Morning Market Thoughts
Good morning. Futures are pretty flat this morning and it’s looking like yesterday’s reversal won’t be following through today. But this is short-term analysis. I seriously doubt that the strong uptrend in equities is at an end. There is just no sign that the run is over; rather, only that the move is accelerating. The acceleration merely shortens the time period between now and a major top. But it does not help us find the level at which the market reverses.I think this is a very important distinction. When a market goes parabolic (think Bitcoin), the momentum can carry it to heights you’d never have foreseen. Again, think Bitcoin. But that acceleration can ultimately get so steep that it’s nearly vertical. As the slope steepens, those who bought at much lower levels start heading for the exits. At the same time, the more unsophisticated traders and investors really start getting excited. The feel like they are missing out. But in actuality, they have already missed out.
When a move is so clear — so obvious — the bulk of the profits have already been made. The only thing that remains is to book those profits. And how do the sophisticated traders book those profits? They sell to the lowest common denominator: The unsophisticated and inexperienced retail traders. For the pros, the work is done. For the amateurs, class is in session. They’ll now start paying steep tuition for the privilege of learning that buying at the wrong time usually leads to selling at the wrong time. Buying high and selling low is certainly a strategy. It’s just not a profitable one.
So stick with a trend because it can last longer and go higher than you think. But avoid chasing. On any particular stock, just keep something in mind. If you missed the opportunity, then you missed the opportunity. There’s no shame in that. There are around 5,000 US stocks that trade every day. As such, there are hundreds of opportunities that you’ll miss every day. You can’t watch everything. The only reason you regret missing an opportunity on a particular stock is because you happened to see what happened. But what you see can indeed hurt you because of a tendency to “get in on it!” But what you don’t see can’t hurt you. There was an opportunity there…but you weren’t aware of it.
So don’t stress about missing opportunities. High entries are philanthropic — you’re helping someone much sharper than you get out of their trade. How nice of you to take one for the team. Class is indeed in session, and you’re now in the front row. If you do it again and again, you’re a back bencher.
Be capitalilstic, not philanthropic. Know what you’re looking for, and then don’t do anything until you find it! By being resolute on sticking with a plan, you’ll avoid buying high and getting hurt when a stock, or the entire market, reverses.
See you in the trading room.
–Dan
Market Update