Diverging Stocks From The Market | Podcast Episode #275

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 Mallory with Swing Trading the stock market.

0:33
In today’s episode, we’re going to have a pretty darn good one here. We’re talking about the verging stocks from the overall market. That means you have a stock that is trading at or near its all-time highs or a rally high, and the market’s just selling off. But this stock does not seem to be affected by it at all. That’s what we’re going to talk about in this email today that I’m going to be speaking to. It’s from a guy that is on the other side of the pond. He’s in England, and I’m not gonna use his real name, but I will give him a somewhat of a Florida redneck name in the form of Bebo. Bebo from England writes,

1:09
Hey, Ryan, once again, great work with the podcast and the info that you send with the subscription, swingtradingthestockmarket.com. You are doing a good job at helping us novices see the wood for the trees. That’s an interesting. I think I’ve heard the expression for from the trees or the trees from the forest. It’s one of those two, but I’ve never heard the wood for the trees. He goes on the right, he says, I have another question for you more sensible than my last one. Occasionally I see a stock that is behaving differently to the market. For example, there is a smallish tech firm called Cerrileion. It’s on the London Stock Exchange under symbol CER, which is held up very well through this sell-off and is even near its all-time highs. Is it sound logic to think that this must be a good buy on the assumption that market negativity isn’t troubling it too much and any market rally should manifest itself with share price moving higher? I have tried this once or twice in the past, and it has sometimes worked, but also sometimes suddenly tanked as though the market had forgotten about it. Then suddenly spotted it and then punished it and me. By the way, I find it especially useful when you give us case studies of trades that you have made for yourself, good and bad, giving details of the entry price and why you got out and the indicators that you use. I find getting the entry price especially hard. Sometimes I go in too early and breakouts were obviously not confirmed. Sometimes I wait for the confirmation, only to find that I have blinked and missed out on the bulk of the move. Anywho, keep up the good work. Bebo from England. All right, Bebo from England, thank you for that email.

2:37
We got a lot to talk about there. First, what am I drinking? This is one that I’ve never heard of before. 100 proof, so that makes it 50% alcohol. 100 proof, Yukon Jack honey. Whiskey with natural honey flavor. So, kind of curious how they got that natural honey flavor. It can’t be from the barrel. It’s got to be put in there. So, it’s not a bourbon, it’s just a whiskey, which isn’t bad either. But to the eyeball, it has like the color of honey, it’s it’s what you would expect honey to look like, except this is in the form of whiskey. So light brown to the nose, it smells like that honeys signals that take me back to my Tennessee summers when I was growing up as a kid. There used to be honeysigles everywhere in those blooms, and the smells that they were giving off were just absolutely amazing. That’s what this smells like. So major kudos on the smell.

3:21
Now. Taste. It’s like honey nut Cheerios, a little bit of like that honeysickle flavor too that I was telling you that I could smell. But to the taste, definitely, definitely a strong honey flavor. I mean, that’s the strongest honey note I’ve ever picked up on. I mean, it’s all honey. There’s no way that’s in the barrel when they were aging it or anything else. That has to be added. I mean, I think it could still be a natural flavor to be added, right? But anyways. Definitely a strong, strong honey flavor, but it’s not a bad honey flavor, it’s quite decent. The heat is making it unusual in its taste because you get the honey flavor, which is really nice and sweet and right underneath it you’re getting this strong spice. It’s 100 proof, it’s 50%. It’s gonna be strong. It definitely is one of the more unique whiskeys that I’ve ever tried. Is it everyday sipper? I definitely think it is, but it, it’s one of those things that’s going to be very niche, very like. By the person. I don’t think that all whiskey lovers are gonna love this. I don’t necessarily say I love it, I think it’s good, but I don’t think it’s anything higher than a 6.3. And it also has a phone number on the little sample bottle that I picked up. It says 866-SARA, and then the email is at sazra as well. So I wonder if there’s some kind of affiliation with Sazra whiskey, so, probably so, but it’s not horrible. It’s just a very unique flavor. I don’t necessarily need the strong additional flavors like the honey that I’m picking up on this one. And the spice underneath it’s really unique. I bet you that there’s some good cocktails that you can make with this stuff, just mixing it all up. So that might be another option as well. I definitely wouldn’t put it in an old fashioned. I don’t want that honey flavor all over it. In any case, Yukon Jack honey definitely lives up to its billing of tasting like honey, 6.3. A bit surprising that it was even that high, but good for it. OK, back to Bibo from England.

4:21
And it also has a phone number on the little sample bottle that I picked up. It says 866-SARA, and then the email is at sazra as well. So I wonder if there’s some kind of affiliation with Sazra whiskey, so, probably so, but it’s not horrible. It’s just a very unique flavor. I don’t necessarily need the strong additional flavors like the honey that I’m picking up on this one. And the spice underneath it’s really unique. I bet you that there’s some good cocktails that you can make with this stuff, just mixing it all up. So that might be another option as well. I definitely wouldn’t put it in an old fashioned. I don’t want that honey flavor all over it. In any case, Yukon Jack honey definitely lives up to its billing of tasting like honey, 6.3. A bit surprising that it was even that high, but good for it. OK, back to Bibo from England.

5:01
So the stock, CER has done amazingly well. I looked it up. I’m not familiar with it. I feel like I’ve heard the name before, but not familiar with the stock because I don’t trade stocks on the London Stock Exchange. Nonetheless, I do feel like a lot of the principles that I talk on this podcast are very relevant to any stock exchange. So, Cerrian and I’m hoping I’m getting that right in terms of pronunciation. Has a really, really nice chart. In fact, it looks like it has like a continuation triangle pattern going on there over the past couple of months where it’s putting in lower highs, but also putting in higher lows, creating a triangle pattern. And as long as that’s like 33% or less of the previous move, those tend to turn out to be quite bullish. Now, underneath it, there’s this one’s, it’s trading at like 1045, right, per share. But there’s some support there at 910 to 915 per shares. So it has a nice chart. But one of the things that I would say is that not all stocks always move down at the same time.

6:02
You take the sell-off that we have seen so far here in 2022. Apple, materials, energy stocks like Chevron, Halliburton, Hess, ExxonMobil, Slumberger, just a whole host of them. They didn’t sell off right away. You had wheat going through the roof, you had corn going through the roof, the market was selling off, but not these guys. These guys were staying at its highs or even making new all-time highs initially, but they eventually cave. They eventually fell apart. Now does that mean every stock is going to fall apart in a recession? No, not necessarily, but most will. And so when it gets very obvious, like, hey man, this thing is really bucking the trend because it’s trading at all-time highs, I’m gonna get long on it because the market’s trading at new lows. To me, that doesn’t work really good as a rationale for trading the stock. Now, if it sets up like that continuation triangle pattern I was talking about, it sets up and it breaks out, OK, that, that might be good.

6:57
But I also use a top-down trading strategy. So I’m not looking to get into stocks on the long side. When the market’s falling apart. So if the market’s falling apart, then I’m gonna be looking to short stocks. I’m gonna look to be bearished because that’s the path of least resistance. And then I’m going to look at which sectors are trading weak. And then after that, which industries are trading weak. And then I’m gonna find the stocks within those industries that have the best trade setups for continued downside. And the same thing goes for the long side. When the market is ripping higher. I’m going to try to find the sectors that are doing the best usually, or at least of late, that’s been tech stocks over the past 13 years. So I’m gonna be looking at tech and discretionary and maybe even some industrials, and I’m gonna try to find the sectors, maybe it’s semiconductors within tech and restaurants within discretionary and try to find those stocks within those industries that are providing me with the best setups. Maybe there’s a bull flag in AMD or Nvidia or a double bottom in DRI. Whatever the case may be, I want my trading to align with the market with the sectors and the industries.

8:01
I don’t want to be fighting the market with a new long position to the upside. Just because it’s been bucking the trend to date, because it’s very easy for the market just to completely reverse and go back down again. And here’s the thing too, he makes an interesting question here to me. He says there’s a sound logic to think that this must be a good buy on the assumption that the market negativity isn’t troubling it too much and that any market rally should manifest it with a nice rally. The question to that would be no. I don’t think so. And here’s the thing, when the market starts to rally after a significant sell-off, do you really want to be buying the stocks that are trading at their all-time highs or do you want to look at the ones that are trying to come out of the base following a significant sell-off, because those are the ones that are going to move the biggest. Those are going to have the biggest discounts, the ones that most people are going to be attracted to. They’re not really looking at stocks trading at their all-time highs at that point. They’re more so looking at the stocks that are deeply discounted. So when Apple goes from 178 down to 130, people are going to see that as a discount, not so much CER that’s trading at its all-time highs. Doesn’t mean that CER can’t keep going higher during those time periods, but it’s going to probably see some rotation of money out of that stock and back into the stocks that are trying to rally following a major correction or a recession.

9:02
But it’s going to probably see some rotation of money out of that stock and back into the stocks that are trying to rally following a major correction or a recession. The other thing that you risk too if the market continues to drop lower is for that stock to see some liquidation of those shares because people are getting margin called in other stocks and they got to provide money or capital for the account to cover the margin call, so they’re going to sell their profitable trades or investments to cover that margin call. So stocks like CER, and remember this is. The London Stock Exchange could see some margin calls in order for people to be able to cover that happens all the time. You see that a lot with the gold and silver, everybody thinks gold and silver is supposed to rally every time there’s a recession, initially, it usually does, but ultimately it falls apart, and that’s usually because of the margin calls that come with a major market correction. It kills the price of that commodity.

9:47
Remember too, a stock’s price. Influence. What is it that’s influencing a stock? Well, you got the overall market, then you got the sector action, then you have the industry action, then you have the stock itself, you know, the headlines associated with just the stock, maybe it’s earnings, maybe it’s an upgrade or a downgrade for a company, or maybe it’s just positive sentiment or negative sentiment, but those are the main things that go into a stock’s share price. So the biggest influencer on a stock share price is usually the market. That’s usually what drives it. We talk about stocks that march their own drummer, that’s usually because they don’t have as heavy of an influence of the overall market as most stocks. You could say CER kind of marches to its own drummer, but on the whole, you usually see about 50 to 60% of the stock’s price action directly related to it from the market, and then the sectors and the industries that it’s associated with, that’s going to also affect it. And then of course you have stock specific news that’s going to drive the price higher or lower. So remember, those are things that go into a stock’s price action.

10:56
And so when the market is selling off, it’s not always the best idea to just try to buy a stock that hasn’t sold off yet, because ultimately what you usually see is stocks eventually cave to the overall market pressure. So just because it hasn’t sold off yet doesn’t mean that it won’t. Remember, utilities do well in bear markets, at least relative to the rest of the market. That’s usually a safe haven because people need their utilities on, even if it’s a bear market. People want their air conditioner, people want to have a functional stove and a dishwasher. Waste management, WM is a stock that tends to do much better than most stocks during a bear market. Why? Because people They’ll need their trash picked up. So the things that are indispensable tend to hold up in a bear market much better, but when the market starts to turn around again, you will often see money rotate out of those stocks and back into your tech stocks, your discretionary stocks, your industrials, and the like. So just because it hasn’t sold off yet doesn’t mean that it won’t eventually, or if the market rallies that it won’t start to sell off right then and there. Very rarely do you have a stock that it is impervious to any market direction at all. I think maybe the only one is Chick fil A, and that’s never been publicly traded, but I’m sure that company is doing fantastic, considering the fact that there’s lines wrapped all over the building every time I go past one. So I wouldn’t trade a stock because it’s bucking the trend. If you’re going to trade it, make sure that there’s a valid trade setup associated with it. It needs to have a reason, an edge that will make the share price go higher. Cause remember, if that was all it took to buck the market trends, to be able to survive a bear market, all people would do is just sort stocks by year to date and see which ones are holding up the best and just buy those.

12:28
Also in Bibo’s email, he says, I find getting the right entry price on trade setups especially hard. Sometimes I go in too early and the breakouts were obviously not confirmed and I lose, or sometimes I wait for the confirmation when you find out that I have blinked and missed out on the bulk of the move. Well, not all breakouts can be traded. So if you take a trade setup, right, and it says, OK, it breaks out at $100 but you look at the last 3 weeks of price action and it’s run from $80 to $100 nonstop, like over 6 or 7 trading sessions, and it’s going for the breakout. That’s probably one that I would pass on unless it could consolidate some for a good period of time before it took that next leg higher. Why? Because it’s probably overbought at that point and more susceptible to a head fake or a false breakout where it pulls back before it ultimately goes higher. So for me, I’d rather wait for it to settle. Or just move on to another trade. There’s tons of trade setups out there each and every day. You just got to find them and find the ones that offer you the best reward to risk ratio.

13:22
In terms of getting in too early, there’s a reason why I don’t get in stocks too early. Look at meta, META. This thing has been basing for the last couple of months. And is it necessarily breaking out here? No, it’s not even close, but it keeps looking like it’s going to break out. In fact, just a couple of days ago, it looked like it was like pennies away from breaking out. Never did, but it was really freaking close. And had I jumped in early, I’d be just sitting there with a loss right now. So you want to wait until there’s some kind of a confirmation until you say, OK, hey, the edge that I’m looking to trade on this one, it is now active. It’s breaking out of a bull flag. Now is the time to pull the trigger. Now, if doing so requires you to jump into a stock that’s already run 15% or 20%, there’s probably better opportunities out there. If the stock is only run like 2 or 3%, that’s different. But if you can get a good entry price relative to this. Stop loss and that’s really what a good entry price is all about, is can you get a good entry price relative to a good stop loss.

14:15
And what makes a good stop loss is not just pinpointing like, hey, I just don’t want to lose more than 3%. I’m just gonna put it right here and it’s really got no basis for why you’re putting it there. That’s not a good stop loss. That’s not a good reward or risk ratio because it could easily go down to that level, stop you out and keep going higher. What I want to do, and it’s not a perfect system necessarily, but it’s a really darn good one, at least for me it has been, is to find key support levels and that if it breaks that key support level, you know that you don’t want to be in that trade anymore. And so that’s what you want a good entry price relative to the stop loss that has some meaning behind it, some teeth to it. You want some support that it has to break in order to stop you out of a trade. Otherwise, you’re just left to the whims of the market to get stopped out for no reason at all. And as the email mentioned earlier, he was talking about swingtradingthestockmarket.com, and I’d be remiss if I didn’t talk about that just for a second here. Really cool feature that’s offered alongside of my podcast that’s gonna give you access to all of my market research that I do each and every day. That’s gonna give you updates on the S&P 500, the NASDAQ, the Russell. It’s also gonna give you access to my weekly watch lists, both Bullish and bearish, also the setups that I’m looking at each day. And my favorite charts that I come across. So you’re gonna get updates on big tech stocks, all that good stuff. So check it out. swingtradingthestockmarket.com. It’s really good videos that you’re gonna have access to. Plus, make sure to leave a 5 star review for this podcast. I really do appreciate it and keep sending me your email is ryan@shareplanner.com. I read them, I want to put them on the air, keep sending them to me. Thank you guys, and God bless.

15:39
Thanks for listening to my podcast, Swing Trading the stock market. I’d 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. So go ahead, sign up by going to shareplanner.com/tradingblock. 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. If you have any questions, please feel free to email me at ryan@shareplanner.com.

16:23
All the best to you and I look forward to trading with you soon.