Just Trading Sector ETFs | Podcast Episode #119

0:00
Hey, everybody, this is Ryan Mallory with Swing Trading the Stock Market here and if you have been listening to some of my recent podcast episodes, I did a three-part series on the successful part-time trader. Very informative. I definitely recommend if you’re one of those people that want to make a full-time career out of trading, whether you’re working for the man or working for yourself and want to move on to something else in the future, definitely go back and listen to those three because it, it talks a lot about the challenges that I endured, uh, some of the things that nobody told me when it came to trying to be your own trader or, or trade for yourself.

0:30
So definitely listen to those 3 podcasts also. I got a new whiskey bourbon for you guys tonight. It is Cooper, no, it’s Cooper’s Craft. Cooper’s Craft, Kentucky Straight bourbon whiskey. Look, as I said in every one of these podcasts, I don’t, I don’t make any money off of these bourbons or anything.

0:47
They’re not advertising on here or paying me. But this one here is 41.1% alcohol, so that makes it what, 82.2% proof. It was established in 1946. I’ve never had this one before and carefully raised from Barrel to bottle.

1:03
All right, so we’re gonna give this sucker a try. I’ll tell you what I think of it. And we’ll get on with the show, right? You’re just listening to me for the first time, I always drink some bourbon when I’m doing the podcast. One, it helps me to relax a little bit. Usually I’m doing these things after a trading day in this particular case, it’s a Sunday night.

1:22
Uh, it’s been a little bit of a stressful day, so I need to take the edge off a little bit. Hm. Didn’t see it going that way. I really didn’t. It’s a, it’s got a nice, nice look. It’s got kind of like a golden color to it. It’s, it’s not real like thin in terms of color or real light.

1:38
It’s tasty. It’s a little bit on a harsher side. I didn’t expect it to be that harsh. I thought it was gonna be kind of like a, because it’s 41.1% alcohol, I thought, OK, maybe it’ll be a little bit. Easier to to drink, it wouldn’t be so harsh, but it actually has a little bit of a harshness to it. One thing I will say though, not a ton of flavor to it.

1:55
So if I’m rating this on a scale of 0 to 5, I say like a 36. It’s not bad, it’s not good. It’s kind of middle of the road. I feel like that it lacks a little bit of a flavor. Like I just, it doesn’t have personality to it, but it’s not bad either.

2:10
I mean, I could drink it, doing fine and I’m drinking it uh with a two-inch ice cube. It’s not bad, it’s not good. That’s about all I can say about it. It’s just. Just kind of there and it, you know, I, I’ve got a lot of emails back from folks and, uh, people telling me, hey, I tried that American honey from uh was it Maker’s Mark?

2:29
I think it was Maker’s Mark that made that and a lot of you guys liked it, so I’m glad you did. It’s, it’s a pretty friendly bourbon, honestly. It’s, it’s one that I don’t, I don’t remember what it cost, but because it was like a lower proof, because I’m pretty sure it was a blend, I bet you could get it pretty cheap, but the honey was taste was really strong on this one.

2:46
And it had personality to it, no doubt. This has a strong taste to it, not a lot of personality, not a lot of flavor, but I’ll drink it. I’ll finish this thing. OK, so today’s podcast, it’s back to the, back to the emails because you guys like it, you guys like sending me these emails and I like answering them.

3:01
This guy, now he gave me some strict orders here, man. This guy was like, he messaged me on Facebook and, and he had some things to say and it was a great story. I actually went back and forth a little bit with him on it. Uh, before I actually did it, he made, he gave me some strict instructions though, he says, and I’m skipping into the middle of the email.

3:19
He says, look, my name’s Jared. Got 3 sons all learning to invest and trade. Please use my name as I’ve listened to all 110 podcasts in 3 weeks and my 17-year-old is starting them now and I don’t wanna be a Jethro, Jim Bob or anything but Jared.

3:35
So you know what? I’m gonna use I actually think it’s a good fit, man. Jared’s a good, good solid. Name, man. I, I’m not a jerk, so if you want me to use your name, I’ll use your name. Sometimes people will say, hey, I don’t mind if you use your name, but I don’t know. I sometimes go back with, with the other ones. I think, what was it?

3:50
Jethro? I think that’s the one that I gotta use at some point in the future, so please, I love it when you tell me that it’s OK to give you guys like the, the straight up crazy name. I like those. But this guy makes a strong, strong appeal. He doesn’t want me to do that. So I’ll acquiesce.

4:07
Like I said, I’m not a jerk, so I’m gonna do it. So Jared, Jared has some things to say. I say, hey, Brian, plan on writing you a formal letter, but I thought it best to do it another way, as I have a lot of questions. And he did. Been investing since 1996-ish. Man, this guy’s old school. Let me tell you, he’s old school when he’s been going that far back.

4:24
And, and there’s some of you guys. That’s gone back into the 80s. You guys know what that 22, 23% sell-off was back in, in 1987. I wish I could say that I, that I experienced it. I mean, I hope I would have, if I would have been trading at that time, which was about 4 years before I started trading, I would have preferred that I’d be short during that time, right?

4:43
But this guy, he goes back to 1996, started off swing trading for a couple of years before getting into mechanical investing. Now, here’s the kicker. He says, I was one of the lucky ones to divest in 2001 and didn’t come back for five or so years. Brilliant. That was good because 2000, 2003, the market was crap.

4:59
If you were only on the long side, there was no reason to be even trading. It was like, it was bad. But when he came back, He came back in the form of using ETS and individual stocks, but back in 2017 started swing trading again solely in leveraged ETFs and ETNs. So the first question, he says, do you drink whiskey as well?

5:17
For the audience out there listening, yes, I do drink whiskey as well. In fact, one of my favorites, Angel’s Evy. That’s, uh, that’s not a bourbon, but it’s really good, lots of flavor. But uh yeah, so I’ll I’ll drink uh any kind of whiskey. It’s got alcohol, I’ll drink it basically. And that does sounds like I’m a freaking drunk, but no, but I mean I I do like whiskeys, man.

5:37
So he says, if so, I need your address to send you the perfect whiskey. So yeah, so I give him my address, you know, you know, make sure when you’re doing it that you’re, you know, following the laws. I don’t know what the laws are, but make sure, you know, at least Google and find out what they are. Second question, why not just keep to index or sector traits?

5:54
That’s a good question. A lot of less risks, slower moves, and a lot more predictable. I don’t think I could ever go back to stocks. No, that, that’s actually a pretty good question. You know why? It’s because Um, I, I really promote a top down trading strategy, and what this does is include the sectors and industries that are hot.

6:15
So when I’m looking at what should I be trading in right now, I’m taking into strong consideration what are the sectors and what are the industries doing? So I’m trying to drill down from the very top is the market bullish bears, then I’m going down into the sectors, then I’m going down into the industries, and I’m getting down into the individual stocks of those sectors that are leading the way higher.

6:32
So in a way, I’m actually am doing that. I think that you could definitely make a living trading just sectors and market indices for sure. Tons of people do it. That’s what people do when they’re trading futures. They’re a little bit more leveraged on the futures because of how it’s set up, but nonetheless that they do that, and I think you can do that too if that’s what your niche.

6:51
I probably could do fine doing that. I probably could. And maybe, maybe I should include maybe some more sector ETFs in some of my traits that I do. I mean, it’s not a bad suggestion at all, honestly. Because if you take it from like a industry side, right, you take these electric vehicles, one day you got Neo going skyrocketing higher and you’ve got Tesla dropping like a rock and you’ve got, uh, that crappy Nicola that just goes all over the place.

7:16
And if you’re investing in one of them, you might be missing out on the bigger move within that industry just because it’s lagging, and that’s, that can go with any industry in the stocks that you’re trading in. But If you’re trading in the industry itself, you’re capitalizing on the broader move. So it’s a good question. I think it comes down to preference more so I’m comfortable trading individual stocks, but I will take that into consideration.

7:36
Maybe I should include more sector-based trades in my trading because I, I follow the sectors every day. I tell you what, what each sector is doing. For instance, I’m not trading really any financial stocks like your big banks. I’m not trading any. Energy stocks because energy sucks, and with all of the electric vehicles and with these batteries that they’re coming out with, there’s a good chance that energy will never be obsolete, obviously, because you need something that, that, that powers the apparatus that powers the electric vehicles and other things.

8:06
But I can see the demand for gasoline and other things going significantly lower, which would impact the energy sector. So he goes on to say in his email, he says, oh, and I almost forgot. I just got caught up on the podcast. That’s cool. He said earlier in his email he did like 110 episodes in 3 weeks.

8:25
Man, I said this before I get sick of myself if I had to listen to myself that much. So I am honestly like flattered and just, it’s the best compliment, man, I’m telling you, uh, because I do, I put my heart and soul into this podcast. I really want nothing more than for you guys to be able to learn from it. And I do think that his suggestion about the sectors and stuff is, is a valid one because if you can get familiar with the different sectors, those sectors are what drives industries and those industries are what drives stocks, right?

8:51
So if you can have a good handle on it, yes, there won’t be as big and dramatic moves, but you can manage the risk far better in sectors for sure. He also says that I listen to them every day while I spray finish, and now I’m going to go through all of the Facebook videos and sign up to your site.

9:07
That’s awesome. Can’t wait and thank you. And by the way, I have a Patreon account that you guys can jump into by going to swingtradingthestockmarket.com. And what’s cool about that is you get all my market research that I do each and every day, and you can decide how much of it that you want. You can get anything from just, you know, indices and, and market analysis and my indicators to FA stock updates that includes all the FAC stocks plus Microsoft Plus, Tesla, and You can also sign up and get all of my watch lists updated multiple times each week, as well as the most interesting charts that I find each and every day.

9:42
Some of them provide some really great opportunities. Others are just basically warnings about various stocks out there. But definitely go to swingtradingthestockmarket.com to find out more about that. But he talks about how the podcast has helped him change a lot of his strategies. But more thoughts on trading in sectors and indices.

9:58
It’s great for part-time traders for a number of reasons, but there’s a lot more accessible charts, breakdowns, less volatility, a lot easier to manage the risk. I agree with everything that he’s saying there. Depending on the certainty or the indicators you trade 1X 2X or 3X, yep, so you can decide how much volatility you want. Like, for instance, if you wanted to trade just the indices, you could go very leveraged and go SPXU.

10:17
You’re not necessarily leveraged with your money per se, but the price action. It’s giving you like 3 to 1 in verse if you’re doing SPXU against the S&P 500 or if you do UPRO, you’re getting a 3 to 1 return in the direction that the market takes you. He makes a good point though, and I’ve seen this floating around a lot on the internet.

10:35
It talks about, and I, I believe it’s true, um, 600% would be your gains if you invested just overnight. So if you bought at the close and sold at the open, your gains over a 20-year period would be about 600+%. But on the flip side, if you bought when the market opened, and sold when the market closed, you would be down 60% during that same time period.

10:55
So yeah, it is a trading edge. I don’t know if a lot of people have the, uh, tolerance to do it in that particular strategy of buying at the close and selling at the open, you’re not gonna get hit up with the day trading pattern issues if you’re only trading with less than $25,000. And darn it, I just finished my, uh, Cooper’s Craft.

11:11
It was good. It wasn’t bad. It like it doesn’t leave you a bad taste. It’s just, there’s not a lot of flavor to it, I don’t think. But in any case, no, so the sectors goes back to the top-down trading strategy, and I, I believe that if you shuffle through the, the past, I actually have an episode that’s based off of the top-down trading strategy, and maybe I’m due for a refresher on that just so that it gets bumped up to the top of the episode list.

11:34
And if you’ve already listened to that previous episode, it won’t hurt to hear it again because a lot of times this stuff is good reinforcement. As time goes on, we all evolve as traders. We take on different approaches to trading. I know my trading has always changed over the years. There’s things like, for instance, I’ve relied more on the Eurythmic charts than I did the log charts.

11:53
I like the algorithmic better, and I know a lot of people don’t like those, but for me, that’s what I’m using these days, and especially after the COVID where you had the sharp bounce off of the lows, it’s very difficult to find consistent trends. Algorithmic allows you to actually find consistent trends in the stock market and they’ve actually held up very well.

12:09
Just take Apple, for instance, off the March lows, held up very, very well. But he, he does make a point, and the reason why that sometimes the breakouts can be more reliable but less muted on the upside when you’re making the trades is because, for instance, if Apple starts to go on the secular run.

12:26
But Apple is part of the tech sector, and there’s a lot of companies in the tech sector. So if Apple’s rampant over the course of a month, 20%, but you got Facebook pulling back 10%, you got Google pulling back 10%, and maybe Microsoft is up by 5%. Well, you’re not gonna be really benefiting from that entire Apple, if you’re gonna be benefiting to it from an extent because Apple’s gonna have its impact on the tech sector, but you won’t get the full impact and that’s OK.

12:51
Because at the end of the day as traders, what we’re wanting to focus on is managing the risks. So if you’re able to manage the risk tightly, then trading sectors makes it a lot easier to do that because, for instance, if Apple goes down lower like they did back in the beginning of 2019, I was long that day and I think I lost like 7% on that trade.

13:09
It sucked. Gosh, and it was a horrible way to start the year off because I like to get off to a fast start. That I was down in the red to start the year off. I mean, I recovered obviously, but it was a horrible way to start. However, for the tech sector, yes, the tech sector is going to be impacted by the fact that they warned on their earnings and it caused it to go down.

13:28
I wasn’t holding through earnings. I just did it out of the clear blue. Sometimes they do that after a quarter if they know that it’s gonna be bad. They think that pre-announcing it has less of an impact on the stocks, which I disagree with. I think that it has like a double fold. I think you’re gonna disappoint at earnings. You’re gonna disappoint when you warn early.

13:44
It’s just, it’s a horrible way to go about doing things, but they did that and I took a nasty stop loss on that. I lost like 7% on the trade when I was actually up on the trade at the time. And then its impact on the tech sector is not going to be as great. It’s going to still have a major impact because it’s Apple, but when it actually impacts it, it’s not gonna be as significant.

14:03
Now, you take a stock that doesn’t have the same influence as Apple because really no other stock has the same influence as Apple, maybe Amazon on discretionary, but overall there’s just really nothing that compares to Apple. Let’s say you were trading Square and they guided lower. You might be down 10% the next day, 15% the next day, even worse possibly because it’s a lot more volatile than the stock.

14:23
But what is it going to do on the overall software stocks? It’s probably gonna be minimal. You’re probably not even gonna hardly see a blip. And let’s say that Square guides lower, but Adobe’s rallying and Splunk is rallying and Salesforce is rallying, and you won’t even know that there was any issues with Square. But if you’re a Square, it doesn’t matter if software stocks are rallying, you’re gonna take a hit because they guided lower.

14:45
So there is a benefit to trading just sector stocks. And so, and it’s not the worst idea. Like I, Jarrett here makes some really good valid points, and it’s not really something I focused on. A lot of times I’m focusing on my own trading strategy. But I love it when somebody comes up with like a good point.

15:01
It’s like, hey Ryan, maybe you don’t need to trade individual stocks, and it’s not that I don’t think I should. I should. I’m not changing my trading strategy, but I do think that there’s a point there that he’s making that maybe I should incorporate more of that into it. So, um, going forward, I’m actually going to start giving more consideration to the sector stock.

15:18
So like if you’re looking to trade technology, that would be XLK, if you’re looking at healthcare, that would be XLV, materials XLB, discretionary is XLY. I’m trying to name these off my head, but I do track these every day. Industrials XLI, financials, which I don’t have any interest in right now, XLF.

15:37
You got Energy XLE. I may have forgot some, I think real estate’s XLRE, telecom, I’m not positive on this, but I think it’s IYZ. So check all those out. It’s definitely worth following them, and if you find a good trade setup, by all golly, take it, right?

15:54
Because I mean, a trade setup is a trade setup. So I don’t, I don’t recommend taking trade setups in VIX because VIX is just a disaster. It’s not meant to climb up higher over time. It just, it vacillates between like 9 or 10 and all the way up to 80 or $90. It’s not like an Apple that’ll go from like $10 a stock back in, you know, 20 years ago and be like $400 a share over time.

16:15
No, it’s not gonna do that. VIX is basically meant to stay in a range. But again, guys, I encourage you to keep sending your emails. I kind of got smart this week. I created a folder on my Outlook, and I’ve been getting smart. Usually I use my email through Gmail and, and that’s been a disaster. It’s not that it’s bad, it’s just, it’s hard to be organized and stay on top of your emails, and I feel like I’ve done a horrible job of that this year, but I’ve recently started using Outlook again.

16:38
I got that all set up. So I am on top of my emails again. I really am. I even created for the podcast a separate folder for emails from you guys. So that I make sure that over time I get to each one of y’all’s questions, because if I get too many of them, I’m gonna add more episodes.

16:54
Guys, if I have to do 2 of these things a day, I’ll do them, OK? But just keep sending them, man. I love them. I got some of you guys in the queue. Don’t forget, think I’ve forgotten about you. If it was like a couple of months ago and you sent me an email and I never got to it, OK, maybe send it in again, and I’ll make sure it goes into the folder and that I make it a priority, just let me know.

17:11
Anyways, guys, you guys are the best. I thank you so much. I hope that you guys are getting as much out of this podcast as I am, definitely go to whatever platform you’re listening to, rate the thing a 5 stars if you can. If you feel like I deserve it, give it a 5 stars. I’d really appreciate that.

17:26
Your feedback is amazing. You guys really do encourage me to continue each and every day to make these podcasts. You guys are awesome. I’m so glad you guys like the bourbon that thing just happened by chance, but I enjoy drinking the bourbon while I’m doing these things. I really do. So, uh, you guys, uh, take care of yourselves and God bless.