Asset prices trend. We know that.
It’s why technical analysis works.
Price changes for stocks, rates, commodities and even crytpos move in trends. They’re not random.
We know this. It’s not a secret.
So we should respect the behavior of the market. Not stick to narratives the lead to poor risk management.
Remember when they slapped an ipad on a stationary bike? That worked for a while, until it didn’t. But $PTON has been in a downtrend for over a year now. So the recent developments just went in the direction of that trend. Because markets trend.
So we need to respect support breaks, no matter how sexy (or stupid) the story might be.
The one that seems to be on everyone’s minds these days is the Russell2000 Small-cap Index.
If we’re below all of that support, then there’s no reason to be long. It’s that simple:
We’ve been pointing to those September highs in the S&P500. That resistance turned into support a couple times towards the end of the year.
But if we’re below those September highs, there’s no reason to be long. It’s that simple:
We’re seeing support breaking outside of US Stocks as well. Take a look at Bitcoin.
If we’re below those September lows, there’s no reason to be long. It’s that simple:
And the strongest of the bunch this year are the stocks outside the United States.
So if we lose these, how are the others doing?
Here’s the All Country World Index Ex-US. If we’re below those 2018 highs, then there’s no reason to be long. It’s that simple:
How I learned it was that you want to be buying the smiley faces and selling the frowny faces.
How do these look to you?
Do you still hold on to assets that are below broken support?
Why do you choose to do that?
Are you disciplined and stick to your plan?
How did you learn to do that? (the hard way I imagine?)
For every trade we put on, we need to identify where we’re wrong, before we even get in.
Risk management is not something we want to mess around with.
Not in this market. Not in any environment.
Remember, you can always get back in.