Low Volume, All-Time Highs, Shock Events | Podcast Episode #73

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Learn a trade stocks successfully, learn to profit consistently. I’m Ryan Mallory and on my weekly podcast I’m going to teach you the in and out of a complex ever-changing stock market.

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You will learn to trade better trait, smarter and profit figure. Now let’s go trade everybody. Come to my podcast, swing trading the stock market. And in today’s episode, let’s talk about low volume, shock events, all-time highs.

0:40
What do all these things have in common? Well, the market has extremely low volume right now. Take for instance, the average volume going back in November of last year on a daily basis, was about 119 million shares being traded a day. Right now, it’s about 47 48, million shares, a day being traded on spy.

1:00
So a huge huge discrepancy between what we saw last November. And this November, I know what you’re going to say Ryan Market was selling off and quarter for last year. That is true. If you go back to 2017, still the volume was much higher.

1:15
Higher was almost near 70 million shares being traded daily on average. So we’re still well, we’re not half, but we’re pretty pretty close to being about half a mean. If we were about some days, we’re seeing half of what we saw on average. In 2017 of November.

1:32
So definitely a light volume environment. It’s not that great. If you’re looking for a lot of intraday price action and then the all-time highs the markets at all-time highs. So, we have a low-volume situation where it’s sitting at all-time highs on the market.

1:49
And then the shock of its what should we be worried about? In terms of shock events? Will you also obviously you have the ongoing China trade war that the United States is engaged in. You have a president that’s possibly being impeached. The flip side. You have earnings that are actually going down even though they are beating analyst X and estimates.

2:08
They’re actually still going down year over year, you have a market that’s treating with Incredible valuations right now, a very high P/E ratio. So there’s there’s there’s a lot of stats. I mean, you can Really, to be completely honest, you can take stats and skew many way you can say this is the reason why the markets going to 5000 on the S&P 500.

2:29
By the end of next year. You can also say this is why the markets going down to 2500 on the S&P or 2000 on the S&P by next year. There’s a lot of things you got to an election. That’s coming up next year and I mentioned this in the Splash Zone and I think I even mentioned this.

2:45
Yeah, I mentioned it on Twitter as well. I actually think it’s Donald Trump. Stays through the whole primary process. And you got to remember the sound bites that you’re going to be getting. During the primary process is going to be very anti-trump, very negative headlines on Trump, because there is no Republican primary.

3:03
I know there’s people trying to primary Trump but it’s not going to have any traction, he’s not going to debate any of them. So you’re going to only see Democrat debates, you’re only going to see their positions being spotlighted. Very little questioning about whether or not some of their positions make sense like wealth tax or paying off student loan debt.

3:22
There’s not a lot of people that are going to question the sanity and there’s not a lot of Sanity in some of these policies that that are being promoted. Now, they can beat up on Trump and there’s not going to be a lot of pushback on it so I wouldn’t expect them quite honestly.

3:40
I mean, I know how to get, he’s a very polarizing president, some people say he’s a very unpopular president and while that may be true, I think more fitting is probably, he’s a more polarizing president. There’s people who love them, and there’s people who hate him and there’s not a lot of people in between, but if he stays within three to five points of the, whoever gets the nomination for the Democratic Party.

4:02
And at that point, he’s probably going to win. If he stays within three to five points, I mean, I think like, within a week of the election back in 2016, there was polls that had Trump down by 10% to Hillary Clinton. So, Why do I bring all this stuff up?

4:17
Well I think if Trump looks like he’s got a sure bet to lose next year. And he’s running against a like an Elizabeth Warren or a Bernie Sanders. I think the market will drop. I think if he’s running to against Biden, I don’t think the market is going to care. Or if it does, it will only sell off moderately if he’s running against Peter Budaj.

4:37
I don’t know. I really don’t know how that one would work. I would probably say it wouldn’t be bad as it was Elizabeth Sanders and Elizabeth Warren and Bernie Sanders. But I don’t think it would be as favorable as going against the Joe Biden per se. So if he is within that margin of error or within a three to five percent range of whoever wins the nomination, then you’re going to have the general election, you’re going to have the attack ads, you’re going to have the Pax running ads. 24/7.

5:02
Yes the Democrats will be doing that too but they’ve been doing that for really the like the last four years then you’re going to have Trump in the debates and I know he’s all over the place in the base but he’s actually a good debater because he throws everybody off because he’s so unorthodox and it’s very difficult to prepare for.

5:18
It’s kind of like you’re trying to tackle Barry Sanders, right? You know that he’s fast, you know that the guy has unbelievable moves when he’s running out there but you can gain plan for them and everything else. But until you stop you’re embarrassing. Anders. I get he’s like 1990s but he was he was Running back growing up as a kid. I loved watching them but until you’re on the field with him, you don’t realize how hard it is to tackle.

5:38
And I think the same things with the debates with, with Trump, you don’t realize how difficult it is to stop Trump. Once you get into the debates because he is very unorthodox, he’s very difficult to contain. So again, I don’t want to get to off track, but we’re talking about shocked events, the election, the trade war with China, you have The market at all-time highs with very low volume.

6:02
It reminds me a lot, believe it or not. It reminds me a lot of like what we saw in 2000 and again in 2008 actually I shouldn’t say 2000 and 2008. It’s more like 1999 and 2007 when the market was getting very frothy over overvalued and then it just kind of like started lowing Traders and investors into this.

6:23
Nice, relaxed state and then boom, the whole floor drops out of the market. And we start selling off really, really hard. And I’m worried a little bit that that’s kind of what we’re seeing here. Now I’m not a perma bear by any means.

6:38
The majority of my trades have been long, the large majority of my trades over the last 10 years have been long. I’m not a person that’s just looking to constantly short the market. Yes, I do short the market, yes. I’ve been wrong at times and very right at times. Right now I have a short position and I have a long position in my portfolio.

6:56
I only have two positions right now as swing trades and both of them, believe it or not, as of this recording are profitable. So I look at the market and look at it for what it is trying to show me. What is it trying to do? Well, like I said, we have very low volume. There’s not a lot of enthusiasm at the all-time highs, but you do have the algos that are buying literally anything, anything south of a 10-point dip.

7:18
If you can even get one of those, the algos are going to constantly buy it up and they’re just going to keep buying it up. We saw an event this afternoon with China where there were some hang-ups and everything else. You got like a very small glimpse into what a shock event can kind of look like because the S&P instantly painted about 10 points, which was big for a day like today where there’s not a lot of volatility.

7:41
And there’s not a lot of price action or price movement on the index. A 10-point drop just completely dropped the floor out of the market. And then of course the algos come back in and they’re buying it up and everything else. Granted, you have the Fed too. The Fed is going to continue to do the quantitative easing 4. They don’t call it QE4, but that’s what it is.

8:01
They’re going to continue to probably cut rates. I don’t know, maybe one or two times again next year, or at least that’s what the belief is. And then you have the buybacks that are going on across all the big companies. It seems like there’s another buyback being announced on a daily basis. But I went through the 2000 sell-off, you know, when the dot-com busted. And then I went again through the 2008. 2008 very, very strong in my mind.

8:18
And it’s kind of interesting though because I see these people on discussion boards or StockTwits or Twitter and they say, oh there’s this old guard. So I’m only 39 years old. I don’t think I’m really all that old. I don’t think anybody is saying okay Boomer to me for being 39 years old, but there is a huge chunk of people out there today that have never really gone through a really bad market before.

8:35
And I have. I’ve gone through them multiple times. And the closest thing to really a bad market is what we saw in quarter four last year. And that was really three months. And I think actually November finished higher that month even though there was a lot of volatility both to the downside and upside.

9:09
So actually finished, really two out of three months were lower for the market during that period. But what they’re saying out there is that this is a different kind of market. Well, first of all, when somebody says this is a different kind of market, oh my gosh. Run for the hills, do whatever. They’re trading faded.

9:25
Because when they say that kind of stuff, they’ve lost all respect for what the market can do. But they’re saying that because they’re saying, oh, but these people, they’ve gone through these other recessions and they expect these 50% drops. No, I’m not expecting a 50% drop. But I wouldn’t be surprised if at some point between now and the end of next year we drop, you know, 10 to 20% would not surprise me.

9:43
Like I said, the valuations are insane. There’s very little good trading opportunities out there right now. So you have to really pick and choose your opportunities. And the ones that aren’t really rallying with the market, they tend to be sometimes the hardest ones that get to do anything because there’s a reason why they’re down. They’re just, they’re kind of broken.

10:07
For instance, I traded SQ twice. I don’t know, in the past week. And the first time I made like 1%. I was up like three and a half percent and then it just started coming down. And I said, you know what, not going to leave without a profit on this trade. If I’m up three or four percent on the trade, I’m going to make sure I come away with something.

10:24
So I took a quick one percent profit on it. Then I traded it again because it was trying to break out again and then it completely failed again. Then I took a two percent loss on it. And so that’s a stock that really hasn’t rallied with the market. But even when you’re trying to look for opportunities in those kinds of stocks that may have some room to run, SQ is trading at like 50-something dollars a share and it wasn’t too long ago that thing was trading at 100.

10:50
So there’s an opportunity there for it to go long and it’s a pretty good company. But it just can’t, it just can’t get the engines going. Cannot get moving. So the opportunities in the market are very difficult. There’s some, there’s some good opportunities that I’m starting to see perk up a lot more in the short side of the trade.

11:25
And a lot of that can be seen by pulling up the T2108. If you have the TC2000 chart system, that’s what I use. The T2108 on the TC2000 chart system. That’s actually kind of hard to say. The T2108 measures the percentage of stocks that are trading above the 40-day moving average. Something that I look at every day. I’m always watching it.

11:52
It’s been down seven straight days. The percentage of stocks that are trading above their 40-day moving average has dropped for seven days in a row. And you’re wanting me to get overly excited about a market that has literally gone up seven out of the last nine trading sessions? I just can’t do it. Doesn’t mean I won’t trade long. I will if there’s an opportunity. For instance, like tomorrow, I’m going to be looking at MTZ as a long setup.

12:12
It’s an industrial trade. I kind of like the chart on it. I’m always looking at some of the bigger momentum plays. I did some scalping on Disney today once the news came out that they had some pretty good subs, like 10 million after the launch. I went ahead and did some scalping on that, but I made those trades pretty quick.

12:36
And by the way, if you’ve never done scalping before, read up on it a little bit. I use a one-minute chart. It can be a little bit crazy at times, and to be honest, when I’m doing the scalping, half the time it feels like I’m at a dog race or a horse race and I’m trying to like bet on number five to win or something.

12:54
But scalping, it’s really not my cup of tea. I do it when it seems very obvious and there’s definitely an opportunity to make some profits to the upside. And the best is when a particular stock is rallying on good news, or you can do it on the market too, like FOMC. Once that press conference clears and that market starts to tick a little higher and it just continues to push higher, you can scalp the indices as well.

13:19
But back to the topic at hand with this particular podcast: low volume, shock events, market at all-time highs. You have to be careful with the shock events when we’re starting to see the light volume, when we’re at all-time highs, because those shock events at all-time highs can oftentimes spur on a massive sell-off.

13:35
Kind of like what we saw in October through December, kind of like what we’re seeing right now that feels like it’s leading up to a big-time sell-off, but nobody knows when that’s going to be. So you can’t really front-run the market and just start saying, I’m going to short everything in sight, because you still got to follow the trend line. Until the trend breaks, the trend hasn’t broken yet. It’s just going parabolic, really.

13:56
And the other thing you start to notice too, with us being at all-time highs, with it being low volume, is the compact price action. The price action really isn’t that great. There’s this desire to constantly revert to the mean or to the average. You’ll see us gap higher and we sell off after that initial one-hour burst higher in the morning, we start trickling back lower.

14:14
If we sell off, kind of like what we did this morning, we trickle back higher all the way throughout the rest of the day. We saw it on two different places today. We saw it open lower, push back into the green. Then we had a little bit of a mini shock event with China, sell us off. We were down a whopping three or four points on the S&P 500 and then it just trickles back up.

14:36
So it’s like this reversion to the mean. It’s this desire to not really make big moves on low volume because really the buyers are exhausted. The buyers are exhausted, but they’re not willing to sell. And so until you get that willingness to sell, it’s going to be very difficult. And then when you do sell, the buyers are so eager to just get even in on like a 2% or two-point decline on the index that they’ll immediately buy that back up just to get back to the all-time high.

14:53
So the algorithms, they’re definitely providing basically a floor to this market. And it’s also, you know, benefiting from the QE4 like we were talking about, from the Fed cutting interest rates, from Trump’s daily market forecasts saying the market is going to be bigly.

15:15
So you got to take that into account. Nobody knows how long that can keep the market propped up for. So you got to play the trend. You don’t want to go heavily short. You got to realize that the algos are going to buy up any kind of dip right now. But it doesn’t necessarily mean the market’s going to go scorching higher from here.

15:42
So when you have the low volume, when you have the market at all-time highs, when you get the compact price action, start to be a little bit leery of perhaps a shock event coming to hit the market because that’s when it always seems like it happens.

15:58
So what should you do? What should be the takeaway from all this? Erration. Be moderate. Don’t go heavily long at this point. You’ve made a good chunk of change over the last month. But don’t go heavily short either. Don’t think that you have to time the top of this market.

16:15
If the market does pull back, the market does see a 10 to 20% decline, there’ll be plenty of opportunity for that. You just got to be patient. So do that and take care of that capital, use stop losses, and God bless.

16:35
Thanks for listening to this week’s podcast of Swing Trading with Ryan Mallory. I’d like to encourage you to join me in the SharePlanner Splash Zone where I navigate the financial markets every day with traders from around the world. With your membership you’ll get a 7-day trial access to my trading room and text and email alerts. So go ahead and sign up by going to shareplanner.com backslash splash zone.

16:55
That’s www.shareplanner.com backslash splash zone and follow me @shareplanner on Twitter and on SharePlanner’s Facebook page where I provide unique market and trading ideas every day. If you have any questions, please feel free to email me ryan@shareplanner.com or call the office at 321-522-6733. All the best to you and God bless.