Stocks and War | Podcast Episode #227

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, hey, everybody, this is Ryan.

0:31
Mallory with Swing Trading the Stock Market and I’ve got a good episode for you guys. Stay typically I’m You guys the guests, I’m answering your emails, your questions, but there’s some pretty serious things going on the world here as I’m doing this post. Russia is invading Ukraine, and it’s riling.

0:47
The stock market. You got Futures that are taking now. Who knows by the time this gets published, it may be a completely different situation because what the market does one night can be something completely different in the morning. So, hedging, my bets when I say, you know, the markets are tanking right now because who knows what?

1:04
They might look like in the morning, but in this podcast, Episode. I’m going to talk all about, you know, the impacts of war with the stock market, you know what we’ve seen in the past and how that applies to today and how as traitors we can put ourselves in the best situation to navigate a very tricky and difficult stock market.

1:23
It was already difficult and tricky before this whole brouhaha with Russia and Ukraine came up on our radar. So we got already other kinds of headline risk, so this just adds to it and there may be even more headlines, That unfolds out of this whole situation with the Russians and the ukrainians.

1:42
But first, what am I drinking? I’m drinking this Heaven’s Door. Straight rye whiskey. So I’m not sure who’s been drinking all this might have to do another investigation of my own on that one but any case good looking color to it.

1:58
Okay, looks really nice to the nose. I know there’s nothing too special. It’s got like a little bit of a banana flavor to it. I would say it’s not really flavorful, there’s nothing that I’m really picking up on that says hey man this is this is got some uniqueness to it. It’s a little bit on the Bland side it has a solid amount of heat that comes in on Don’t say it’s overwhelming.

2:19
I wouldn’t say that it’s mediocre. It’s just some more lodged right there in between, I don’t know. I mean, if I’m looking at this, I’d say, it’s probably like a five seven out of ten. I can’t really go any higher than that and Heaven’s Door. It typically, underwhelmed.

2:34
I’m not a huge fan of is, this is everyday sipper. No, I wouldn’t buy ever again. I don’t need this stuff. It’s just not that great. So five point seven out of ten, back to the whole Stock Market trading through. Through a war going on and Ukraine between them and Russia.

2:53
Now we got to remember. This isn’t a war between the United States and Russia. This isn’t a war between England and Russia or any other country. This is a war between Russia and Ukraine. It’s the Russian troops. That are invading Ukraine’s sovereignty. Territorial now it’s more of a proxy war like what we saw during the Cold War where you have the United States, helping other countries.

3:17
To defend themselves. You will see that. Also with the other European countries in NATO countries, they will help Ukraine defend themselves and that’s a proxy war. We saw it in the 70s in the 60s and even in the 50s, during the Cold war with Russia, where we had our Korean War, we were fighting in Korea where we were fighting in Vietnam and then the Russians were aiding and helping the other side, it was a proxy war as part of the Cold War.

3:45
So whether or not this is the jumpstart to the Cold War part 2 is Up For Debate. But in the grand scheme of things, this isn’t like the Iraq war or the Afghanistan where we have boots on the ground. This is a war that we are trying to support one country to defend itself against another country.

4:02
That is trying to take it over so how it pertains to the stock market is this throughout history when we have been engaged in military Affairs, whether it’s directly or indirectly. There’s definitely some Done the stock market, typically it’s to the downside.

4:17
Like I said, as I’m recording this right now, on a Wednesday night, the same night, the Russians attacked Ukraine. The stock market is plummeting, you got NASDAQ down, 3% with typically happens. Is after that, initial shock the market does rally. You take one of the most extreme events that we have seen over the last 20.

4:37
Plus years, is 911, when 9/11 happened the stock market shut down for almost the entire week Tuesday through Friday, the entire Market was shut down, and then it reopened reopened much lower. But then spent pretty much the rest of the year rallying higher.

4:54
So you had that initial shock, and then the market rally. Now, once 2002 started the markets, resumed its sell off from the.com bubble. But for a little bit of their, you had a short-term right. Do I think it’s going to happen here. I’m not sure. I think that there’s a very strong potential.

5:10
Especially, as we’re hitting oversold conditions right now in the stock market, where you got the stochastic, You got RSI and macd. They’re all hitting some major extremes. You could see a relief rally that stems out to where we say, okay, we’ve seen the worst. We’ve seen Russia, invade, Ukraine, is it going to get any worse than this?

5:27
And then we start to see. Okay, nobody else is sending troops. Yes, that’s a proxy war. They’re going to be sending missiles or tanks or whatever to help. Ukraine defend itself, but it’s not getting any worse. So then the market will like that. It will have a new status quo little route. Now, we’re it kind of gets tricky, is you still have a similar situation?

5:45
Like that with China and Taiwan this China, use this opportunity where NATO and all the other countries are focused on what’s going on with Russia in Ukraine that they use that opportunity, because it’s probably the best opportunity that they’ll have to try to take over Taiwan.

6:01
Because if that’s a scenario that starts to play out, guess what? You’ve got a whole other problem on your hand here you got some serious issues because that’s going to have a far greater impact on the stock market. If China invades Taiwan and tries to do the Same thing that Russia is trying to do with Ukraine and I would be quite confident that they’re watching it with a Keen Eye.

6:22
So while there’s no doubt that the markets going to have to digest what’s going on right now with Russia and Ukraine. It also sets up the potential for it to be a capitulation moment for the market, where it puts in a short-term bottom, and then rallies there after how long that rally last is the big question because Russian Ukraine and geopolitical.

6:45
Cool tensions is not the only headline risk that’s out there right now. You see, we have a Federal Reserve that is going to be forced to start raising rates because we are in the midst of runaway inflation and that’s got to be Kurt. If you don’t curb it, everybody’s wealth, everybody’s dollar, power and purchasing power goes down.

7:06
And so that’s also something that the Federal Reserve cannot risk. And a lot of people say and I think it’s massive wishful, thinking hear that. Oh, this is going to give the Federal Of an out to not have to raise interest rates as aggressively anymore. No. I think it’s going to do the exact opposite. I don’t know how they can look at what’s going on in Russia and Ukraine, say, hey, let’s back off on these interest rates maybe we will start quantitative easing again that you can’t do that.

7:28
There’s no way. Because here’s the thing you have oil spiking through the roof, oil is one of the main drivers of inflation. Oil was up a bunch and that’s going to cause the transportation costs of everything else to go up. That’s going to cause vacation prices to go up.

7:45
Cause you got to get there somehow, right Transportation. If your wife wants to get that cute skirt off of Amazon, guess what? It’s going to have a transportation cost to get it to you there. If your kid wants that Lego set for his birthday, guess what? There’s Transportation costs to get it from Europe to the United States.

8:03
So inflation has to still be taken whether or not you have a crisis in Ukraine or not and in fact because there is a crisis and there is a war that’s breaking out between the two countries. You’ve got to be More aggressive because the oil is only going to go higher here because of this conflict.

8:19
There is so much oil disruptions right now. That’s going to happen as a result of this all, and the reserves they’ve already been tapped into. Yes, there’s still some left foot that’s not going to do it any good. That’s like a temporary fix. You can do a gas tax holiday but that’s not going to do anything either. You have to curb demand and right now, the demand isn’t being curbed.

8:36
The only way you can curve It Is by raising those interest rates by not injecting so much money into the market by the FED. Not increasing its balance sheets. Like it’s been doing for the last The last, you know, decade and so all that’s coming to an end here. They have to raise interest rates because you’ve got to bring down the price of oil and you got to bring down the price of everything else.

8:54
You bring down the price of oil. Other things will come down, but that only happens if you curb demand, when there’s not as much money circulating, demand is shrunk demand, shrinks companies have to find that middle point. If you remember that supply-demand chart where you have an X in the middle, you got to find that middle point where supply and demand meet and it, oftentimes it Come to a lower price point.

9:17
So until you curb demand, inflation is not going down. Inflation’s only up because demands up so much. Kill the demand. You create a surplus of Supply prices come down. So I mentioned there, be and headline risk Beyond Russia and Ukraine. That’s it.

9:33
The markets on the wrong side, of the Federal Reserve right now, the markets been going up pretty much for the last ten years because there’s so much liquidity in the market effect continues to come to the rescue of the market but this is like The first time that it can’t do it because of inflation, inflation has never been an issue until now.

9:49
And guess what? When this whole Ukraine, Russia thing is over with, or when it leaves, the 24-hour news cycle, when you don’t have reporters out in Ukraine telling you about every bomb, that’s dropping the focus in the markets going to shift, right back to the Federal Reserve.

10:05
You have a meeting next month in March, 20, 22. I always give you guys the years because I know a lot of you guys go back and listen to these podcasts years later. And so I always want to give you guys a Time reference of what I’m talking to here, but in March 22, you have another fomc, and in that fomc mean that’s where they’re expected to start.

10:21
Raising. The interest rates might be a quarter point. Might be a half point, I think they should do it on the entire percent just to get the ball rolling, man. You want to start kerbin demand shock the system with the strong price increase. Yes, it’s going to create turmoil for the market but what do I tell, people, manage the risk.

10:38
You have to manage the risk in the market. I don’t care if you’re a long-term investor short term investor, if you’re not actively asking yourself. What is the Line in the Sand on your trades, in your Investments? Look, if you’re okay with holding for the next 40 years, that’s your plan. That’s fine. Then you don’t have to worry about these events because they’re 40 years down the road before, it really actually matters.

10:57
But if you’re a traitor, yeah, you should be actively managing the risk. You should always have a plan for what you’re going to do before you ever get into the trade. But once this leaves the new cycle, the markets going to shift, its focus right back to the Federal Reserve, you’re going to hear about j-pal.

11:16
How aggressive is he going to be with the rate hikes and how Is it going to go on for, is there a fed? Put, is there a place where they back off and you know, cave into the markets and say, hey we’re not going to push it down any further, I think it’s a lot lower than what most people think, simply because they have no choice this time with inflation. If inflation doesn’t go down, they don’t have much of a prayer. They have to keep raising rates.

11:33
This is like 1970s Paul volcker kind of stuff. So what can we do as a traitor? And this is where I’m getting to. How do you trade through all this stuff? It took me a little while to get to it, but I wanted to lay the groundwork so that you guys understood. Where are we at as traitors? How do we manage this stuff?

11:49
Well, I’m off to a fantastic start in the year and I’m not trying to toot my own horn, but I guess I kind of am. But the reason why I am is because I’m treating smaller positions in terms of not position size position, size is still the same. It’s just a number of positions that I’m trading instead of trading, like, seven or eight positions at a time, where be an 80% long because the markets trending Market is now trending lower.

12:13
It’s very choppy. It’s very volatile. In some massive swings on a day-to-day basis. I don’t have to have seven or eight positions to get a good return. I can reduce my Risk by trading, maybe one or two positions like I’m doing right now. Still get a lot of volatility.

12:28
Still get a lot of movement but I’m doing so at a much lower risk level than somebody that’s trying to go short or long 100%, you start doing that stuff in this kind of Market, your swings in the portfolio is going to be more and most cases than what your emotions can handle.

12:45
Oh so reducing the number of positions that you’re managing. Yes, it’s boring. But you know what? I’d rather be making money board. Then I would be losing money and having these adrenaline rushes. I’m not into trading for the excitement. I’m into it to build my capital and when the best things that you can do in a market that’s extremely unpredictable, with a lots of – headline risk is to reduce the number of positions that you’re trading.

13:10
If you’re only trading 10 or 20% of your Capital, that’s not a bad thing. That means a lot of your money. Is on the sidelines in. It’s not affected by these day-to-day volatile swings. And look, if you’re up on the year, right now after the horrible start that the market has seen and I am one of them.

13:26
That’s a good thing, that’s a good thing and you’re doing it with a smaller number of positions, so race cash, trade smaller positions and it’s, you’ll be shocked at how less volatile the market seems to you. You will not see the market is being these massive swings up and down, okay?

13:43
It’s dropping three percent this day. It’s Going up 4%, that day. And yes, if you’re on the wrong side of that particular day, you’ll not appreciate it. You’ll not like it, but your emotions will be under control because you’re only trading like, one or two positions. And the other thing that I would say to is that you have to take profits along the way.

14:03
That’s one of the things that I hate doing, especially right now, because I’ll get into qid, for instance, and I’ll be up 12% on it. I’m like, I bet you the market continues to go lower and for those who don’t know what qid is, it’s a two to one. Verse return on the NASDAQ 100. I don’t want to get out of it. I don’t want to take partial profits in it, you know, I I’d rather have 2/3 of a position rather than 1/3 of a position that’s me talking and I take a some of it off the table anyways, because I know it is more important to stay disciplined to not get ahead of the game to not say oh this is going to the moon or this is going to colonize Mars.

14:36
You can’t get into that mind frame and it’s very easy to do it when the positions are going your way and then when you start getting into that mind frame, we’re always going to be caught off guard when the market rallies. Is against you. It’s going to be a paradigm shift. You’re going to make a motional reaction on that particular trade because you weren’t prepared for it.

14:52
So you got to take some profits along the way. It’s for your own sanity. Now, I like to start taking profits if I can now sometimes the market is a little bit more trickier at times so you have to be a little bit more aggressive but for me I like to start taking profits when I have about a two to one return on the reward versus what I risk on the trade.

15:13
Once I can get there, man. It is I don’t want to say it’s easy sailing, but man, so much risk is come off the table because you’ve got a good chunk of profits already sitting in your account. So the takeaways here, when there’s war, there’s oftentimes, this capitulation moment Allows the market to Rally back up, even it’s for just the short-term.

15:33
Like what we saw following the 9/11 attacks, the other one is to remember that even after this subsides and this isn’t part of the new cycle. Yes, the war may still be going on, but if the news isn’t reporting it and the market doesn’t care about it, then it’s on to the next headline risk in that is also a negative that’s going to be the Federal Reserve and the rate hikes that are more than likely to happen in March and as traitors the best thing that we can be doing with our capital is to be trading fewer positions and taking profits along the way.

16:04
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16:27
It helps support So as well and make sure to keep sending me your questions. ryan@shareplanner.com. I read all of them, I try to put almost every single one of them into a podcast episode of its own, so make sure that you’re still sending me your questions, I will read them. And if it’s a question that I can answer, you can be sure that I will put it into an episode.

16:47
Thank you guys. God bless. Thanks for listening to my podcast. Swing trading the stock market. I like to encourage you to join me in the 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.

17:08
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17:28
And all the best to you and I look forward to trading with you soon.