Ep 113: Your Positions in Bullish Market Conditions

December 8th, 2016

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Hey, this is Sasha Evdakov.

This is a post about your positions in bullish market conditions. It's December 8th, 2016 and right now the S&P is up about 7 points and 2250 is the level we're getting into.

I want to talk more about your positions in which you're probably going through as you're looking at the market as it continues to trend higher.

And I'll cover some things you want to consider depending on your situation.

A couple of Quick News

I posted a few critical charts around the indexes. Next thing is new webinars posted for course owners. We did an intensive webinar, and if you go to the Rise 2 Learn website, you'll find it.

This is where we hold all the courses and anything with options. There're the options course and two webinars.

The last thing is that I did refilm and added content to the Accelerate Your Stock Trading Education Course.

Take a Look at The Market

If we take a look at the SP-500, we can see that the run and the expansion that we had especially since these lows right there since the election has been extreme.

You could say that we broke out right here pass this resistance line. That's one thing, and we came back to retest this support line. And then again we consolidated slightly, and we powered higher.

As I look at this, we continue to keep pushing higher. You're probably in a few different variations of this trade depending on how you looked at it.

I want to look at it in a couple of ways. Number one would be your timing with overall being in the market. If you're brand new to the market and this is the first time you're experiencing this I have some words of caution.

That's the case because if you've been trading one or two months at most and you're experiencing this move, this is not a typical move. I've talked to a lot of traders in the past. I've done a lot of coaching in the past with people who've traded in the past. This overall right now is a bull market time.

It means you could basically close your eyes throw a dart and stocks are going up. And everybody is a genius during the bull market. If you think you're ahead of the game be humble about it because this is not a healthy condition.

These things can last for:

  • a month
  • three months
  • six months
  • a year
  • five years

It depends, but the more you stretch it to one side the more massive the drop. My first thing is when we're looking at your various position as you're looking at your time frame. If you've only been trading for one or two months, this may seem reasonable.

For others of you that have been trading for 2-3 years or maybe more, you realize that this is a unique scenario. Be mindful of your emotions especially as you're looking into these kinds of situations.

Number one reason is if you've been trading for one to two months you're probably making great money, and you feel good. There's euphoria out there, and you're buying because you can't go wrong. Now if you've been trading for 1-2 years, you probably have some balanced edge, and you might feel like you're missing the move.

There're two different feelings here that are going on. And if you were shorting the market, you're probably not feeling terrific. So let's break these things down on the chart perspective.

If you've been trading this last month and a half you probably just saw a slight pullback. And then you now have this run expansion which you haven't seen a lot of.

Are You Taking Profits Into Strength?

You have to realize that market go up for much longer than they do to the downside. But the downside moves are much more violent. The more stretch that you get, the stronger the pullback usually becomes. And if these things have a significant pullback are you taking profits into strength.

That's the key. If you're new to the market and you've been trading for one to two months are you taking profits into strength. We haven't had a lot of red days except just a few.

  • If you take 1,000 shares, are you taking 200 off the table?
  • Or are you taking another 200 as it goes higher?

This helps reduce your risk. If you're not doing that you're going to pay the consequences eventually. This business is about making money.

You might be saying:

  • Why don't I continue to move my stop and continue to raise my stop and then if it hits my stop I get out?

Well, because sometimes those stops can be blown past especially on down days. And that's why you do it. That's because there could be one day or two days drop that could wipe you out.

Be mindful and if you think you know better by all means you can trade it the way you want to trade. Just be aware of taking profits into strength when things are good. When you're making in the last 20 years and when you don't have a run such as this one, then you want to take profits in the strengths.

If you've been trading the last 2-3 years or you're even a short a bear, then you're probably in a position like this. You're either missed the move, and you're not making enough, or you weren't long.

  • What do you do?

Maybe you're losing money because you were short. Or you saw this was building some consolidation levels.

  • And in that case what do you do?

Well, you're probably losing some money or not making money. If you're not making money, don't stress about it. If you're losing some money, but you're sticking to your game plan you're okay.

Don't be too stressed about it. These are not realistic conditions. Keep in mind we are trading based on potential policies and potential euphoria. There's a lot of rotations going on when you start looking at stocks like a Bank of America or a Goldman Sachs. These are not normal conditions.

US Steel is a good example as well. For a steel company to go up this high - these are not normal conditions.

  • Can they continue to go higher?

They can to some degree go higher, but you're starting to get into stretched valuations. And eventually, that comes back.

  • Can it continue to go up for another month?

Yes.

  • Can it continue to go for those six months?

Yes.

However, when the pullback comes, it's always much stronger. Keep that in mind that this can be building for something larger - for a pullback. You have to stick to the game plan. It's apparent that you have risks on both sides regardless of whether you've just been new to trading or if you've been trading for a while.

Bank of America Stock

You have risks on both sides. If you get in it right now, your risk is that it could pull back right here and still nothing be wrong with the stock.

And that's a pretty good pullback in Bank of America. You're also could be missing out on further potential gains. The other side is if you short it right now you could have an excellent potential to come back to a particular situation like over here (yellow lines).

The stock could continue to run a little higher. And then you'd be losing out on your short. You have these two unusual high-risk situations that you're in right now.

Things to Remember

Over 300 companies are making 52-week highs. That's not normal.

And you have to be mindful and realistic of your situation and game plan of the potential:

  • the possibility of it continuing going higher
  • the potential of it to break lower

I've pared down some of the short positions because I was a little more balanced. I've pared down a lot of my short positions, so I'm slightly short. But I have wide spreads out in options for selling outputs as well to counteract some of this momentum.

I am not trading anything around this range. That's because I know that the potential for these stocks to come back to 2,200. They can do it, and nothing be wrong with it. And that is because we have additional risks coming up.

After the new year, you have things that are coming up. It's a new cyclical year, and people may take profit. They're looking to maybe hold on to those gains until the new year.

Otherwise, you pay short-term capital gains tax. The other thing is you have the FOMC meeting coming up next week to make the federal interest rate announcement. Now we're melting up with a lot of shorts being squeezed and a lot of euphorias. There are a lot of retail traders as well.

The volume's there, but it's diminishing in some regards. We did have a nice little pop and spike right there which fueled some stocks a little bit higher. That was pretty good and significant volume.

This is, in reality, a bull market. You could close your eyes, and you could throw a dart, and everybody's a genius. That's the case because most stocks are making higher moves.

If you've been trading 1 to 2 months and this is what you're getting it, you probably think you're a genius. Keep in mind these are not realistic scenarios and situations. You want to be peeling things off into strengths.

Maybe you've been trading for a little while, and there are scenarios like this:

  • you're either missing the move
  • you're short, and you're losing out

Be aware of the fact that these are not real day-to-day, week-to-week, month-to-month. It's not statistically normal for stock markets to do this without having some pullbacks.

You will probably see some pullbacks. If we look at this, you will probably see some pullbacks within February time. And I say February because that's after the inauguration and those kinds of things.

You'll probably see those things start to come forefront - if not maybe sooner.

At least getting into more normalized levels meaning you'll have:

  • a few days sideways
  • a few days up
  • a few days down

That's more normal and realistic. As I look at things, every day is an up day. And out of the last few days in last month in the market, we went up 13 points. If you look at the SP-500, we went up 7%-8% which is your yearly gains on a good bull market you made in one month 163 points. And you only had seven red days.

That is extreme. Be mindful as your positions and how you're positioning things and what you're looking at.

Popular Stocks - Facebook, US Steel, Goldman Sachs, Netflix, Apple

Let's take a quick look at some popular stocks. Looking at Facebook your line in the sand is that 114 level. It's bouncing, but we're struggling at that level.

These are some favorite stocks. They're pushing a little bit higher, but it's not on significant volume. The stocks that are moving well are things like US Steel.

Here's what's happening with Amazon go. They offer free to check out or check out without having cashiers in line. They're innovating things.

Things are changing, and the environment is changing. The industry itself is changing. If you look at things like US Steel you have to move with where the big boys are moving, but looking at industries like the steel companies I find it to be challenging in the long run. In the short term (maybe in the first year or two) it's possible.

However, in the long run, just the way that things are moving it's just tricky. The jobs are becoming a lot different. It's not to say that you can't bring jobs back and have more growth in the job market. I want to say that the jobs are different.

That has been happening to garbage trucks with the guys doing the lift. Now that the truck has a lift and an arm and there's now one guy instead of three or four. All those things are changing in our world environment and world economics.

Right now where we're built on euphoria, but no policies have taken place. And if you look at this run, they saved a thousand jobs from moving to Mexico. The Union guy comes out, and he says it was only about 500. All these things remember to get embellished in politics.

You might start looking at things like even Goldman Sachs. I mean for it to come up so high so fast like biotech it's beautiful, but eventually, these things do pullback. They don't go up forever.

What's interesting to me about some of these things is we're coming into 2008 highs. In 2008 was a major sell-off. If we can break that level in Goldman Sachs, I'd say that's fine. But beyond that, I'm a little cautious.

Also, Netflix - these are leading companies. They've been leading the markets for years. Except for this last month - they're not leading now. That has me concerned.

It's the same story with Apple. They say that there's a rotation going on. Rotation is excellent, but the earnings need to come in. That's where you get to see it - we have earnings month in January here coming up as well.

You got to see how things play out. If you're trading these stocks and you feel like you're not making a fortune, don't stress about it too much.

Pro tip: These are not normal market conditions. You don't want to be chasing things. That's the one main thing and the main point I want to make for you.

Once they're high and powering higher - don't chase. When I used to pursue things like this I was greedy, and I wouldn't take profits in the strength.

I get in right here, and eventually, these things start coming back. And they continue to go lower. It would go beyond where I entered.

If you've been trading for 1-2 years and you feel like you're not making a lot - go into things slower. Things will change, and a pullback will happen. It will happen, and it's just a question of when.

The other strategy is to trade lighter. If you usually trade 1000 shares, now you can go in with maybe 100 or 200 shares.

Get less exposure. Maybe you'll make less on the upside, or you'll make less money on your profits. But you're reducing your risk that if and when that pullback comes you're not as higher exposed.

Important Note: We're not moving in a big way on the big companies.

On Amazon, we're doing a slight little pullback which could be an excellent potential entry point. Seven hundred would be ideal. We had some swing lows, and in theory, you could, this is a trendline.

But you also have some gaps and overhead resistance which is creating some problems for the stocks. Keep that in mind that you have the clusters that are significantly bearish for this stock.

The ones that are powering higher where the money is moving are things like US Steel. There are things like Bank of America. You can see the influx of volume, and it's typically just the money moving from the big boy companies and the leaders into these companies.

I don't see new money stepping in. I see more along the lines of the rotate is what's going on. And you do have the volume that's there. But the critical question is can it last and how far stretched.

Take your profits. You have to take some profits into strength especially if you're new. If you're experienced and you were able to catch this run you should be taking your profits.

If you don't take your profits and you've been trading for a while, and this comes back - you deserve it. Because in simple terms you're making a boatload of money, the run is extended, and if you're reading this post, this is a wake-up call.

Pro Tip: When things get a little stretch you know they're going to pull back. Just be careful where you're at the position.

Take a Look at Bollinger Bands

If you look at overall Bollinger Bands whether it's the SP - you can see we're way beyond it on on the percentage level.

Statistically on the probability level we're very stretched. I'm cautious. All my positions are all along with a slight tiny bit of shorting potentials and possibilities. But in general, you want to be careful in these kinds of market.

It depends on your experience of how you are positioned. Be agile and mindful.

Things to Be Aware of

I didn't post as many charts this week simply because any stock that you pick would be going higher.

A lot of them were powering higher, and you could have made some good money. However, keep in mind that these things will pull back eventually.

You want to take your profits. You can see like here these stocks powering higher way beyond. If you look at it here's the normal level.

You could see the normal levels. And sometimes there are pretty substantial pullbacks. Those are the abnormal areas. You can take any other stock - it's the same thing.

Final Word

When you get too many people on one side, then everybody's going to be on the other side eventually. The reason is that there will be no sellers.

Keep that in mind especially if you get these stretched moves. The more stretched it gets, the larger the pullbacks.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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