The Dead Cat Bounce – How To Know If This Is A Legitimate Stock Rally | Podcast Episode #36

0:07
Learn to 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. If you will learn to trade better trait, smarter and profit bigger.

0:26
Now let’s go trade. Hey everyone. This is Ryan Mallory was share. Printer.com, doing another podcast /. YouTube video with you guys and you know what? It’s been a long time since I’ve done a You Tube or a podcast. It’s almost been about two months and it’s not that I’ve been just sitting on my hands doing nothing. We I’ve actually been moving into a new office, getting it set up in such a way. I’m not ready to show it to you guys yet but getting it set up in such a way to where I can provide you better and more consistent content in the future and so I’m really excited about that. I think you’re going to like it. Of the plans that I have in store for you with SharePlanner.

1:02
ER and so let’s go ahead and just get right out off to the topic at hand here on this podcast and that’s going to be as should you be selling your stocks right now? Should you be booking? Gains? Should you be waiting for the next leg to drop? And so you take a look at the S&P 500 here, right? And we went from about 29. What was it about 29. 40 all the way down to a crazy and that 29:40 was in the very beginning October, like October 3rd and then we hit a low of 2346.

1:37
So, almost 600 points. I mean, you think about that? How crazy of a sell-off that is for just a three-month period. In December, was just it was, it was a bad time for Traders and investors alike. Now, for me actually, it was actually pretty good month. I finished higher. I finished higher every month of the year, for four. 2018, in January, is off to an equally good start off to a very solid start in January, in fact gene, or it was kind of kind of brutal in the very beginning because like, a lot of people I bought Apple in the beginning of the year. And then they had the earnings / or the guidance / and it just killed that stock. I think there was like, one of the biggest losses that I’ve taken In the history of the Splash Zone to swing trading Splash Zone. I lost about seven plus percent on it. I made a little bit back on it when I traded Apple later on in the month I think I made like three percent on that trade, but nonetheless, it was, it was a tough trade.

2:29
It was a horrible way to start a month. Much less a horrible. Just horrible way to start the new year, right? 2019. You don’t want to be in the hole, but I found myself in the hole, but I clawed my way out of it. I had some really good trades and the apple tree didn’t Define me. And that’s, that’s the beauty of not letting losses get out of And go ahead and book book profits along the way. Raise those stop losses. If you do find yourself on the losing side of a trade to not, just double down on it, or add more Capital to it, because that’s a losing strategy. So, there was plenty time of the month, made my way back from it, and it turned into a really solid start to the year.

3:07
So, so yeah, let’s get back to it, that we talked about this near 600 drop point drop in quarter for it was it was pretty rough. And then you had this incredible rally that’s been going on ever since. So since December 26 we’ve been up like 21 out of 28 days not counting today because I’m not sure where we’re going to finish up on the day. But 2021 out of 28 that means it’s been going up 75 percent of the time and it’s not just going up in small bits, I mean, a little bit it’s been going up a little bit less and less in terms of the price range, over the past week or so. But if you look in the very beginning, I mean these were some massive swings we had a An 1100 Point, rally right here on the Dow on and it was like over 100 points on the S&P back on December 26th, which pretty much kicked off the entire rally and itself.

3:57
So really a phenomenal run a lot of money that could have been made. I don’t think that it was a rally that you wanted to just put all your eggs in one basket and assume that it was going up. Because I think that there was always that possibility that it could sell off. But you wanted to incrementally, increase your positions. The number of positions you were holding as those other positions would be coming. Profitable for me. I was holding somewhere around three to three to five positions at a time during that time span but any case should you be selling them? Now, I would I would say no. You don’t necessarily have to sell your positions.

4:29
I actually. And that’s with me saying that as I actually took a short position today, use an SP X you as PX you for those who don’t know, is a 3 2 1 inverse ETF of the S&P 500. So the S&P 500 goes down. 1%, this trade is going to go up 3%. So it’s a little bit more volatile. oh, and I would urge you, to consider, you know what your tolerances for volatility and risk, but nonetheless, We have this rally. We’re now sitting right below the 200-day moving average.

5:02
And that’s the main reason why I took on a short position today because I wasn’t sure. We’re going to break through and I think that there may be a little bit of a hesitation from the market to bust through that 200-day. Moving average. If I’m wrong that I’m just going to get stopped out pretty much right right after we cross through that. 200-day, moving average but that’s okay. I think it’s a good risk-reward trade. It may not may not work but if it does work I think there’s a lot of potential to make much more reward off of the trade than the amount that I actually risks. So that’s my whole reasoning behind that. It’s a good trade setup right now, and one that I’m taking now, a lot of times they’ll say, oh, you know, you have a significant.

5:38
So off, like this, this you have a, what they call a dead cat bounce that and Sue’s, you know, and for cat lovers out there, I’m sorry. You know, I didn’t coin the phrase, but it’s just, it’s essentially a thing that says, you know, even even a bad markets going to eventually bounce, you know, dead cat. You throw it off of a building which I don’t know why you do that. But if you did, Did it would bounce right? Even though, you know I don’t know how to explain it such a such a weird. It’s like the old comment of Vino don’t beat a dead horse. You know, I mean another you know weird animal analogy but nonetheless it’s the kind of kind of hard to explain but not they they call it a dead cat bounce.

6:18
All right. That’s that’s what that’s what they are. But most people will say that this is a dead cat bounce that were on. I think it’s actually wrong at this point. Yes, we could have a significant news event that all of a sudden flips the script on this market and start. Seeing starts back lower again, going forward, but right now, we’re not selling off drastically at all. We’re seeing the volatility shrink quite a bit. The vix is under 16 and we’re seeing big price swings to the upside but very minimal price swings to the downside. So there’s a buy the dip mentality.

6:56
That was completely missing during all of quarter for there was no by the dip in quarter for now here in quarter, one of 2019. We’re seeing a lot of that now, we’re seeing it to where the market sells off and then it quickly gets popped back up again. So yeah, I got a short position, I also have a long position. I have a XTA now, I’m going to show you a couple of Trades here that I’ve done recently XTA. It’s down on me a little bit today because the markets just not giving us much to work with, but nonetheless it I mean, it broke out, you know, yesterday over this, this resistance level here.

7:27
So, if you draw the resistance, you can see what I’m talking about. Right there, there’s some clear resistance. At the 2590 level that it broke through yesterday. So it’s it’s really looking like an attractive setup. Now, the other Trade setup that I got out of actually Monday was Roku and so the Roku it turned out to be a really good tree. I got here got in around like 43 and change it broke out. I think this was last Wednesday. Yeah. So I got in on this day here on 4360 something. I can’t remember exactly offhand. But nonetheless it just went way up there and then I got out at about 49 30s. So it was a 13.1 percent gain but it was a beautiful trade setup because it was breaking out.

8:10
Right above through that resistance there and and I jumped on it and never looked back and made a quick 13% on it. The other trade that I did was ask you this week and I got out of this yesterday. And again you know another another solid you know rally here and I got on got into it the same day I got into rho Q. I was looking at how it was holding. This 200-day moving average has kept bouncing and finally it did bounce enough yesterday to where I was able to get out, make some make some coin on it and move on to the next trade. And that’s what that’s what you’re effectively doing.

8:47
Us Traders. You don’t know exactly how much money you’re always going to make on a trade. It could be 13%, like we got in Roku, it could be one percent. Like, I got in Netflix today or it can be like 5% Like I just got and square. So whether whether or not it’s a lot of money or a little bit of money. What you always want to do is be protecting your Capital raise, the stop losses. Okay? If the markets looks like it’s going to tank and it starts to sell off in the volatility is picking up, increase the stop losses. Don’t let don’t let the the market take away, the profits that you’ve worked hard for and so, you know, you consistently build upon profits with more profits with more profits. And if you’re disciplined and stick to your trading plan, then you’re going to see Can, you know you’re treating really flourish?

9:26
So So the next point, the max point that I wanted to talk about, we talk about the dead cat. We talked about some of my recent trades but I also wanted to show you this one chart. The T20 108 and the reason why is because It shows you how overextended this thing is. I mean, this is to me, this is the most phenomenal chart. So anytime the t21 08, it gets down into the teens. That is a, usually, a huge Buy Signal for the market, in the T20, 108 measures the percentage of stocks that are trading above the 40-day moving average. So, when it, when it drops below, like 10%, 10% of the stocks are, are out there or trading above the 40-day, moving average, that usually becomes a very strong Buy Signal that’s It’s extremely, extremely oversold and not only did it go below but it took about four days before it finally bottom down and just rocketed higher.

10:22
But the crazy thing is is that how much it rocketed higher. And this is the main reason why I don’t think it’s necessarily a dead cat bounce. I think we may see some profit taking here in the near future because we’re just way over extrude. I mean 85% of stocks right now are trading above their 40-day moving, average. Give you some perspective I’ll pull up a weekly chart on this. I’m going to switch this over to Towards not a log chart here, but you can see why. When we are at some crazy highs, I mean heís that we haven’t seen since April of 2016, so and we just don’t get that high.

10:58
But what’s even crazier is that usually takes a very, very long time. To to go from, like a 3.5% that we were seeing back in December 24th, December 26th to a, were sitting at 85% reading right now. I do think that there’s an opportunity here for stocks to pull back some and book some profits here we haven’t quite seen that yet, but keep it in mind because I do think it’s very possible that we see it very soon but that doesn’t mean that that this rallies over with. It just means that it’s it’s kind of digest that gained its got to let off some steam so that eventually can push even higher going forward.

11:36
So, So that’s the other that’s the other chart that’s been kind of on my mind I’m a little bit leery of getting, you know, 50 or 60 percent long or 70, or 80% long in this market because a lot of your opportunity was made here when this Market was just sailing through the sailing through the roof in early January and late December. And and finally, what do we have going forward here? The SP, it’s making people think, you know, or forget about the self that we had in quarter for. It’s making us feel like that the good times are back then that it’s only a matter of time. We’re about 200 points off from hitting new, all-time highs on the S&P 500 and hey, it could happen.

12:16
I don’t think it’s going to happen anytime soon. But it could happen sometime this year. If this Market keeps keeps putting out good earnings and beating guide. and so forth, but Where do we stand? I mean, is there any headline risk going into, you know, this or in this quarter that we’re in here or there? Is there something that we should be worried about? I think one, the Mueller report? I don’t know what’s in it. I don’t know what they’re going to say. I don’t know if it’s going to be good for Trump or bad for Trump but at some point that’s going to come out. And I think even the news that it’s about to come out it’s going to cause some profit taking in the market.

12:57
So I think you have a definite headline risk there regardless of whether we know whether or what what the report says. And so just the very fact that it’s coming out, I think it’s going to make a bit of a shock wave in the market. So I think there will be some people they get nervous about that. You have another potential government shut off, though, or shut down. Even though in January, the shutdown did Jack squat to the market. Nobody cared about it, but who knows? Maybe another government shutdown could wreak a little bit of Havoc but I don’t think that’s the main thing to be worried about. You also have China trade issue still, none of that’s been resolved yet so That could always, you know, come back up to the surface again.

13:32
And then finally, you know, we’ve come out of earnings relatively unscathed. We continue to push higher through the earnings season companies, like apple Facebook, they did great Google. I mean, really most of your big tech companies had great earnings reports. Whether they reacted negatively or positively or, you know, is a totally different story. I mean, you can have a great earnings but yet still sell off is just whatever the street decides to do with it. That’s why earnings are so Difficult to trade and why? I don’t even trade it because I don’t know what the heck. The earnings reports are going to do, I don’t think it’s a good thing to trade because you could be into a trade that has, you know, maybe an upside it’s like seven or eight percent and you have a 2% stop loss but you hold it through earnings and all of a sudden you’re looking at a twenty percent 20% loss and those are hard to come back from.

14:14
So don’t trade the earnings. I just don’t see where it really helps you as a Trader, so any case that’s going to be it for now, I’m glad we’re able to catch up a little bit here and talk about, you know, Whether we should be selling our stocks, what we should be holding and conclusion, continue to ride this trend as long as it can. Now I talk to you about the the short set up by took, I think it’s okay. It’s a short-term setup. It’s just something to say, okay, well this 200-day moving average act as a wall and keep the stocks from going any higher. Or is it just gonna be another opportunity for the market to cross? Another resistance barrier? I don’t know, but I think that there is, if I’m, if I’m right on the trade, in the market does pull back some, maybe two to three percent, that could be a really nice straight and make for some quick.

14:54
It’s But ultimately, I don’t think that you have to get really bearish on this market. Like I said that’s just one trait that I have. I have another long position in portfolio so they’re kind of balancing each other out. So don’t don’t get overly bearish on this market right now just because you think that it’s gone up to too far too soon because it can keep going up and I may be wrong on my short trade and that’s okay too. There’s there’s a small loss associated with it if I am wrong and you move on to the next tray. So that’s going to do it. If you guys have any S feel free to email me. ryan@shareplanner.com look forward to hearing from you. Thanks.

15:34
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 Trading Block 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. Trading Block, that’s www.shareplanner.com/trading-block. And follow me at 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.