Is Shorting Still Dead? | Podcast Episode #365

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, everchanging 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.

0:25

You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with swing Trade in the stock market. In today’s episode, we’re going down memory lane a little bit here to talk about whether or not if shorting is still dead.

0:41

Now if you remember back on May 18th of this year, I did a podcast episode called Is Shorting Dead? And it was a pretty popular episode. A lot of you guys listen to it and now we have to ask ourselves, is it still dead? Is shorting still dead?

0:58

And that’s what I’m going to be talking about, cuz we’ve seen a bit of a downturn here in the market. We’ve seen it drop about 8% off of its highs. We’ve seen it drop from about 20% in gains on the year down to about 12% and that could continue to drop further. So if that’s the case, should we be shorting? The market is shorting still dead?

1:16

In today’s episode, we get an e-mail from a person we’re going to call, Laura Lane. I’m going to give them a good Florida redneck, Laura Lane. I don’t use people’s real identities for various reasons. They may come to hate the fact that their name is out there 10 years from now. So I don’t want to do that to them. And it also makes it to where people feel comfortable enough writing to show and spill in their guts if they need to.

1:35

So Laura Lane writes, Dear Ryan, I hear you and everybody else talking about a big downturn coming a few months ago. You talked about how shorting might be dead now, the market might be starting to top and a big downturn might be on the horizon. Do you think shorting will be back in play?

1:52

If so, that would be a reversal of your previous opinion, which brings me to my question. How fluid should we be with our market strategy? I know that factors change and market sentiment changes. I know the FOMC statement hasn’t always been as much of a factor as it is now. How do we know when to change our market strategy or theory?

2:09

Sincerely, Laura Lane. All right. That’s a good question. And one of the things that I don’t try to do is duck difficult questions on this podcast. If I don’t know the answer, I’ll tell you like, for instance, I get a lot of questions about tax accounting, like with watch sale rules and all that.

2:25

I’m not really at a tax accountant. I don’t know much about tax accounting. I don’t feel comfortable doing podcasts on tax accounting, but I don’t mind people questioning something that I might have said in a previous podcast or if they feel like there’s a conflict there about how to resolve that. And so I actually respect this person for writing it.

2:42

I’m not going to duck the question like a lot of people would. And and it is true, back on May 18th when the market was just ripping but seemed like every single day I did a podcast. Is shorting the market dead or is shorting dead in general? I guess is what the actual podcast title was.

2:59

So is the market showing a little bit of a topping pattern right now? Yeah, absolutely it is. You look at August and September, things have drastically changed. We’re down for two straight months in the market. That’s been a shift from what we saw January through July where it just seemed like there was a constant bid under the market.

3:15

In May, I was a little bit frustrated because at times, yeah, I was shorting the market and I could not get the market to drop at all. It would just drop and then it would be recovered by the end of the day. Shorting at all in 2023 up until August has been a very difficult proposition. And then and one of the things too, I always see is like in the case of Laurel Lane here is that she sees a lot of people saying that there’s a market top eminent, well, there’s really three outlooks that you can have for a market.

3:41

You could say that it’s going down, that it’s going up or it’s going sideways, right. You can be bullish. The market has plenty of room to run. You can be bearish. The market’s topping and it’s going to continue to drop or it’s going to crash or it’s going to go sideways. And there’s millions of people giving opinions out, including myself, on the market and what they think.

3:59

And so with millions of people, you can really fit them all into those 3 categories, bullish, bearish or none of the above. So it’s not hard to find at any given point in time, no matter the kind of market that we’re in, Tons of people that think the market’s going to crash tomorrow. When I was a kid, one of the big popular things, and I’m sure there’s probably still a lot of people that write books on it, is when is Jesus coming again?

4:21

A lot of people write books. I think there was a book in 88 called 88 Reasons Why Christ is coming back in 88. And it’s their opinions, right? I mean, you don’t know until it actually happens. Obviously Christ didn’t come in 88, so here we are in 2023. But. And there’s going to be a lot of opinions that are wrong and there’s going to be some that are right.

4:37

And some people will keep posting the same opinion all the time so that when what they say actually happens, they can claim credit for it. I mean, especially in the stock market, they’ll claim the top from 2008 until 2022 that it’s coming, the markets crashing and then when 2022 finally comes around, like see I told you the market was crashing, You should have listened to me.

4:57

Well, if they listened to you from 2000, from the end of 2009, I guess is what you would say March, March of 2009 when the market finally bottomed until 2022, that was like 15 years of gains that you missed out on there. So it doesn’t really pay to just constantly have the same opinion all the time when it comes to the stock market.

5:16

Yes, you could eventually be right. And you can say, well, he was the one who called the 2022 crash, but it’s really not that honest. So again, you can have people that are in the bullish camp, the bearish camp, in the sideways camp. And so when you’re taking millions of opinions, if not more, and you’re funneling them into like essentially 3 categories, you’ll always be able to find the opinion that you want out there.

5:37

And so going back to the original question, is shorting still dead? In many ways, yes. You have derivatives creating incredible amounts of impredictability. You have derivatives creating incredible amounts of unpredictability, and that leads to a massive short squeezes even in the midst of heavy downturns.

5:52

And those short squeezes can really catch you off guard, especially if you’re just going for the meat and potatoes. Because let’s face it, getting in at the very top requires that you’re always shorting. And then getting out at the bottom requires that you’re constantly buying on the way down to hopefully catch the falling knife.

6:09

And that’s not really a good strategy. I don’t think you can consistently ever predict tops and bottoms in a mark. It’s just not true. And a lot of people will say that they can do it and they’ll claim that they did their lying. And so the traditional method of the market, you know, with price discovery is, you know, 2 steps forward, one step back, you get a nice little week of gains and then you might get a minor pullback or some consolidation and then you get another week of gains and then you get another week of minor consolidation or a slight pullback that 2 steps forward, one step back.

6:36

I think Paulo Abdul did a song in the 80s about that, right? And I’m doing a lot of 80s references I guess, in this particular episode, but it’s two steps forward, one steps back during a bull market book ended by the occasional correction or recession. And now we’re trying to do everything we can to prevent recession.

6:52

We’re trying to raise rates to unbelievable levels and still try to have a soft landing. And really we haven’t had a true recession since 2008. I mean you’ve had periods like 2018 where the market pulled back, 2020 when you had the COVID shutdown, 2022 where the market did pull back quite a bit, but it didn’t stop the spending.

7:10

I mean that was more or less just because the Fed was raising rates. And up until the last two months, we always hear about don’t fight the Fed, don’t fight the Fed. And what is the market done so far Up until August, done nothing but just go absolutely bonkers like NASDAQ was almost 40% at one point. So that’s definitely fighting the Fed.

7:26

We feds raising rates, market keeps going higher and how stupid is the market analysts, all these Wall Street analysts out there, Oh, we’re going to get, I mean how many times have we heard throughout the course of 2023 that rate cuts are in. So we’re going to be getting rate cuts in 2023.

7:42

We’ll get them in by July and then they push it out to September and then they push it out to November and then to December. Now we’re pushing them out to August of 2024. And then at some point I guarantee it, though I don’t like to say guarantee because it just does a lot of crazy things. But I will be very confident in saying this, that at some point they’re going to try to bring in those rate cuts here from 2024 to March or April or May or something like that, but they’ll try to drum it up so they can rally that market again.

8:09

And these Wall Street analysts are so disingenuous, man. It’s either they’re very disingenuous, they’re very dishonest, or they’re just stupid. And I think it might be a combination of both. I think a lot of people on Wall Street now, they’ve never experienced the 2008 or a 2000 when the market goes really bad. So all they know is a market that always goes up.

8:25

And so their predictions are biased towards the market always going up and never having a correction. They have never had to live through that. We have these traders on the NASDAQ that are essentially contemplating whether to throw themselves out of a building or not or tell their customers they’ve just completely screwed up their portfolio.

8:41

That’s what it was like backin.com days or 2008. Now everybody’s just like Yolo by the debt and so they’re preset with that. So they’re always assuming that the analysts are going to cut rates in the near future. But then you see what the Federal Reserve, Jerome Powell, said at the last meeting that they’re going to stay higher for longer.

8:58

And he sent that message very loud and clear talking about the two steps forward, one step back of you know how a lot of trading has been over the years. It’s now got into where it’s 100 steps forward, 100 steps back. I mean it gets really crazy. So when when it’s really good, 100 steps forward, when it’s bad, 100 steps back.

9:16

Over the course of the summer, you could not get the market to drop at all. June, July, May, you could not get the market to drop. It was just every day it was going higher practically. And if you did get a sell off, it was wiped out within a day or two. And then now you have this constant selling pressure on the market.

9:33

You can’t get a bounce and the market’s extremely oversold, yet you still can’t bounce. Attribute a lot of that to the zero DTE crowd where they’re doing the zero DTE puts instead of the calls right now. And then when they start doing the calls, they’re not doing the puts. So then the market goes up.

9:49

And so when you have this 100 steps forward, 100 steps back, how do you short the market unless you’re able to get at the very top, which I think is impossible on a consistent basis without ruining your portfolio, how do you short it? So really at this point we’ve seen the market decline for about two months, very little bounce. In the meantime, the technicals have never really said short the market until well after the fact when the when you have ski support levels breaking down.

10:10

But by the time those ski support levels start breaking down, you’re already extremely oversold. So I don’t really want to be shorting the market when it’s extremely oversold because then your reward risk isn’t that great. And this past week, for instance, I was 100% cash. I made a trade in Apple. I was trying to play the bounce Thursday afternoon on Apple was down a little bit on Thursday.

10:29

Friday. It popped about 1 1/2 percent or so, or 1.2% and then I think I got out with like a .3% gain. So it wasn’t much, it was a very tiny profit. But I didn’t short the market at all. Why? Because it’s been a crazy to try to short it this week because it’s oversold.

10:45

It would have been crazy trying to short it last week because we were so oversold and the technicals were pointing towards a bounce in mid-september where we were testing declining breakout resistance off of the July highs that we couldn’t break through them. And we sold off pretty significantly starting on Wednesday, September 20th and by the time that sell off happened then you get the gap down the following day.

11:05

So if you’re really wanting to short it, you know following that huge sell off on the 20th and I know I’m getting into some specific dates, if you want to go back and look at it on your charts go for it. I try not to get too heavily into like price action without you guys being able to look at charts. So I’m not really going in there. But essentially you had a huge sell off on Wednesday the 20th and then you had a gap down, a significant gap down and then it just continuation to the downside, breakaway gap to the downside.

11:27

There was really no opportunity to short unless you’re willing to take on massive amounts of risk. And even then you might be getting 1 or 2% in gains just on like an individual trade and that’s like not leveraged. So very difficult. And if you say, well you could have just done leverage, well then you’re leveraging your risks too. So if you could have got 6%, you know you might have been taking on 12% in losses as a potential risk side of the trade.

11:48

So really especially for me, cash has been great this past week. I’ve been in cash the whole week outside of that one Apple trade that I held for basically 24 hours, got off small profit moved on. But you want to know what else is great swing trade in the-stockmarket.com. Guys, this is a really cool feature. You’re going to get access to all of my stock market research each and every day.

12:06

That’s going to include analysis on big tech. That’s going to include all of the analysis for the market indices, plus my bullsh embarrass watch list that I provide each week. My master watch list. Then you’re going to be getting the daily setups that I’m looking at each day as well. Really cool stuff. Videos that really help crystallize a lot of my thinking.

12:23

Really. Check it out. Swing trade in the-stockmarket.com and you’re supporting this podcast in the process. And let’s think about this too. We’re talking about a potential top again after what happened in 2022. I mean, we had a significant decline over 20% in 2022. And here we are in 2023.

12:39

We’re talking about a topic and I’m doing a podcast episode on a potential top and it’s not me generating it. This isn’t me trying to give off this like bearish hysteria. This is somebody writing me about it. And then the question becomes to where? Well, Ryan, what about your fluidity and changing your market theory or your strategy? So when I was growing up in church, the pastor that I sat under, I remember him saying this quote.

13:00

I think he attributed it to Thomas Jefferson and I don’t know if it was necessarily Thomas Jefferson who said it or it was just later attributed to him. But he said on matters of style, swim with the current, on matters of principles stand like a rock. So you know, in the case of Christian theology, people were saying, you know, on biblical doctrine you stand like a rock.

13:18

On matters of whether or not you should be using drums or electric guitar in the church, you swim with the current. And so the same thing could be translated over into trading. Where stock trading, you have key principles that you stand like a rock. Risk reward, stop losses, risk management, profit taking, not trying to time the bottoms, not trying to time the tops.

13:36

Planning your trade. Like when you hear me talk about #1, my 3 principles of trading. One, plan your trade two, manage the risk, #3 let the profits take care of themselves. Those are matters of principle. Those are things that I will stand like a rock on. But then you have the fluidity that comes with it.

13:55

Maybe that comes with the timing of your trades getting better at how you’re trading, the methods of which you’re trading. Maybe there’s more reliance on a particular pattern, like for instance head and shoulders patterns. They’re a little bit more important these days, especially after 2022, than they were 2009 through 2021. 2009 to 2021.

14:17

They would just sneak right below the neckline and then take off. But if you’re swimming with the current, you’ll start to notice that these head and shoulders patterns are materialized and no better than the example that we saw in Tesla. Massive head and shoulders pattern confirmed to the downside with vengeance. But in 2016 you got the same head and shoulders pattern might probably wouldn’t have confirmed, probably would have just snuck them down below it and then taken off.

14:39

And then the even your approach, you’re improving in your approach. You’ll find things don’t work like they used to your analysis that’s a style. And then whether to be short, whether to be long, that’s very fluid. It’s too. That’s swimming with the current. And there’s going to be times where you start to realize, hey, shorting is not as good as it used to be, that oftentimes staying in cash and waiting for the market bounces is a much better approach.

15:00

And I still think that at this point in time, that is the case. Does that mean that it’ll always be the case? No. But I think right now it’s a very difficult market to get short. Even after what we’ve seen in August and September, we’re looking back like, man, why did I not get short on that? Well, where would you have gotten short at? And that’s the problem.

15:15

That’s why I did what I did back in May. And that’s why I really still stick to it. I haven’t gotten short on this market at all from a swing trading standpoint. I don’t want to right now. It’d be crazy to. I think we’re very oversold and that doesn’t even mean that I think we’re going right back to all time highs. I don’t. But I do think that there’s a chance for a dead cap bounce and shorting doesn’t do good in the dead cap bounce.

15:33

You’re better to wait for that dead cap bounce to Peter often and finally start to show some willingness to go back down again before you get short and let the market show you that. You don’t have to predict that but up until this point I haven’t had the chance to get short and don’t regret not getting short. I mean, if I had the Sports Traders Almanac from Back to the Future and instead it was for the stock market, sure I would have got in short back at the July highs, held it, not even worried for a second about my positions.

15:57

But we don’t have that ability to trade like that. So in conclusion, shorting still dead for me right now it is. It’s still dead. Right now I would rather be focusing on the potential for a dead cat bounce. Does that mean it’s always going to be that way for me on matters of style? I’m going to swim with the current on matters of principle, I’m going to stand like a rock.

16:15

And so for for me, the shorting right now is a matter of style. It’s a matter of swimming with the current. And I don’t think the opportunities are really that good right now for shorting. That could change. I don’t know when it could change, but it could change, yes. And having the belief that we are in a big market downturn doesn’t mean that I’ve changed on that principle at all.

16:35

I do think that with Washington still spending, like things like, they seriously cannot stop spending, even with inflation where it’s at, we should be talking about how can we reduce spending, bring down inflation. That would actually help everybody, even the people who are receiving government assistance by not having to pay as much on items.

16:53

And then you got the Fed raising rates. What do you think’s going to happen? I don’t know how the market can survive. And you’re already seeing pressure on loans. There’s people can’t get loans right now. And if they can, they’re paying 13% or 11%, like on Helox, for instance. Yeah, that’s not going to go over well, people can’t afford that. So I don’t know how if people are maxing out their credit cards spending like they’ve never have before.

17:14

At some point they’re not going to be able to afford the interest rates on all the credit card debt that they’ve racked up, which is over a trillion dollars now. So you’ve enjoyed this podcast episode. Please leave me a good review. Would love to hear from you guys that I do read the reviews. They do mean a lot to me. I’ve I have, you know, taken to heart a lot of what you guys have said over the years and really tried to make this the best podcast that I can possibly make it.

17:33

And make sure to keep sending me your questions guys. Send me them. I want to hear about your problems. I’m not judging you when I read these things, genuinely wanting to help people, but they’re trading stuff. Send me your questions ryan@shareplanter.com and don’t forget to check out Swing trade in the-stockmarket.com.

17:50

Thank you guys. God bless. Thanks for listening to my podcast Swing Trading the Stock Market. I’d like to encourage you to join me in the share pointer trading block where I navigate the stock market each day with traders from around the world. With your membership you will get a seven day trial and access to my trading room including alerts via text, e-mail and WhatsApp.

18:10

So go ahead, sign up by going to shareplanner.com/trading Block, that’s www.shareplanner.com/trading Block and follow me on share Planners, Twitter, Instagram and Facebook where I provide unique market and trading information every day. If you have any questions, please feel free to e-mail me at ryan@shareplanner.com.

18:31

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