Because of the volatility in this market, I am making the Strategy Session available to non-members tonight. I hope you find this useful. (September 13, 2016)
In this Chart of the Day video, it’s not really a Chart of the Day. This is such a weird and risky market that I am making the Strategy Session available to everybody, not just to members. This is just today because of the things that I have to say. It’s about 40-minutes long though, as you probably know, you can put it on a fast version. I think this is a really important time for you to be learning, so I am making this available to you.
I think I have done this type of Strategy Session once or twice over the years, but I don’t actually remember when the last one was. I will tell you right from the outset, I’ve got nothing for you to do. So if you are sitting here, you just can’t wait for the trade for tomorrow. I don’t want to disappoint you so I’m just telling you right up front, you are not going to get it. I am going to talk about the market. I have 38 stocks that I want to look at and I will probably think of a couple more as I go through my video, because I do tend to kind of just go stream of consciousness sometimes and this might be one of those times. But here’s the deal: It starts with, what I call, the hot dog pattern. This is an old pattern that I just made up (I have actually talked about it before). Here’s what it is: Here’s a bun, right here, here’s a bun and the hot dog is in the middle. What happens is, you get like this big sell-off and then a big rebound. And we are waiting, not you and me but others, are waiting for a move to just keep on going and really screw all those bears/ Right? They are betting against the market, “Oh we’re going to get them.” Forgetting about the fact that there a whole bunch of losers right up here, a lot of folks that have been complacent, waiting for the blastoff here, as opposed to WATCHING for it and positioning themselves so that they don’t get hurt if this happens.
And by the way, over the last few days, if you lost some money in your portfolio, well, welcome to trading. Just about everybody who is involved in the market would. So don’t feel bad about that, if you did, this is what happens. The trick is not to lose a whole lot. That is really the trick in times like this. So the idea is, big down day, “Oh my gosh we are going to zero.” Then a big up day, “Wow! Maybe it’s time to get back in. Crap, I shouldn’t have sold that stuff that I sold on Friday.” And then today, are we going to find support here or are we just going to keep going down? These 3 day swings, ‘manicy’ one way, ‘manicy’ the other way and the finally ‘manicy’ the original day. That is a lot of manic moves here. So what I am suggesting is, step back and ask yourself, is this a low-risk or is this a high-risk environment? Do you know? And I don’t care what you think, I really don’t. Do you KNOW which way the market is going tomorrow? Do you KNOW? Do you know that we are going to get a big sell-off here like we did here? Do you know that? Or do you know that this was actually a wrong move here? Because we got a higher low relative to Monday, and this is an INSIDE day, you KNOW that we are going to get this kind of blastoff. Okay if you know either one of those things, don’t take this the wrong way, but you are a fool. Nobody knows. That’s the point of this hot dog pattern.
This type of a pattern just reflects a lot of people not knowing what is going on. So I am going to go through these various charts, this totally supports my thesis from yesterday, which is this is a bull trap. It’s a bull trap. We get a big high volume sell-off. Okay, this means something. This means something. It’s not like all the buyers left early to go to happy hour and start drinking martinis so they forgot to buy and then the market just fell down. This is aggressive selling that is happening. VERY aggressive selling that is happening. That does not go away in one day and you can’t WISH it away, you can’t HOPE it away. You can’t pretend that it didn’t happen. It happened, just like it happened here and then the next day we got a NASTY sell-off again. And then. “Oh, well we got this kind of move, so it’s time to go long.” Well if only the market was that easy, to where we could look at the last big sell-off and play it perfectly. That is not working out that way.
So what I am suggesting is this: You take a moment and if you need to go ahead and pause the video. It’s okay, I will wait. Take a moment and really do some deep reflecting and choose one reason why you are trading. One reason why you are even watching this video. Other than to be eternally amused by my constant banter. What is the one reason why you are trading? What is the one reason why you are interested in the market? Okay wait. Answer, the only answer is to make money. To take the money that I have and actually grow it. My suggestion is, you think about that. You don’t think about making a trade tomorrow or today. Here is my question to you, you active traders, did you make money today? Did you make money, or did you trade? Who made more money, you or your broker? The answer to that question might really, really help you out in your trading. This is a higher-risk environment. Look, I have been doing this for 20 years. I have read countless books and the good ones will all have an emphasis on the same thing, and that is risk management. And they will also emphasize the idea that you want to trade to make money. There is common thread, not a whole lot of difference between the good ones, risk management. And so my suggestion is, you focus on risk management.
And when the risk is high, manage your portfolio. Manage your emotions. Don’t think about making the next trade. Trust me, you are not going to get rich right now. You are not going to miss out on ‘the big one.’ Go ahead and short the market. Get short right away. Buy a bunch or puts or whatever because I know we are plummeting to zero. Not going to happen. “Oh, but get really long because this was the bottom. Big move here, this high volume move, that tells us that the buyers are back.” And then today. “Oh my gosh! We got a rebound off the low. So now I have got to buy. This is a once in a lifetime opportunity to get in before we go to new highs.” Okay, first of all when you hear money managers on CNBC or Fox Business or anywhere else expressing a bullish view of the market consider this, they may be correct, they may be incorrect, only time will tell, but consider this, anybody who manages money has a vested interest in being bullish. And this is why: Because if you have got your money invested with a money manager, you are watching him on TV. You are watching him on TV. You are reading what he writes, because the guy or woman, whatever, is managing your money so you are watching what they say. If they say, “You know what? This is a risky time to be in the market, I really think that it is important to be in cash. Or to be positioning yourself for a big downturn in the market. A very risky environment.”
Okay, then you look at your account statement and you want to know why the heck you are 90 percent invested with this person. Okay, they know that. So they are not going to be making these statements that they probably DO discuss in the green room.’I have been in the green room and I have had these discussions with people. TRUST ME. What is said in the ‘green room’ is not what is said under the bright lights and makeup a lot of times. Sometimes it is, but a lot of times it is not, which is why more and more over the months I have sent fewer and fewer notes. And been less and less interested in being a media guy, because I think the disingenuousness is getting to nauseating proportions (and that is what I have to say about that). But the bottom line on this is, this is a high-risk environment and don’t think about making money tomorrow or this week. Think about what you can lose if you hold the positions, that you are still holding, that are giving you trouble.
I talked to my brother Gary and we were just discussing this video and I said, “I am going to do it a little different.” And he said, “Well, are you going to tell people to sell what they have?” And what he was referring to are, we get this question every time, “Dan, when you say to raise cash does that mean to dump everything?” That is not a question that I can answer for you, because these are your decisions. It is your money, if you want to give it to me then I am happy to run it as if it were my money, but I’m not going to give any of it back to you. In other words, you are the one with the vested interest, you figure it out. As a general rule I will tell you this, it’s a general rule, you can apply it however you want. As a general rule if a position is causing you pain then you need to ditch it. You need to ditch it, if a position is causing you pain.
I went to the shooting range the other day. I wasn’t properly dressed, I didn’t have a scarf around my neck. And when you are shooting a AR-15 with a lot of brass coming out, it’s coming out hot. And when one of them goes down your T-shirt and rests on your belly, it’s really pretty uncomfortable. And so what do you do, if you can, depends on what your posture is, what do you do? You reach with your uninvolved hand, untuck your shirt very quickly, and let that brass fall to the ground, and worry about the scar and the burn later. If you are not able to do that for various reasons, and there are, for those of you who happen to be firearms aficionados you know what I’m talking about, the rest of you don’t, and that’s fine. Guys like me will protect guys like you. But if you are not able to do that then what do you do? You let it sit there and burn. Because you have to tolerate it. You have do deal with it because you can’t do anything about it right there. And at the end of the day it’s just hot brass and hot brass will cool. Just not as fast as you want it to.
Apply this to trading. If you have hot brass down the shirt, get that out of there, just get it out of there. Trust me, you will feel better. If you DON’T get it out, or you can’t get it out, it’s going to stay in there, it’s going to burn and it’s going to burn, finally it’s going to stop burning, but it’s going to leave a scar or at least a mark for a long time. So driving this home, here’s my point: If it’s a long-term position and you are holding it for a loss, and you are wondering why the heck you didn’t sell it? Sell it now. I am not going to talk specific stocks because this is your decision. You can feel free to hang on to it. But how many of your losing positions, that you are holding, how many of your losing positions are positions, are stocks that you look back at the chart and say. “Well, I should have sold ‘X’ on that date or when the stock moved this way, I should have sold up there, but I didn’t because I thought it would come back.” And of course now it’s down lower so now I just have to wait for it to come back.
Actually no you don’t have to wait for it to come back. You either have stock or you have money, period. If you have stock, no, you have a specific stock. That stock, in all of the market, that’s where your money is and you are waiting for THAT specific stock to come back up. On the other hand, if you have money, now you have choices, you can buy any stock you want, any of them. Buy any of them. It’s all there for the taking because you have money. Don’t think of trading as anything other than an exchange of money for a stock or an exchange of a stock for money. So if you have a stock that is hurting you, if you’ve got hot brass down the shirt, you can exchange that stock for money and then put that money; first of all you can just hang on to the money for a while or you can put that money into something else that you will actually be able to exchange later for MORE money. What is the differentiating factor? You have to admit that you are wrong. It’s amazing how many people, and I have definitely fallen into this category more times than I want to think about. It’s kind of cringe worthy through out the years, but there are a lot of people who would rather lose money than admit that they are wrong. And I am going to say it again and then I’m going to move on. This likely applies to you: There are a lot of people who would rather lose money than admit that they are wrong. So there ends the lesson.
Now lets look the market. A risk of more downside. Might get a rally but I think this is a risk of more downside, nothing I want to do. Some of the Dow components, I and just kind of scanning through charts here. McDonald’s ( NYSE:MCD ), no thanks. By the way, Apple ( NASDAQ:AAPL ) was the only stock in the Dow that was up today. Big whoop, it’s up at resistance, I don’t care. So McDonald’s ( NYSE:MCD ) down. Lets look at other food stuff. Starbucks ( NASDAQ:SBUX ). You want to buy Starbucks ( NASDAQ:SBUX ), we are going to see a bunch of charts that have this type of configuration. First, this is the 200-day moving average right here. It had been trending higher. Ultimately it’s trending sideways and meanwhile the stock had been above the 200-day moving average, which, it’s a function of math, is why the 200-day moving average was drifting higher. And then at some point the stock petered out, fell below the 200-day moving average and here it is not even able to get back up.
This is an indication that this stock is just not in an uptrend. This is now looking for lower prices. At least it’s not something that you want to own. If you own Starbucks ( NASDAQ:SBUX ) you can remedy that at 9:31 tomorrow morning. Look at Chipotle ( NYSE:CMG ). Chipotle ( NYSE:CMG ), I mentioned the other day when it came out that Bill Ackman bought a big stake in Chipotle ( NYSE:CMG ), good for him, that you want to wait for the enthusiasm to wane. Sure enough, if you had bought this up here you would have bought it 4 percent higher than you could now. As it is now, no thanks, it’s in a base. Do you really want to exchange your money for that? Okay, Whole Foods ( NASDAQ:WFM ). Are you still trading this channel? Why? The channel is broken. I didn’t guarantee that it would go on forever, I just said that the stock was in a channel. Now it’s out, you need to sell your loser because I know some of you bought this and now you are waiting for it to rebound. Monster Beverage ( NASDAQ:MNST ). No. High flier, used to be. Now, it’s a diver, don’t do it.
Caterpillar ( NYSE:CAT ), another Dow component. It looks kind of like it’s rolling over to me. It is just not where you want to be right now. Now we will look at the transports. Sloppy, sloppy. Any risk there? I think so. FedEx ( NYSE:FDX ). No. UPS ( NYSE:UPS ). No. Is there anything magical about $106.86? This is coming out of a volatility squeeze, and you will see some of these patterns too. “Oh man, this is awesome, it looks like it’s going to move higher. If the stock moves up to 111.00 or 112.00 it’s a great buy.” It didn’t do that. So if you bought this in anticipation of a breakout you need to be selling it because it didn’t break out. And if you are not selling it then you are not trading to make money. You are trading to be RIGHT. DON’T BE THAT GUY. The Nasdaq Composite. Can you imagine how this would be if Apple ( NASDAQ:AAPL ) was actually down? Again, it’s like a hot dog pattern.
Okay, lets just look at some stocks, stream on consciousness. Pizza ( NASDAQ:PZZA ). Maybe this is something that is worth buying. It’s out of a volatility squeeze, starting to move up. Fine. I have no problem with that because you can see the weekly chart, really choppy but also really strong. And the reason that I have no problem with that is because if you are buying it now, you’ve got a stop that is like 4-4.5 percent level. You have contained your risk. You are risking very little in order to trade this uptrend. Anadarko Petroleum ( NYSE:APC ). This is another one that is kind of working, okay, you can be there. There are a few energy stocks that you can be in. Here are some that you can’t: Cevron ( NYSE:CVX ). No. That is breaking down. Exxon ( NYSE:XOM ). No. “Oh, but it might bounce off the 200-moving average.” Where on this chart can you see where the 200-day moving average has proven to be RELEVANT in resistance or support? Okay, a couple levels here, like right there and right there. Are you going to hang your money on that? Not me. That is not working. Consol Energy ( NYSE:CNX), not working. Energy Transfer ( NYSE:ETE ). No, not working.
I know this is a crowd favorite in the forum, good dividend, 6.33, so having lost 6.61 percent just today. If this thing promptly turned around you would have to hold it for a year just to get back the money that you lost. So not a good risk/reward environment. Activision ( NASDAQ:ATVI ), no thanks. NetEase ( NASDAQ:NTES ). I talked about this yesterday, this bullish engulfing pattern, which was really, really bullish. It’s up today again. I would say that this was day one. This is day two, if we look at the 15-minute chart, day two, first thing in the morning. Boom! That’s it. After that buyers kind of dried up. The stock still held, certainly above yesterday, barely. But if you are long NetEase ( NASDAQ:NTES ), here’s what I would suggest doing: Keep a stop just below today’s LOW of 228.68. Now, you will probably get stopped out, but it’s a function of risk. It’s just a function of risk management. And if you still think, “Well maybe the stock can go higher.” Okay, well put a stop on some of your positions, you don’t have to stop it all out. But I’m just saying after two big days like this where the stock ran 15 percent from bottom to top and then it’s just kind of pulled back, it’s due for a rest. So at least protect SOME of your profits if you don’t want to protect the whole thing.
Okay, Amazon ( NASDAQ:AMZN ). So far it’s holding above the 50 but I don’t want to put any money there. Facebook ( NASDAQ:FB ). Do you want to go there now? It’s above the 50-day moving average and I guess you could say it’s okay. But it is not a compelling thing for me. Netflix ( NASDAQ:NFLX ), I have mentioned before, I will say it again, I only care if it goes above $100.00. If it goes down to 90.00, I don’t like it. If it goes down to 95.00, I don’t like it. If it goes up to 99.00, I don’t like it. If it goes up to 101.00, me likey. I need to see the stock moving higher. I don’t need to anticipate it.
Okay, Align Tech ( NASDAQ:ALGN ). This works okay. Stuff like this, and I mentioned a couple others like NetEase ( NASDAQ:NTES ), Pizza ( NASDAQ:PZZA ), APC ( NYSE:APC ), stuff like this, if it’s still hanging in there, then it’s okay. And by the way, a stock like this, this isn’t causing you pain. I’m talking about the stocks that have been trailing down and you are holding them all the way down and now you are wondering, “Golly, should I sell right here?” This stock isn’t causing you pain, so there is no reason to sell it. There is, “Oh my gosh! I’ve got to dump everything.” Not if it’s not causing you pain. If you are happy with the way this has been going then hang with it. Keep a stop right there, you are good to go. Nothing wrong with the line. If the stock is not hurting you and you are still satisfied with the way the stock is going, then stick with it. This would be one I would stick with. Would I buy it right now? No.
Sure it’s at the bottom of the range, but I don’t think we’re really at a risk. I’d rather buy the thing at 97.50 than right now because that would at least mean that it’s a new high. Right now it’s just in consolidation. Salesforce ( NYSE:CRM ). No. Somebody asked me about this a while back and I remember looking at it long-term, in fact lets look at it now. You can’t argue with the uptrend, that’s awesome, wouldn’t it be nice to have bought it at $5.00, but you didn’t do that, did you? So you don’t get to have this 1300 percent return. Nice. You don’t get the benefit of that. Right now the stock is just drifting lower so now that it is below the 200-day moving average, which I remember my analysis was, look it’s trending sideways, if this is your deal fine. You’re not really making any money but you are not losing any money. However, if the stock breaks down below the 200-day moving average you have to get out. Okay, here’s the 200-day moving average, you have to get out. You can thank me later.
Twitter ( NYSE:TWTR ). No, it’s not really compelling to me, just because of what is happening in the market. Oh, but it could bounce. Sure it could or it may not. I think a lot of people are waiting in vain for Twitter ( NYSE:TWTR ) to get bought out by somebody. Maybe it will happen. Maybe Howard Lindzon who owns StockTwits will buy Twitter ( NYSE:TWTR ) out. I’ll tell you one thing, then Twitter ( NYSE:TWTR ) would be a better run company. GoPro ( NASDAQ:GPRO ), same deal. It’s got kind of a similar looking pattern as Twitter ( NYSE:TWTR ), just not where I want to go right now. Not with the way the market is. FitBit ( NYSE:FIT ), not really. All it’s doing is drifting sideways. Do you think tomorrow is going to be any different than today or yesterday or the next day? It’s just still in consolidation. This type of stock certainly isn’t interesting in this environment and here’s why: Because you would rather have $15.00 in your pocket than have a share of FitBit ( NYSE:FIT ). You can buy any stock you want, but if you own FitBit ( NYSE:FIT ) the only thing you can do is exchange the stock for cash so you can THEN buy any stock that you want. So keep that in mind, it’s either a specific stock or money, which you can use for any stock. Those are your two choices.
Okay, Burlington Stores ( NYSE:BURL ). You need to get out of this thing now. This is one that we have been on for a while, it’s done really nicely. But after today’s move it gapped up, still it’s in a nice uptrend. The 20-day moving average is still holding, but this was all selling all day. Take your profits on this and move on. Okay, are you in this stock ( NYSE:STOR )? Your question: Why? Answer: I don’t know. Action: Do something about it. CoreSite Realty ( NYSE:COR ). No. These are stocks that I have talked about recently. This is not working. If you are in it, ditch it. Ellie Mae ( NYSE:ELLI ). It used to be good. Now, not so much. GET OUT OF THIS STOCK. You can always buy it back later. Home Depot ( NYSE:HD ). Oh! But it could bounce right here. It probably will. You will probably get a rebound on this somewhere around here. But I have got a feeling that it’s not going to work out that well. Resistance would be right up here on any rebound, that’s what, 3-3.5 percent. You just don’t want to be here. Lowe’s ( NYSE:LOW ). No. No thank you. Pulte Home ( NYSE:PHM ). No. Home builders are not really where you want to be. LGI Homes ( NASDAQ:LGIH ). This would be the ONE that would be okay because this is working, unless you bought it at the top. Then I’m sorry. But the stock is still above the 50-day moving average. If that’s where it is you’re good. But other than that you don’t’ want to be in home builders.
Now Ulta ( NASDAQ:ULTA ). No. This is busted. Remember, this is a crowd favorite, in Fitzpatric world, for a long, long time. Once it fell below the 50-day moving average the game was over. The jig was up. It’s time to move on. Now, don’t you wish that you had sold this stock 8 percent ago? Because that is basically how much it has fallen. Ulta ( NASDAQ:ULTA ), if you are long it, ditch it. When it gets down to 210.00 you can tell me, “Dan, glad I sold it at 236.00. Okay, STZ ( NYSE:STZ ). This is breaking down. Somebody said in the forum today, “Isn’t anybody drinking booze any more?” If I am long this stock I am going to up my intake. No, this is not working. Five Below ( NASDAQ:FIVE ). No. “Oh, but it might bounce off of the 200-day moving average.” Yes, but the uptrend is broken. The uptrend is busted. It’s a choppy stock. What would you rather have $41.00 or one share of this? I would rather have the $41.00. Weight Watchers ( NYSE:WTW ). No. The CEO is leaving. I guess Oprah is now going to advise the company. Sure. I would rather have $10.00.
Tesla ( NASDAQ:TSLA ). We had some discussions about this in the forum today, about Elon Musk etcetera, etcetera. Look, they have been all over this on CNBC, they were at some Delivering Alpha Conference, I don’t really think many of those money managers deliver alpha but it’s nice to be at a conference of that name. Alpha is out performance. But bearish, bearish comments on Tesla ( NASDAQ:TSLA ). Do you really want to own this? And if you do own it, seriously, are you a ‘Teslonian’? Is that why you own it? Maybe the answer is yes, that’s fine. You own the stock because you really like Tesla ( NASDAQ:TSLA ). You think Elon Musk is awesome, you think he is going to change the world and we are going to go to Mars together, and all of that stuff. Great! If you own Tesla ( NASDAQ:TSLA ) you are not making money. You are not making money. So then take some satisfaction in owing Tesla ( NASDAQ:TSLA ) for some other reason. But you don’t own Tesla ( NASDAQ:TSLA ) because you are making money. SolarCity ( NASDAQ:SCTY ). The same thing, If you own SolarCity ( NASDAQ:SCTY ) you do not own it because you want to make money. You are owning it for some other reason. If you are one of the ‘greenies’ that thinks that solar energy is going to save the planet and this and that, great. SolarCity ( NASDAQ:SCTY ) is your company. Here, now you can buy them all. Buy the Guggenheim Solar ( NYSEARCA:TAN ) ETF. You own them all. You are not going to make money, but you will feel good about yourself as you are losing money. Right? SolarCity ( NASDAQ:SCTY ), Tesla ( NASDAQ:TSLA ), don’t go there. Seriously.
My point is, again, just to emphasize this, a few things. First of all, I don’t do Strategy Sessions like this, you members know that. I will typically narrow it down and we will look at fewer things. But this is one of these weird markets where at some point the wheels are going to come off the wagon. We don’t know whether this is going to be the time or not. But we sure don’t have to BET that it’s NOT going to be the time. You don’t have to place that bet. But keep something in mind, Treasury Yields are moving up. Why are they doing that? They are doing that because folks are selling bonds. When bonds are sold the yields on those bonds go up. Why are traders selling bonds? Because they think rates are going to go up. I am making a point here. So the Fed supposedly controls the bond market. And in a way they do because they basically print their own money and they can buy whatever they want. So the Fed could come in and buy a bunch of bonds and drive the rates back down here. But they are not doing that so far. And so bond investors are selling because they think rates are going to be lower. And so there is no question, with these rates down here, there is no question that bonds are in a bubble.
But what you need to understand is, money managers have asset allocation shifts, adjustments. When stocks are expensive they will shift into bonds because they want the safety and they want the yields. When bonds are expensive, in other words the yields are really, really low, then money managers will say, “Well then we are going to be in stocks. We can buy stuff like Philip Morris ( NYSE:PM ) and get a 4 percent dividend yield. We can do that or Mighty Mo, Altria ( NYSE:MO ), get 3.7 percent. We can buy that kind of stuff and then also get some capital appreciation. So we will sell our bonds and then buy some stocks.” Or maybe they just buy the S&P 500 and get 2 percent. So they get capital gain and yield, and fixed income. The problem is, that because of what the Fed has done for the last umpteen years, remember, with money managers it is what is cheap relative to what else? Are stocks cheap relative to bonds? If the yields are really low in bonds then equities look pretty cheap. Just because you don’t want your money in bonds, you are not getting a darn thing for it. So suddenly stocks, even with a higher P/E, are more attractive.
When yields are really HIGH, suddenly stocks aren’t looking so good. Because I can get a high yield and safety, these bonds, I don’t have to worry about the stock market declining. So there is like this rotation between stocks and bonds, and stocks and bonds. And it goes on and on, and on and on, and on and on and on forever. Well what the Fed has done is screwed that whole thing up. Bonds, this is just a long bond, are going up. The S&P has been going up. So what is happening is, you have got these two asset classes that are SUPPOSED to be trading OPPOSITE each other. One goes up, the other is supposed to be going down. If that other one that was going down goes up, then the first on is supposed to be going down because it reflects an asset reallocation. But when they are BOTH going in the same direction, that’s a problem. Because they can also both start going in the OPPOSITE direction. And if they both start going in the opposite direction that means that stocks and bonds are going down. Why? Because there is no place else to go. And when there is no place else to go, what do people do? They go to cash. And also, when there is no place to go, when you can’t go into bonds, what’s happening to the rates? Interest rates are going very, very high. So suddenly money is really, really expensive, which is a problem when you are a borrower, like corporations or governments.
Money managers think about this kind of stuff, trust me, they do. I think about this stuff and I’m not even a money manager. I’m a manager OF money managers. But if the wheels start coming off the wagon here, in the S&P 500, and the wheels start coming off the wagon here in these bonds, what is going to happen is, you are going to see interest rates starts screaming. And if that happens then all the ‘oopses’ in the world uttered by Yellen and Bernanke and Greenspan aren’t going to make that pain go away. So what is your one remedy? What is the ONE thing you can do? I said it earlier today, you put stops on your positions. If you are buying a stock, like lets say you are saying, “Well I like Align ( NASDAQ:ALGN ), I get what you are saying Dan, but the stock is working for me. Okay, fine. Great! I support you in that, it’s a good stock to own, no reason to sell it. But you know what? If this stock starts falling below the 50-day moving average, then you don’t really want to own it, right? You want to go ahead and take your profits. So set your stop at like 3 percent, 2 percent even, but set it fairly tight here. Make it a ‘good till canceled’, auto execute. Then forget about it. Now you are managing risk. Now you are managing against the downside.
If the stock hits your stop you are out. There is no discretion. You are not going to get any of those feelings like, “Well I can’t sell it now. I can’t sell it now because I don’t want to take a loss and I will sell it at the bottom and then it’s going to go up without me and I’m going to feel like a fool. So I will have lost money on a stock that I thought was going to go higher. The I’m going to feel bad because I didn’t buy it and it went to an all-time high. And the next thing you know I am going to go and get my Smith & Wesson and go do something about it.” No. Put a stop in, you’re done. On every single position that you have. I’m telling you, and again, you can thank me later. And you will be thanking me. Put a stop in on all of your positions, and then if they get hit, they get hit. Some of you guys in the forum I have seen your posts and I appreciate them. You said last week, “You know what? I was out golfing, I saw emails coming in, my stops are getting hit, didn’t even care about it, I think I had a pretty good round of golf.” The point is, when your account is being managed properly you are going to do better during times of duress, because you are on auto pilot. And I have said this a few times recently and I will say it again, panic fills an empty mind. But if your mind has a plan there is no room for panic, you just execute the plan.
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