to be in a sector that’s doing nothing. That would cost me money. I want to be in the hot sectors and I would like for it to be the top half of the best performing sectors.

10:57
It’s just kind of like a rule of thumb the bottom half. Maybe you have one or two sectors there in the hopes that it’s starting to bounce but I wouldn’t load up on those. Actors now about the bearishness there certain personalities that I find to have to be careful when it comes to shorting stocks because there’s a part of me and I think there’s a part of a lot of people that sometimes are a little bit skeptical on the market and you feel this need when you see the market rising to want to short the market.

11:23
I know, I’ve been that way in the past and I remember Josh was probably like, 15 years ago. I just couldn’t stand it anymore and I said, man, this this markets got to go down. So I shorted the market and I was right. I was like spot-on at The top and actually proved to not be the most helpful trade that I ever made.

11:39
Even though I made money on that trade. And I felt like a rock star for calling the top. It emboldened me to think that I could call the top on on future markets, which you can’t do. I mean, people have been calling Tops on this Market since 2009 and it just isn’t happening. If you go to YouTube right now, you’ll find a bazillion videos out there that are telling you.

11:55
This is when the stock market’s going to crash. I see it in the comments all the time. Stock markets going to crash this week so far this week. It hasn’t crashed. Maybe a crushed tomorrow in this, and I look like a total fool on this podcast. But The list as of this podcast recording, it hasn’t crashed yet.

12:13
So there’s this need to want a Time the top so that you can get out the top and just watch the world burn. And there’s also that need to want to short stocks and you get almost like your jollies off of seeing blood in the streets from a Wall Street perspective. While you’re actually making money and I get it like there’s a part of me that I find it very satisfying when when I’m up when the markets down, I like that.

12:35
I’m not necessarily in the watching the world burn by any means but but you get what I’m saying that the stock market selling off and I’m up. Up one or two percent of my portfolio. There’s a very satisfying feeling about that because I’m outperforming the market, when the market can even perform and right now, till you go to be careful with the market that we’re in. The FED is very accommodating. They’re very dovish, interest rates are at record lows and history tells us.

12:50
One thing is, it’s very hard for the market to have a complete and utter crash when the FED is this accommodating. So I’m not overly optimistic, that shorting, the market until we see some kind of technical breakdown in a significant way. It’s to happen.

13:06
So it goes back to not feeling the need to call the top. I think most Corrections and pullbacks are probably better off. Just sitting on the sidelines or just waiting for it to play itself out rather than having a short every time the market goes down.

13:21
So like I said, tops are hard to call. It’s like stepping in front of a freight train. That’s always the illustration that I use. I didn’t make it up. Somebody else did but it’s just like that. It’s like stepping in front of a freight train expecting for it to stop before it gets to you. And instead of just runs flat over you, you don’t want to be the dude. Trying to stop the freight train.

13:40
So don’t don’t be in the habit of trying to call market tops. It’s Sensational if you ever get it right? It’s a great feeling. That’s what they like to do on all the networks and it’s BS really but don’t don’t get into that, okay? Just like with rising up Trends, it’s not necessary to hit the bottom. What you want is the bulk of the markets move and that’s what you want with sell-offs.

13:59
You want the bulk of the move. And there’s very few sell-offs over the last 10 years. That really provide you a Chunk of change that you can make from it without having to nail the top. Perfect. You know, just recently the ones that come to mind would be the 2020 sell-off from late February to March, that was only one month.

14:16
It was one month and I thought for sure we were going to have a dead cat bounce and go lower especially shutting down an economy and having like pretty much the worst GDP and jobless numbers ever but it did it just v-shaped bottom went right back up to all-time highs. Over the next you know five to six months that followed So for me, when I’m when I’m looking to get short, I’m usually looking to get short on the basis of, okay?

14:39
The market crossed the line in the sand, that’s one way to play it. It’s a little bit more aggressive like say okay at the S&P 500 drops below 3000, I’m going to start getting shorts. It’s a little bit more risky because that could also be an exact support level that you didn’t even realize that it’s going to bounce that that’s not the way. I don’t necessarily recommend it, but it way that I like to do it is, okay, wait for that initial drop to play out.

14:58
And then as it starts to climb back up, it’s usually like a Bear Flag or just a dead cat bounce. Then you short it again. We had a little bit of that back in 2020. Now I was talking about other sell-offs that made for some very nice shorting. The other one before that was 2018 quarter for that was a beautiful three-month period for shorting October is sold off November.

15:16
I climbed a little bit higher than the bottom fell out in December, we get wrapped up in these topping patterns, right? And you see these big topping patterns, and I said this forever right now, Head and Shoulders patterns are almost turning into bullish patterns of late. Yes, there are topping pattern. Yes, they have some very bearish Tendencies but they hardly ever.

15:32
Break that neckline. If they do, they just break it a little bit and then they bounce right back higher. And I’m not trying to get into the charts in the in the stuff like that. I’m just talking in generalities here. Okay a topping pattern topping patterns usually lead to downside. Right. So I’m not trying to say you need to know what a head and shoulders is for this particular podcast.

15:48
I’m just saying that they’re bearish patterns that instead of going down they tend to bounce back up to new all-time highs. You have that going on with Google right now and then oftentimes to and we finally decide, okay, it’s time to short or shorting in the over, sold market conditions and that’s not a good thing either.

16:05
Because that’s where you get a lawyer v-shaped bounces or if nothing else. You’re shorting into a dead cat bounce, which is going to scar you from winning Too Short when the market actually does. So back off again because you’re going to have this bad recency bias that tells you, okay. If I short again, I’m just going to get caught in another bounce majority of time.

16:22
You should be long. I mean, that’s what the history of the stock market. Tells you the history of the stock market is that it has spent many decades just doing nothing, but going up with periods of uncertainty and pullback in between, look, if the market wasn’t going up perpetually over time, Nobody would be investors because your Investments would actually lose money over time rather than gain money over time.

16:38
If you find the urge to short a stock, right? Just just pull up a chart and say, hey is the stock market even below its 5-day moving average right now. Five days. Simple moving average, is it below it? It’s not maybe. Maybe it’s worth passing, okay?

16:54
Let there be some technical breakdowns in the market. Like, right now, there’s no technical breakdowns were sitting at all-time highs. There’s no reason for me to Short the market right now. Does it mean that there couldn’t be next? Week. But at this moment at a, the closed from today, there isn’t, when you’re shorting the stock market, you’re missing out on opportunities.

17:15
If you have the mindset of a permit bear, these people have been missing out on Non-Stop opportunities going back to 2009. I mean, that’s, that’s why I say most of the time, your sell-offs, your 3 to 5% pullbacks, you’re better off just waiting for them to play themselves out. And then when you’re starting to see some significant headline risk, and you’re seeing an increase in volatility and the moves that the markets making then, okay, you can start considering getting short but you need to wait at the proper.

17:32
You’re not shorting into an oversold Market bounced. That’s going to do it for this episode. Make sure to keep sending me your letters ryan@shareplanner.com. I do put them on the air. I may have to Jack this up to three episodes at some point because I’m getting a lot of them and I don’t mind going through all of them. I think the podcast is the best thing ever.

17:49
Just make sure you check out swingtradingthestockmarket.com and you find it in your heart, please leave a review on Apple or whatever platform that you listened to this on. It does help me continue to reach out to more people and it seems to be a lot of trade. And to keep this podcast going in the right direction.

18:06
Moving forward, thank you guys. And God bless. Thanks for listening to my podcast. Swing trading the stock market, I like to encourage you to join me in this SharePlanner Trading Block, where I navigate the stock market. Each day with Traders from around the world with your membership, you will get a 7-Day trial and access to my trading room including alerts via text email and WhatsApp.

18:27
So go ahead sign up by going to shareplanner.com trading block that’s www.shareplanner.com/trading-block and follow me on SharePlanner’s, Twitter, Instagram, and Facebook, where I provide unique market and trading information. Every day you have any questions, please feel free to email me at ryan@shareplanner.com all the best to you and I look forward to trading with you soon.