Profiting If The Market Turns | Podcast Episode #426

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.

0:16
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 shareplanner.com’s Swing Trading the Stock Market.

0:35
In today’s podcast, we’re going to talk about profiting still if the market goes lower. We know a lot of people they they tend to do really well because they’re the most aggressive in a bull market. But what gets them in a really bad way is when the market turns to the downside and all of a sudden they’re losing a lot of money because the market’s all of a sudden just in this do nothing but sell kind of a mode.

0:56
So how do you prepare for that? How does one profit when the market turns?

1:01
And that’s what we’re going to talk about on this podcast episode today. For the sake of not revealing the person who wrote me the e-mail for today’s episode, I’m going to give them a good Florida redneck name.

1:09
In this case, I’m giving them the name Rusty.

1:14
You go over to the middle of the state in Florida, there’s a quite a few Rusty’s. I grew up with some Rusty’s, grew up with some Dusty’s.

1:21
So this kind of Harkins back to the childhood days. OK, so Dusty writes.

1:25
Hi Ryan, I’m relatively new to swing trading, though I’ve been interested in the stock market for a decade. I’ve based most of my trading strategy on your podcast. I use 10% position sizes for every trade, I aim for a 2 to one reward risk ratio and I don’t trade anything under $10 or below 500,000 shares in volume. I never hold through earnings and I follow your lead on stop losses and gradual profit taking.

1:50
I’ve been wondering though, how much more difficult is it to profit during the year like 2022 as opposed to this year? In football terms, it’s kind of like going from AD two school to the NFL, or more like going from an SEC school to the NFL. I’m worried that my skills won’t translate to the market with the rapid precipitous dips that 2022 had.

2:12
If I don’t have experience in a bear market, would I be better off mostly holding on to cash and waiting for the market to stabilize? I find shorting the market to be extremely difficult since significant or prolonged downturns are very rare and they usually happen too quickly to jump on.

2:27
Also, if you have time for this question, what time frame is the best for the top down analysis? That is, do you look at the one week, the one month, three months, etcetera? Is there any time frame that you prioritize more than others? Thanks for everything and keep up the great work, Rusty.

2:41
OK, Rusty, good question and I think I have some answers for you here. First off, I’m a little bit, I don’t, I don’t know, it might be me that I’m just a little bit different in this regard. I actually find the bear markets to be much easier to trade much easier.

2:58
So that all comes down to whether or not you’re fighting the trend. If you’re not fighting the trend in a bear market, it’s, it’s actually a lot easier in my opinion at least. But now going short in 2024, would that be no, No, going short in a bull market is not easy.

3:14
In fact, it’s darn, you’re impossible these days. Before you used to be able to pick and choose some shorts. And even of late you can probably do that to some degree. But when the market’s trending higher, my my focus isn’t really to get short on anything.

3:28
My focus is usually let’s get long on something. So I don’t want to fight the trend when it comes to shorting. But when the market starts to turn lower and you start to see that volume pick up, you start to see the volatility spike.

3:39
Yeah, I actually find it a whole lot easier. And one of the reasons why is that you can do so much more with much less meaning like you can make some really good returns with just trading one or two positions. That means you’re probably staying like 80% cash or 70% cash and you’re letting one or two positions do the work for you.

3:57
You don’t have to go really hot and heavy to the short side. And rarely in a bear market am I going to be 100%. I can’t even remember the last time I was 100% short in a bear market.

4:08
It just doesn’t happen. And the reason why you can do more with less is just because the volatility is so much more in a bear market, you hear the term taking the stairs up, taking the elevator down. In a bear market, you usually have an elevator like move in the market where you’re seeing significant moves.

4:23
So if you’re, let’s say you’re doing like a 2 to one embers ETF that you’re swing trading and the market drops 5% of the week, well, that position just made you 10%. And I’m not saying that you should do embers ETF.

4:35
That’s got to be based off of one’s own risk profile and what they’re comfortable with. But even if you’re just shorting SPY, we’re getting getting long on the inverse 1 to one ETF of SPY or QQQ. It doesn’t take much for it to make you one or 2% right out of the gate.

4:50
And then over the course of a week you can see, you know, a 5 or 6% return just on A1 to 1. So you were able to do a whole lot more with far less in terms of how many positions or how much exposure you need to be having in terms of how much capital you’re allotting to the short side.

5:03
And also it’s a little bit easier from the standpoint. I don’t do a lot of shorting of individual stocks for one reason. I like the idea of just using the index funds because you can kind of choose how much volatility you want, whether it’s 2 to one, 3:00 to 1:00 or 1:00 to 1:00.

5:19
But I also think that there’s a lot of risk in shorting individual stocks too. Like for instance, you may have the ultimate bear market, but that’s not going to save you if the stock gets bought out.

5:31
So even if I short a stock, it’s usually gonna be something like an Apple or a Microsoft or a Eli Lilly, something that I’m not too worried about it getting bought out because I mean, who’s gonna really buy out Apple at this point?

5:42
Not that there couldn’t be something crazy in the future that happens where they got bought out by somebody or there was some kind of merger or whatever. I don’t know.

5:50
But in general, I don’t think the headline risk is as extreme with your mega cap plays. But now here’s the here’s the thing that would worry me.

6:01
You take a company like Shake Shack, Shak is their stock symbol, right? They can be pretty volatile to the downside when the market starts to head lower and they can fall apart really fast. From a stock standpoint, the burgers are still pretty good.

6:15
So I wouldn’t you know, fault them about a bad burger in a in a bear market. But from a stock symbol standpoint, it can be pretty volatile. Same thing with like stocks like Crocs, CROX or Wayfair. They can be quite crazy when it comes to volatility.

6:28
But what would make me nervous about those kinds of stocks is what if they get bought out? What if they get bought out and all of a sudden you’re taking a 60% loss overnight?

6:36
That’s something that I don’t want to see. So that was. So it keeps me from shorting a lot of your individual stocks and why I focus more on the ETS. And again, I don’t feel that in a bear market, I need to get overly aggressive to the downside because you can do so much more with less, like I said, and the returns can be really good.

6:53
In 2022, the returns were phenomenal. I loved that year. I thought it was a lot easier to trade.

6:55
Yeah, there was some difficulties, but you have to be measured. You can’t go into every trading session in a bear market thinking, oh, this market’s gonna crash, it’s crashing today. We’re limiting down.

7:04
We’re we’re falling apart. They’re gonna have to intervene. This is awful. You can’t go into it with a doom and gloom.

7:10
You have to be very measured. So one of the things that I like to do is I have oscillators that I like to follow that provide me with some extremes. One of them is the T21O8.

7:19
That’s the percentage of stocks trading above their forty day moving average. You can get that through TC 2000.

7:24
That’s a charting platform that I like to use. That’s also down in the podcast notes.

7:29
Another one is the SMO oscillator. That’s the stock market oscillator. It’s something that I created and something that I that I follow pretty closely and it can help me to identify when we’re hitting extremes in the market.

7:39
When we’re hitting extremes in the market, I’m not looking to get short at that point. I’m looking more for the bounce.

7:44
And that’s the other part that not a lot of people talk about is that in a bear market, some of the best rallies take place.

7:50
I mean, incredible rallies. And they don’t necessarily change the overall trend of it moving lower ultimately, but those bounce back rallies are phenomenal.

7:55
They, I mean, they can literally move 15 to 20% in a very short period of time.

8:02
And I’m talking about like the broader market, huge moves and it doesn’t even mark the bottom some of the times.

8:08
But you go back to 2022, I think about the bounce off the June lows, I think about there was, I think there was also a bounce back in like February ish time frame that was pretty good.

8:17
And then you had the ultimate bounce off of the October lows. Now the the lows from October ultimately marked the bottom.

8:23
You also had to bounce back in May, if I remember correctly. But that one off of October that ultimately marked the lows.

8:29
Yeah. I mean, the market’s gone on an epic run ever since then.

8:32
However, I mean, it wasn’t necessarily the end of the show for that market. I was still short in the market at certain times.

8:36
I mean, in December and and late November, you started the top again on a short term basis. And when we dropped again until the year end, wasn’t until January where we really saw the market start to take off.

8:45
So I think it’s important to have a perspective when it comes to bear markets. 1, not to think that you need to load up to the short side, that you need to be 100 or 200% short or even 50% short for that matter.

9:01
You can do very well like two or three positions, even one position. The second thing is, is to not just keep shorting it into oblivion.

9:07
You know that the market’s dropped into 10% in the last week or so or in the last couple weeks. Probably adding new positions at that point isn’t the best idea because you may be sitting on a potential landmine there that you’ll have no way of getting off of.

9:19
So I think having perspective, but knowing when, when the market has moved too much too fast when you’re starting to hit extremes, for instance, like on the TC 2108, when you’re seeing, you know, extremes in the single digits or even for the stock market oscillator that you can go to shareplanner.com for and get really cheap by the way too.

9:37
It’s like 9 bucks a month you can get these extreme readings that’ll tell you, hey, might want to be ready for that counter rally.

9:45
Now when you’re getting into the bull market and the market’s just taking off trying to short that, that becomes darn near impossible.

9:52
But what Rusty is talking about here is shorting the market like going from AD two school to the NFL. No, I don’t think it is.

10:02
That is by any means. I think if you approach it with the right perspective, trading in a bear market and and a lot of people are going to disagree with me on this because you’re gonna say, well, what do you define as a bear market?

10:12
You know, do you define like last summer where we had a sell off yet that was that was actually pretty good for for some good short opportunities.

10:18
Even the sell off in April that we had this year provided some good shorting opportunities. But you got to be measured in it.

10:23
You don’t want to be shorting one. It’s getting extremely oversold.

10:27
And if you’re taking that approach, I think often times it’s not so much going from like AD two school to the NFL. It’s almost like Tyreke Hill going from the NFL, who’s a great player going into the XFL and playing football there, and all of a sudden he’s gonna be like a cheat code in Madden football.

10:43
Or if you were talking something more culturally, it would be like going from a Marilyn Manson concert to a jazz quartet concert in the park.

10:53
It’s sometimes the bearish markets can provide some of the cleanest and purest moves you’ll see in the stock market.

11:02
And then when the panic starts to unfold and you’re, you’re finding yourself on the right side of that trade from a short standpoint, it can really create some gains really fast.

11:09
But again, I tell a lot of people though, if they’re gonna go short, they really need to make sure that it’s in their trading composition, their risk profile, because there is risks to it.

11:19
There’s a lot more risks to getting short than there is to getting long. That’s why you see me very hesitant about the kind of individual stocks that I’m willing to get short on because you know, there’s gonna be even in the the best of bear markets, there’s gonna be significant balances.

11:31
And you don’t want to be caught on the wrong side of them because they’re just as volatile, if not more volatile than the sell off.

11:37
And one thing I would tell you to check out is swingtradingthestockmarket.com. This is going to give you all my stock market research that I go off of each week.

11:44
That’s going to include my daily watch list of stocks I’m looking at for potential trade setups. Plus you’re going to get a watch list review.

11:50
You’re going to get some really good information, like my bullish and bearish Master watch list that I provide at the beginning of each and every week.

11:58
These are the stocks that I’m gonna be looking to curate from for potential trade setups. Plus, you’re going to get stock market updates and you’re going to get big tech updates as well throughout the week in video format.

12:07
So it’s really good. There’s a lot of videos that I’m sending you throughout the week that I’m doing pretty much in real time.

12:13
So I make the videos, then I post them so really fast, lots of good information, maybe a ton of information, more information you’ll need, but it’s still really good stuff.

12:24
So one of the things too that Rusty talks about, he says I’m worried that my skills won’t translate to a market with the rapid precipitous dips that 2022 had.

12:32
If I don’t have an experience in the bear market, I would be better off mostly holding on to cash and waiting for the market to stabilize.

12:37
I actually don’t think that’s a bad approach either. I don’t think at all it’s bad to be in cash and wait for the market to stabilize.

12:43
I think for most people that’s probably the more prudent approach to wait for it to stabilize because then you could still trade in a bear market, but you’re waiting for those dead cat bounces to take place.

12:55
And those dead cat bounces are phenomenal when they do happen in 2024.

13:01
You know, I’ve already talked about how it’s can be pretty brutal to get short in a bull market, but 2024 has been really a different kind of a market that we’ve seen in some time.

13:10
You had the market, it’s like printing new all time highs almost a daily basis now. But underneath all of that you have deteriorating market breadth.

13:18
I mean, some of the worst breath that I’ve ever seen in a market before. The vergences of the yin Yang.

13:24
That’s like how in the world is this market even holding up? The leadership is horrible. The number of stocks that are printing 52 week lows is increasing.

13:28
So there’s nothing really under the surface that would suggest we. In fact, if you were not looking at price indices at all and you were just looking at the market internals, looking at, you know, the number of 52 week highs versus the 52 week lows where the T21O8IS where the SMO oscillator is, you would think that we were in a raging bear market right now.

13:52
It’s true, you would, but we’re not. We’re sitting at all time highs and it’s because of Microsoft, NVIDIA and Apple. They just continue to push higher.

13:57
You’re talking about $10 trillion in market cap between three stocks. You Add all the mega cap Fang stocks and there you’re talking about 15 trillion plus a lot of money there.

14:06
I think the USGDP is somewhere like 2526, maybe 27 trillion. You’re looking at the French stock market being like around 3 trillion, the German stock market having a market cap of about 2 1/2 trillion.

14:21
And you got individual companies that are bigger than the entire nation’s stock market. And you see moves in NVIDIA where it goes up 3% in a day.

14:29
It it adds like a, you know, $100 billion to its market cap. And that’s more than like 80% of the S&P 500 in terms of market cap.

14:37
So the last question that Rusty asked me about was what time frame do I look at on the top down analysis?

14:45
And that’s a pretty easy one for me. I primarily look at the daily I’ll look at for individual trades, I’ll often times look at like a 5 minute chart or a 30 minute chart to just get a feel for where the ideal entry price should be.

14:52
But overall, when I’m looking and conducting my top down analysis, that means I’m trying to judge the direction of the overall market, Which sectors are moving higher, which sectors are moving lower, which industries are moving higher or lower.

15:08
And then I get down to the individual stocks. I’m primarily relying on the daily chart.

15:12
Sometimes if I want to zoom out a lot more, I’ll pop up the weekly chart so I can see a lot more information in a more condensed manner.

15:19
But First off, it’s the daily and then it’s the weekly. And that’s really where it ends.

15:23
I don’t get too much into the monthly charts or quarterly charts, but in the in the main reason for that is because the more monthly, quarterly, yearly you get, the less likely that whatever swing trade you’re looking to get into is whatever it’s going to do that it’s going to play out in the near term.

15:39
So you want to keep that in mind. Like you get this huge, you know, multi year basing pattern that goes back to 2014 or whatever, and it’s this huge inverse head and shoulders pattern and it breaks out, It confirms.

15:46
Don’t be surprised if like it doesn’t do much after it confirms because it’s just been forward. It’s been forming that pattern so long that it’s more of a long term pattern that might take months or years to play out.

15:59
So, and before I wrap this podcast up, what is my old fashion that I’m drinking here today, guys? I got some EH Taylor here and then I was a little bit hesitant to use EH Taylor, but I gotta, I gotta find the good stuff here.

16:10
And let me tell you this EH Taylor is phenomenal. It’s the small batch, a total wine. I can find it rarely, but sometimes I’ve been able to find it for like $40 a bottle ’cause they will sell it at MSRP, right?

16:22
The problem is, is that EH Taylor, often times if you’re going to like a secondary store, it’s like $200.00 a bottle and that’s way too much.

16:29
But anyways, this is stuff that I paid 40 bucks for and it’s really good. I mean, it’s got like a nice little sweetness to it. It doesn’t get rid of all the punch, doesn’t get rid of all the kick.

16:42
So it’s got a little hump there still that I really do like. On a scale of zero to 10, I’m giving this one at 8.8.

16:50
This is the best one that I’ve had so far. I really, really like it. It’s better than the Maker’s Mark 46 and French Oak, whatever that was French Oaks Cat barrels.

17:02
That one was good. I think that was like an 8.3. The EH Taylor way better.

17:06
It’s it’s phenomenal. 8.8. I could even push it up into the nines, but I’m just so early into this.

17:12
I don’t want to get too aggressive with those ratings. But EH Taylor does make it really good.

17:16
The problem is it’s a high price point, which is kind of a reason why I deducted it off some of that anyways, because it’s not readily available in most places.

17:24
But EH Taylor small batch. I give that 8.8.

17:27
If you enjoyed this podcast episode, make sure to leave me a 5 star review on whatever platform you’re listening to me on.

17:35
Check out swingtradingthestockmarket.com. That’ll take you to my SharePlanner website. It’ll give you all the different stuff that you can sign up for.

17:39
It’s really good stuff. And don’t forget to send me your questions.

17:42
I don’t get as many questions from you guys these days. Maybe I’ve answered a lot of them for you, and if I have, that’s a great thing.

17:49
But put on those thingy caps. Really try hard to come up with some good questions for me so I can make some additional podcast episodes for you.

17:58
It’s reliant on your questions. You can do that by sending to me ryan@shareplanner.com.

18:02
I’m the only person that will read the e-mail. Thank you guys and God bless.

18:07
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.

18:14
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18:22
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18:39
If you have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.