Turbulence Beneath The Surface
Even with the S&P 500 only a few percentage points off of a new high, there are some signs that the market may need some time to sharpen up.
The best stock market indicator I have is the performance of my trades. When I take quality setups and they don't work, it makes me extra cautious. When I'm in a situation like 2020 where everything is working, I step on the gas. When I am getting stopped out, I know it's time to take a break. I've taken trades in PINS, RBLX, and some other stocks this month without gaining much traction. In addition, I've noticed many former leaders such as FUTU and PTON begin to fall hard. All in all, I always look to do more of what is working. If I'm making money, I look to trade more aggressively. If I'm losing money, I know it's time to take a break.
I was extremely bullish on Bitcoin as it cleared $60,000. However, with it now trading below the 50-day moving average, I decided to sell my entire position. I still believe Bitcoin is headed for much higher prices in the long-term and will continue to monitor it. I'm very flexible with my trading, being quick to sell when a major support level is lost, knowing I can always get back in once a strong uptrend resumes. I'm really never married to one side or the other. The key for me is to never let my account experience major drawdowns which can take months to recover from.
While the DOW and S&P 500 are not too far off of old highs, they are somewhat extended from their 200-day moving averages. They have also seen some distribution come in recently. In addition, the Russell 2000 looks like it may be forming a small head and shoulders pattern. ARKK and FFTY look to be forming bases.
Although it is not the be all or end all, it important to note that May is approaching. Will "sell in May and go away" prove true in 2021? We shall see. This is not my favorite indicator, but it is something I keep in the back of my head.
Overall, I'm still very bullish on Bitcoin and stocks in general for 2021. However, my number one priority is always risk management and to keep drawdowns in my account as small as possible. When I see stocks losing the 50-day moving average or if my stop losses are consistently getting hit after I enter quality set ups, I make a note to be cautious with my trading until the market gives me a clear indication of what it wants to do. If the market shows me signs of strength, whether that be tomorrow or next month, I'll start to increase my exposure once again. Until then, I'm in no rush to trade. The market will always be there.
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