Stock Market Identity Issues – When the Market Just Doesn’t Make Sense | Podcast Episode #64

0:00
Hey everybody, this is Ryan Mallory doing another podcast episode for Swing Trading the Stock Market, and today I wanna talk about when the market has identity issues because it really is. It’s, it’s kind of like having daddy issues right now with, with the way it’s been behaving this week. And, uh, it’s been driving me nuts as a, as a trader because a lot of what I have been looking for has not really been playing out and so you’re having to readjust your strategy, you’re having to readjust, uh, your approach to the market a little bit because Right now, in the current state, you’re having a much more uh favorable treatment of small caps versus large caps.

0:36
Every day this week, the small caps have outperformed the large caps. Even today, when the S&P 500 is up, you know, 1314 points. It’s only up 0.4%, but you look at the rustle, it’s up again another 1.2%. So it’s not just outperforming it by like a couple of tens of a percent, it’s performing it like outperforming it more than 3 times the amount.

0:57
So it’s a substantial amount. It’s, it’s pretty big. Um, it, it, it, it’s, it’s kind of frustrating because the small caps in general for all of this year have been very, um, Absent from the market, they really haven’t performed that well.

1:13
And the reason why I say that is because if you look at the trend line going all the way back to, uh, February of this year, what are we talking about? So 8 months there. Since February, small caps have been non-existent. It’s just traded sideways. That’s all it’s done. It had a great January, but once, once February, uh, came around, it just stopped.

1:32
It just has been uh trading sideways since and it’s still stuck in the sideways consolidation. It hasn’t broken out. So, As traders, we’re left with, oh, shoot, do I, do I go and buy this, uh, the small caps up? I really don’t think you do. And I think history has shown too, when you start seeing some of the, the people’s chase after the small caps, hoping that, that, that they will finally be able to, to benefit from being late to the party at least.

1:57
They don’t, they don’t typically do that well and it it it it doesn’t last for that long. So while the small caps have been outperforming the large caps and outperforming it pretty handily, I don’t think you should just go chasing after them. I think you should still play individual trade setups for what they’re worth.

2:15
You still do a top-down analysis, making sure that you’re trading is in alignment with the S&P 500 or the broader market. It’s also in line with the sectors that you’re trading and also the industries within those sectors that you’re trading. And then you look for the good trade setups in between. I, I have found September to be a little bit frustrating so far because of this whole, uh, identity issue.

2:34
It’s, it’s not been the easiest for trading. You also have a A tendency for the market to go away from the momentum plays and favor more of the value plays right now. So, That has definitely been noticeable too.

2:49
So the momentum plays that we’ve all been accustomed to like shop and like uh. COUP and SMAR, the software stocks in particular, these really strong momentum plays, they’re the ones that have been seeing most of the selling so far this week.

3:06
They have been non-existent. Software stocks in particular have have been just absolutely hammered. Now, if you’re in Microsoft, man, Microsoft has done pretty good. They’re still hanging in there pretty well. They, it takes a lot for for Microsoft to see a massive sell-off. Even in, um, The, the October, November, December time period, we didn’t see a huge sell-off at that time.

3:26
It, it’s still held together pretty well. Um, but a lot of your software stocks like Adobe, like Shopify, like, um, Coupe and SMAR, they, they’ve really been taking some massive hits. Splunk, but, but today you’re actually seeing that some of them trying to bounce.

3:43
You’re seeing it in, uh, Shopify, you’re seeing it in Splunk, SPLK. Really good. In fact, some of them are happening off of really good key trend lines. So going forward, I would watch stocks like Smar, uh, SMAR which has a long-term trend line that it’s bouncing off of today, SPLK doing the same exact thing.

4:00
And then I also bought in Shopify. Shopify and I have had a pretty rough month. I’m hoping that we can uh put aside past grievances and move forward from here because. I took it like a 3.4% loss on it yesterday and it was a day trade of all things, which kind of stinks, you know, I mean, I want my day trades to stick and do well.

4:21
It didn’t work well. Uh, I, I took a hit on it. I also traded um it earlier in the month and took like a 1.5% loss on it. So we have some making up to do here. So I got in at 3 4350 and it’s trading up close to 350 now.

4:38
So, You know, fingers crossed, but, you know, it, it’s, it’s on the right path right now. I wasn’t quite sure in the early going if this thing was really going to break out for me today or not, or bounce at least and and it’s finally trying to in the last 30 minutes or so. So that’s good. So, so like I said, you have an issue with momentum versus value right now, a lot of more money going into the value, but it’s not the value that you would expect it to be.

5:01
It’s a lot of like Boeing. It’s a lot of your stocks have just been really hammered over the past year. It’s stocks that have not done that good. Chemicals within the industrial sector are doing very well. So you look at like DuPont, you look at um CC, a lot of those stocks are doing really well right now.

5:19
But it’s not like your utilities, where, of course, there’s always going to be value in stocks like NEE Nexta Energy or FPL what it used to be. The that stock, um, And EE, I mean, it, it’s not really attracting the buyers. It hasn’t really been going up at all this week.

5:35
But you look at stuff like Boeing, which can’t, you know, It it can’t find its way out of a wet paper bag, all of a sudden attracting a lot of buyers, so it’s a lot of your crappy stocks, a lot of your biochemical stocks have rallied to pretty well. So how, how do you as traders deal with this kind of market?

5:52
What do you do to, uh, get through it? How do you, how do you handle yourself? Because I know for me, since the start of September, so far, 50% of my trades are higher. The problem is that some of my losing stocks have really gotten hammered. Like the one that really killed me was yesterday was uh L3 Harris.

6:10
And that one. That one really took a beating, like a, a hard beating yesterday, and it actually came right back, which that’s the frustrating thing about stop losses, by the way. If you do stop losses, and I hope you do because stop losses are what prevents you from, you know, seeing massive losses or panicking, panicking at the absolute worst time, it’s making it more of a um an emotionalless.

6:33
Exit to a trade that did not go well. But with LHX, you know, my stop plus is like at 207, I think I got out at like 20,490. It just sold off so fast in the beginning of the open and and I don’t, I don’t use good to cancel stop losses. So I got, I got taken out of that trade pretty quick and I didn’t even, I didn’t even see it.

6:52
Like it wasn’t really showing that in the pre-market. There was no pre-market action in it. So it kind of took me by surprise, and by the time I got the order in, it was like way, not way below, but it was like an extra 1% below my original stop loss. So I took like a 4.9% loss and I was probably like the second biggest loss I’ve taken this year, which In the grand scheme of things, that’s not bad.

7:12
Uh, but, but it’s still, I, I really don’t like taking those big a losses. So it kind of put me in a hole a little bit to start this month out. I’m pretty confident I’ll get myself out. I mean, I can’t guarantee anything, but, uh, by the end of this month, I mean, I have a pretty good track record of digging myself out of much bigger holes.

7:32
Um, and I don’t, that’s nothing to brag about, but, um, and when I say bigger. I’m not talking about like massive, like drawdowns in my account. I don’t have massive drawdowns in my account. I actually keep things pretty, pretty much on the up and up. I mean, I think if I have like a 2 or 3% drawdown, that’s pretty substantial for me. Like, that’s huge.

7:48
So the, the, the beginning of the month hasn’t hasn’t been too good for me. And I think it’s been that way for a lot of traders. There’s a lot of land. Mines out there. There’s a lot of companies like changing some forecasts for quarter 4, and I think that you’re, you’re seeing some hits getting taken there. I got hit by that. I got hit with it, uh, with Starbucks.

8:03
Starbucks just, I have been, had been holding it for probably 2 going on like 3 weeks about and then all of a sudden, and I hadn’t even really made any money off of the trade. I was like barely up and then all of a sudden they decided to You know, change, change some of their quarter 4 numbers, and I just, I got killed on it.

8:21
So, um, I, I think I took like a, uh, I got taken out of my stop loss basically. I, I say, I say words like getting killed or just getting slaughtered. And for some people out there, that’s like, you know, 50, 60% loss or portfolio capitulation. I just I probably use those terms too loosely.

8:39
I’m probably, you know, like, I’m not seeing capitulation in my portfolio by, by any means, but, but I don’t like taking losses. I keep my stop losses tight. So if I do take like a 3, 4% loss, I mean, that’s significant to me. And it’s not because my winners aren’t that great.

8:54
My winners, I mean, I last month alone, I had a 9% return in Shopify. So I do have some pretty solid returns in some of my trades. Um. And more than 50% of them are profitable. Well, 54% this year so far. Every year I say I’m going to aim for 60%, um, and I, I.

9:13
There’s a lot of months where I do have 60% accuracy on my trades, but. Uh, it doesn’t look like I’m going to get it this year. One of these days I will, I feel like that that that’s an incredible achievement. If you can be right 60% of the time on your trades, it’s really amazing. And I know there’s people out there that will claim that they’re even 80 or 90%, they’re full of crap.

9:31
They’re not 80 or 90% right on their trades. It just doesn’t happen. Um, but yeah, so for, for you, if you’re struggling with this month so far, and, and rightly so, if you are, it’s, it wouldn’t be, it’s not surprising because a lot of traders are struggling with this month so far.

9:47
But Slow things down. Follow your stops first of all, don’t, don’t try to like ignore them or hope that things will come back up. Follow your stops. Also got to slow it down a little bit. You don’t have to go, you know, adding 100 traits to the portfolio. I was kind of aggressive this morning, not overly aggressive, but I only have one trait coming into it.

10:05
It was Nvidia. And so I added Alibaba, which I’m up like 30 cents on that trait, which isn’t much because considering it’s a $176 stock, but I am up on it, so that’s good. That’s a decent start. Um, I do like the trade. There is some resistance overhead, needs a breakthrough, but I do like the bull flag that it’s trying to come out of.

10:23
And then I added back shop. This is the 3rd time I’ve traded this stock. Um, I think this is a stock that could easily get back to 400 and pretty quick, uh, short order. So, um, right now it’s trading at 350 plus and we’ll see where it goes from there. Um.

10:39
But yeah, slow it down. You don’t have to add a whole bunch of, you know, trades to your portfolio. Um, you don’t have to be overly aggressive. Just slow it down, try to figure out what’s working, stick to the strategy, the bigger strategy of a top-down trading strategy, and then look for the sectors, focusing on the sectors.

10:55
Now, I would say this energy, I don’t like energy. I even tried it, uh, this month, and it did not work out well. Hess, HES. I really hate energy sectors so bad, especially in 2019. It’s not like that all the time. I, uh, I’ve had some really good success trading has and other energy stocks in the past.

11:12
But this year, it has been just off the charts crazy. I don’t like it at all. And uh I just um I I’ve seen this rally in recent days and it just keeps going up, but then, check it out today. Energy is down 2.8% and it didn’t even happen.

11:28
The the big selloff only happened like an hour ago on news that Trump was considering lifting sanctions on Iran, which, you know, I guess apparently that led to some to the reason why John Bolton resigned or he got fired. I don’t know. Nobody’s ever going to know for sure, but Any case, You do that, obviously, you flood the market with more oil, it drives the price of oil down.

11:53
We saw a 3% sell-off in oil or 2% sell off in oil like instantaneously. And, and that’s the kind of craziness and oil that you can’t trust the the the rallies in it. And and financials, even to a certain extent. I mean, I’ve had a hard time wanting to buy financials much because they can just when they start to look like they’re breaking out, boom, they hit you with something, you know. 10 year yield starts tanking again, um, a bank’s failing, somebody’s creating fake accounts at Wells Fargo.

12:22
Just, it, it, it can just get really irritating. So, The financials, when they rally or when the energy rallies, I mean, those are two sectors that I, I, I don’t mind playing financials as much. Versus I, I’ll play financials more than I’ll play the energy sector, and I really like some of the more like the pay to.

12:44
I like, uh, what’s the other one? Um, PayPal. I like those Discovery DFS, um, even, even so Square is considered a software stock, and it hasn’t been that good lately. I mean, just look at the charts in the 60s and I would have, I would have expected it would have bounced by now, quite honestly. I’m surprised that buyers haven’t, you know, bought that sucker up yet, but Um, Square, I kind of consider it a financial player, even though it’s still considered a software so it’s probably more software than it is financials just because of how it reacts to, uh, software volatility in that particular industry.

13:00
But still, I mean, it’s kind of like a proxy play. In any case, Just to wrap things up, you know, because I don’t want this podcast going too long. Some of you guys. And gals listen to me on the way home from work and, uh, you know, it may only be like a 15 minute commute or something like that, so I don’t want to take up all your time, but.

13:37
Listen, Current state of the market, small caps are being more favored towards large caps. That’s not going to persist forever, OK, we may see a continued run for the near future, but eventually people are gonna get interested much more in large caps already seeing that today. Look, Apple’s one of the 2nd biggest company in the world.

13:52
It’s, it’s rallying today pretty well, uh, and it’s been rallying in the last few days, but there’s a lot of value in that stock, right? And we talked about momentum and value where people are less eager to buy the momentum place and. And, um, in the recent days, but actually you’re starting to see that, you know, flip again too because, you know, shops starting to bounce.

14:10
You’re starting to see some of these stocks like SMAR and the other software stocks they’re trying to bounce today. But overall, the, the favoritism has been more towards the value place. Apple’s a value place, so it kind of like fits in there nicely between the, uh. The favor people favoring small caps, but they also favor value.

14:28
That’s where Apple continues to rise. So, slow things down, follow your stops. If you’re, if you’re not sure this market, don’t, don’t make any crazy decisions, just, just uh go with it. So.

14:44
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15:00
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