A veteran trader once told me, "When the cops raid a brothel, they take the piano player, too," meaning every stock gets annihilated in a deep correction or bear market. The fundamentals don't mean anything nor do a company's products. It's about the general conditions. As I mentioned a few weeks ago, I believe this is a time where cash is the best position. This is a market where breadth has been deteriorating, especially in the last few weeks. FED policy can have a very negative effect on the stock market, particularly growth stocks with high PE ratios. All that considered, the action of leading stocks has been the most troubling factor for me.
Tesla, for example, is still a media darling with Elon Musk recently named as Time’s Person Of The Year. The stock, however, might have just went through a climax top and is now starting to breakdown. It's amazing how the market can fool the majority (myself included) at turning points. In May, Bitcoin topped just at Coinbase had its' initial public offering.
NVidia, a true leader in the semiconductor space, looks like it needs time to base.
Market stalwart Apple also had a nasty reversal today.
While yesterday’s close was impressive, I noticed a lack of actionable setups. Most of the stocks on my screen appeared to either be in downtrends or very extended. Action on the indices today was also a cause for concern.
There seems to be a lot of complacency currently which is very dangerous. People have been conditioned that stocks always come back, which always happens in extended bull markets. But when you look at the above charts, ask yourself does it look like a smooth and steady trend? Does this look like a time where it is prudent to be heavily long?
While I am still extremely bullish on crypto long-term, I have started to reduce my holdings recently. My fear is that if we get a strong downtrend in the stock market, that may start to pour over into crypto as traders seek to raise cash. My philosophy is a flexible one. I'm not stubbornly attached to either side. I simply place my money where I believe it is best suited in the current environment. At this time, my main priority is to live to trade another day. There will always be other opportunities, and I want to make sure I'm there to take advantage of them, whether that be next week, next month, or even next year.
When I was younger and active in sports, one of my teammates always used to say, "Offense wins games, defense wins championships." Play great defense here. The key is to have your equity in tact for the next strong uptrend. Don’t get wiped out in market that clearly isn’t strong. And don’t go chasing the one stock rallying in a weakening market. Remember, when they raid the brothel, they take the piano player, too.
Risk right. Sit tight.
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