Ep 179: Stock Market Pain, Facebook, Trade Wars + Charts

April 12th, 2018

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We'll talk a little bit about human behavior. Why Trump is saying the little pain in the stock market. We'll also talk about potential recession, bear markets, what to kind of look for, and some insight.

We'll look at Zuckerberg's testimony and the whipsaw action that we're having in the marketplace.

These are some of the things that I want to share with you, but keep in mind this is my opinion on these things. I look at things not only from an outside perspective but also I see as not just a one-to-one cause-and-effect.

A lot of people watching this video may think because it's this thing that's happening in the marketplace, the market does that. One thing, it's a one-to-one linear cause-and-effect relationship, and the market doesn't work that way. There are always multiple things that happen to create and lead you to a specific event or an issue, a problem, whatever it may be.

Like in a car accident. You may think there's one thing that caused that car accident, but usually, it's multiple things. It could be the ball tire. It could be that the car is not running well. It could be that there's a cat ran in the road and then a second person moved over. There are usually multiple things that create and lead to a cause-and-effect relationship. It's not just one-to-one, and the marketplace is no different.

I want you to understand that what I drive and what I look for in the marketplace, my core decision is based on the numbers and human behavior. I look at the numbers based on statistics - based on what happened in the past. Then I look at human behavior - how humans behave and react.

Trump says that there may be 'a little bit of pain' as US and China trade tariffs threats

Threats are going on back and forth, that's why the market is volatile going up and down - there's a lot of whipsaw action. But the thing is, the reason he said this is - look at human psychology behavior, why would anyone say that there's pain - because they're trying to prepare you for a justification mechanism in your mind.

Your mind could justify that we're going to have some pain in the market over the next month or two or four, that way for the long haul, it's going to be better off for you. The reality is that's not the case. Once the pain starts to kick in, it usually accelerates and becomes worse and worse.

He's not the only cause, as I mentioned earlier, there's not one-to-one. It's not the only cause of this problem and the way things are bubbling up in the market. There are usually multiple things.

The Federal Reserve also is to blame. Keeping interest rates so low it doesn't allow you to pay off your debt. So, think about it this way, why would anyone as a regular person rack up a hundred thousand dollar credit card debt, if they're only making fifteen thousand dollars a year? It's just so difficult to pay that off.

This is what ends up happening. To have pain in the economy,

this is what the US is doing - a lot of people in the US are just living credit card to credit card debt. But to do that, you got to raise the interest rates.

A lot of people need to be buying less expensive vehicles, the less expensive smartphones, need to be living probably on soup rice and beans - those kinds of things and then you can afford those kinds of things.

But here, if you're trying to all of a sudden make more money from China and these trade tariffs, this creates a lot of problems going back and forth fighting with one another. This raises and escalates things and makes things more expensive.

Usually, you don't win these things out, and in the end, it just ends up hurting the consumer in the long run. There are no real benefits that the U.S. gives to the people when you compare to other developed nations, as far as when you look at education, health care, maternity, or even paternity benefits.

Looking at Sweden, Canada - those kinds of countries, they have a lot more benefits. Granted they pay more in taxes, but this is what you need to do to pay off debts. The US doesn't do that.

The market is whipsawing due to a lot of this talk. Trump himself and many other political figures like Larry Kudlow, they whip back and forth saying one thing then going to another.

Dow closes more than 200 points lower after Trump's taunts Russia because of the Syria issue.

Dow gains more than 350 points after Trump so Syria attack may not be imminent. It's playing this po-ta-to po-tah-to back and forth. The markets are going to whip around like this with the volatility because it's biting and trying to hang on. Trying to figure this crap out when in reality they're just beating you around the bush and none of it is panning out exactly as they say initially.

When it comes to these political bozos, you got this whipsaw action back and forth. They can't give you a simple answer - that's the problem. We have a lot of this volatility that happens - going back and forth because nobody can give you a straight line with a simple answer of what they're planning to do.

When you look at the market, you've got all these volatility moves. When you look at the stats and this chart, here's one from CNBC. When you look at the numbers - look at the charts, and you can do your due diligence, but entirely we're getting way or 1% moves. That includes up and down on a day-to-day basis just over the last couple of months.

When you compare that look at what this lines up to its 2008/2009/2010/2011, you're getting into recessionary times - bear markets and especially if the Federal Reserve continues to raise interest rates. It may not happen this year, but you're getting into a recession, and usually a recession has announced one to two years after it's already happened. So, the trouble with the market right now is that we're tight on the upper end - where we're a little extended, there's a lot of political risks here, there's a lot of tension, and these politicians they can't give you a clear-cut answer because Trump himself doesn't know what the heck he's doing.

As far as what's going on behind the scenes, and it's probably not even half of it. So what you need is prepare for is basically when you're looking at your money, stay lighter and wait till things calmed down. That includes when tensions calmed down.

The fact is the lies, the lawsuits, the news, the fake news - that's going to continue going on for quite a while.

I want to simplify this for you. In a bull market, when you have stocks that are moving upward very strong, you want to see strong moves to the upside with wide price spread. You want to see it continue to move higher with volume and strength.

You go wider if you're trading verticals. Lighter positions, if you're trading calendar spreads and options. You'd be a little more careful and nimble about the situation.

If we draw out a little chart here, let's break apart a little chart frequently, what you want to see is a healthy movement. Let's say here is our upward pattern, we want to see if this was healthy. We want to look at big volume bars. Let's say nice big volume bars on the way up and on the way down. You want to see light volume bars so that would be our pullback. Then again, as things pick up, you got big volume bars.

What happens if the move is not real?

You have right here. You might have some volume, but then you have a bigger volume to the downside, and that's what's in control.

So, what's a real move when we look downward? We move down, we have big volume bars and then on the way up - this is our retracement. We have a lighter volume on the retracement. Then again, as we start the sell-off, you got a bigger volume when you look at it bearish.

And when you compare the current charts, are you seeing this or are you seeing something else? Where is the bigger volume?

Author: Jorge Diaz

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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