Trading Euphoria | Podcast Episode #96

0:00
Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market, and today we’re talking about with episode number 96, getting closer to that 100 mark, going to talk about trading euphoria. Chasing the, the gains. That’s what we’re in right now. That’s the kind of market that we’re dealing with. What do you do with this? Do you just assume this market’s going to go up and up and up forever? Look, the market looked like it was gonna drop over 1% today. It was down over 1% at its lows of the day. And what does it do in the last 45 minutes? It rallies 22 points off the lows, loses 2/3 of its losses only to close 3% down.

0:34
That’s the kind of euphoria that’s in this market. People are chasing gains. It’s one of the Craziest things that I’ve probably ever seen because here’s the thing, we’re not in a very bullish economy right now. The economy is very bearish, very bearish. I mean, today you just had almost another 2 million people lose their jobs, missed expectations.

0:53
You had 1.87 million people filing for unemployment in addition to everybody else that’s already filed for unemployment over the last, what, 10 weeks now. And then you have an expectation that it’s only going to be like in the high 1.7. So it was a clear miss. The market tried to go up initially off of it like it always does.

1:10
In fact, when the claims came out, the market was rallying for like a straight hour almost. I mean, it was quite impressive. I kind of joke about it on Twitter a lot. I call it, hey, it’s the jobless rally day. I mean, hey, the, the market likes nothing more than to see calamity apparently. But it’s weird though, because you get this impression that no matter what side the news is on, the market’s gonna rally off of it.

1:30
So if it’s bad news, the market’s gonna say, hey, we’re rallying. Because the Fed’s going to stimulate the economy more. And if it beats and it’s like, oh well, the economy’s improving, let’s rally that too. That’s euphoria. I mean, I almost asked myself, I was like, why wait till the jobless numbers comes out. If you know the market’s going to rally, then just rally.

1:46
But yeah, the market’s on roids right now. I mean, the thing just, it’s going straight up. If you look at NQ, the futures contract, it shows that it’s been up every day for the last 9 days until today. And coming in today was up like 18 out of 22 days. That’s like 82% of the time it’s trading higher over the last month.

2:02
That’s, that’s a pretty impressive run right there. So you got the NASDAQ. They printed all-time highs today. They quickly retreated, finished in the red. That’s always not the best sign in my opinion. That’s never a good sign when you print new all-time highs for the first time in a while and then you immediately retreat. We’ll just have to see how that plays out in the days ahead.

2:19
But you also have low volume, extremely low volume. On Monday, you had the lowest volume reading since this whole COVID crisis started. And now we’re going into the summer months, it’s gonna get worse and worse and worse. The reason why the Bears can’t sell off the market is because there’s no volume. In order for them to sell it off, they need volume.

2:35
If you look at every sell-off we’ve had, any significant sell-off, there has been volume associated with it to some degree or another. When we do sell off and there’s not much volume, what do you get? You get an immediate pop back up. It’s just like a, a blip in the matrix. So today was low volume. We sold off.

2:51
Do I expect that to hold in the coming days? No, not unless there’s volume that, that can follow through. It’s just not gonna happen. You look at the sell-off that we had, we had massive amounts of volume. Does that mean I’m bullish on the market? No, I hate what the market’s doing right now. I hate it because it’s very illogical, it’s very scatterbrained.

3:08
You have a lot of these people, they’re called Robin Hood bros, OK? I, I, I get a lot of flack for calling people Robin Hood bros. Don’t take it as an insult. Sack up, man. It’s OK. People make fun of millennials, people make fun of Gen Xers, people make fun of boomers, people make fun of Gen Zers. OK, it doesn’t even have to be a bad term.

3:26
Just embrace it. You’re new to the market, you may not even be using Robin Hood. That’s fine if you’re not, but you represent a new face in the market that the market’s not accustomed to, that traders and investors are not generally accustomed to. We’re gonna call you Robin Hood, bros. It’s not a big deal. Like I got people in my trading room that use Robin Hood.

3:43
I got good, good friends that use Robin Hood. I’m not insulting you, man. I might be jabbing at you a little bit, OK? But that doesn’t make it bad. I think you’re gonna get burned in the end because like anything that revolves around a euphoric stage, it’s the retail investors that always get burned in the end. And who is it gonna probably be in this situation?

4:00
It’s probably gonna be the Robin Hood bros. You’re gonna get burned. In ’99, it was somebody else. I don’t know what was that? That was like when online trading was becoming very popular, right? It’s kind of interesting though. I’m just thinking about this as I’m doing this recording. The market topped out in ’99 with the retail traders being online traders.

4:18
Online trading was extremely new at the time. People were for the first time placing trades on their own rather than having to call up their broker and tell them what to buy. And then what happened? All these online traders, people who were literally quitting their job at the time to become day traders, were left holding the bag at the top of the NASDAQ bubble burst.

4:37
Nasdaq proceeded to lose 87% of its value, 87%. Again, for the 3rd time I’ll say 87%. Ultimately, I think it’s gonna be the Robin Hood bros that are holding the back. And that’s just not people who have accounts with Robin Hood. It’s gonna be the people who have been flooding TD Ameritrade with new accounts and the people who have been flooding Charles Schwab and ETrade and all these other companies.

5:01
They are flooding the markets with new accounts with new money. Some of them are using their stimulus check and unemployment benefits. Good for you guys. I don’t know. But in the end, Rarely is it the banks that are holding the bag, and in more cases than not, in fact, I would say almost every case, it’s the retail traders that hold the bag.

5:20
Now, am I a retail trader? Yeah, I am, but I don’t hold the bag. February, I didn’t hold the bag. I stayed profitable. And why is that? Because I manage risk. Most people who are trading in the stock market on their own, they do not manage risk. That’s the difference between me and almost every other trader. If you’re in the trading block.

5:36
You know that I practice risk with every trade that I make, and you should be too. And if you do, you’re going to be able to avoid some major downturns. So it begs the question, how do you, how do you trade this kind of market? Do you just keep buying high and selling higher? Do you buy low and sell high?

5:52
Honestly, I don’t think you’re doing any of them. I would almost say it’s like buying higher or selling higher. It’s crazy. Look, I don’t like it. I don’t like it at all. I like, I like it when there’s a little bit more stability in the economy and the stability in the market. I’m fine with 34 points to the upside on the S&P 500 because I can usually hit those stocks that are going to move beyond that kind of move, but the market’s providing enough stability to.

6:14
It’s a stock picker’s paradise. That’s what kind of what we had in January, February of this year until the market peaked from COVID. You had a very nice stock picking market where the market was stable. It wasn’t really anything that you had to sweat about. Oftentimes I wouldn’t even check what it’s doing overnight because it became so reliable.

6:32
And that was also when I started getting nervous because of the fact that I wasn’t nervous about the market. When it gets too easy, that’s when you should be nervous. The market right now is getting super easy. It’s super overvalued. I feel like that the market right now is more precarious than what we were dealing with in late February. So what does that mean?

6:48
Does that mean you stay long? Does that mean you get short? Does that mean you sell everything that you have? What it does mean that you should try to be looking for areas where you can be booking profits as a swing trader. I’ve been trading still, but I’m also taking profits. I took profits of 4.4% today in AMAT, that’s Applied materials.

7:07
I also took 10.2% of profits and when. What was I doing with those positions? I was selling thirds. I was selling a third of a position. I’m down to one third of my original position to win. The first one I sold for 5.1%. The second I sold for 10.2. AMAT, I have 2/3 of position.

7:22
I’ve already told you about that one. Shake Shack got into it today. I’m up 2.1% on that trade, but guess what? I sold one third of it earlier today for a 3.1% profit. Also got long on SH which if you know anything about that, that’s the inverse of the S&P 500.

7:39
Put the alert out in the trading block. Get long at 2255. I’m actually down on that trade. Got out of DDOG when I felt like it was going against me. Looked like it might have an absolute breakdown. You could see some massive sell-offs in software stocks from time to time.

7:57
I didn’t want to risk that with DDOG. I went ahead and cut my gains early, didn’t wait for the stop loss to hit. It settled in, started rebounding, putting a base together. I got back in, so I’m up like 0.6% on that trade despite losing about 4% on it earlier in the day. What is the theme in that though?

8:12
As my trades are becoming more and more profitable, I’m taking a little bit more off the table because I do think that the market’s stretched. I do think that there is some concern with this market that everybody listening to this podcast should have, and I hope this podcast is a great time stamp for me looking back, when I look at what the market becomes 123 months down the road, I can look back at this podcast and say, man, I’m glad I was putting that message out to people to be careful.

8:38
Because again, worst pandemic with COVID since 1918. Worst economy since 1929, the Great Depression, or you want to say 1930s, that’s fine. The worst riots since 1930. These are not things that the market should be rallying on, but it is rallying.

8:53
A lot of people are kind of like scratching their heads, OK, you got Fed stimulus, you got people going back to work and everything else. OK, that’s fine. Do we really think the economy is going to be At full employment here in 2021? No. Do we think it’s going to be in 2022? Probably not. I wouldn’t be surprised if we’re still dealing with these issues in 2023.

9:10
I think the market’s priced in for perfection, that everything’s just going to be fine and dandy going forward. That is not something that you should just assume is going to happen. Instead, now is the time with us being at historically overbought levels. S&P 500, 96% of stocks are trading above their 50 day moving average.

9:26
Do you know how incredibly rare that is? That hasn’t even happened in this century, ever. It’s the most overbought that the S&P 500 has ever been. Market capitalization to GDP is literally at 145%. You have 5 stocks that are representing over 25% of the S&P 500, all very dangerous variables for the market to be dealing with right now, yet the market keeps on marching higher.

9:52
And it doesn’t mean that you can’t keep trading higher, but you have to have an eye on the exit for when it starts to hit the fan again, OK? When crap starts to hit the fan, I’ll make it. When crap starts to hit the fan, that’s you need to start getting nervous. So that’s what the stop losses are for. That’s why you trim some positions along the way.

10:08
Yes, let, let, let them run as long as they can. I got a position right now on WYNN. I’ll continue to raise the stop loss on it, but I’m gonna try and let that thing run as long as I can possibly let it. AMAT. I may, if it goes up a little bit in the days that come. I’ll probably trim another 1/3 of my position off and then let the rest run wild.

10:26
Same with Shaq. Hopefully I get to say the same thing about DDOG Data Dog. SH is kind of acting like a hedge for me right now, but trimming positions as they become more profitable, look, you can always take that money if the market keeps going higher and putting it into another trade. So you can still stay long, but you should trim positions along the way as you continue to try to capture profits in this ever rising market and keep raising those stock losses.

10:50
It’s as easy as that. I haven’t been as bullish as I would probably have liked to have been on this ride. If I knew this market was going to rally like it did, I would have been much more aggressive, OK, but we don’t have the benefit of hindsight in the stock market. And so yes, I’ve had a few trades that were short, didn’t work out for me.

11:06
I’ve had a few trades that were even long that didn’t work out for me. I’ve had other long positions that did work, but along the way, I booked profits, OK. I captured as much of the gains as I possibly could, and that’s what you got to do as well. That’s gonna do it for today. If you have any questions, feel free to reach out to me, ryan@shareplanner.com.

11:21
Thank you and God bless.