You are probably scratching your head at the headline here. I feel like I can already hear you asking me…
“Tom, the Dow just passed 30,000 for the first time ever. How on earth could we expect the market to melt down any time soon?”
Well, I’m here to give you a reality check…
It’s not about what happened on Tuesday or Monday or the week before last or anytime before that. Successful trading happens one day at a time.
Let me repeat that again for emphasis. One. Day. At. A. Time.
This is something successful traders keep in the forefront of their minds at all times. Because here’s what happens: On weeks like this week, some traders – especially the inexperienced ones – get the impression that every week in the markets is going to look like this one.
Here’s another reality check: Every week in the markets is not going to look like this week. That’s a fact.
The Sugar Rush
Now, this may seem obvious to you and most traders. But what ends up happening?
Well, I like to think of it like a little kid on a sugar rush: A little girl gets a lollipop from her mother. She eats the lollipop. Maybe she eats a second lollipop. Then the rush from the sugar hit – it’s a kind of euphoria.
The feeling is good… but it starts to wear off. She reaches for a third lollipop. She gets an even bigger rush.
Maybe she reaches for a fourth lollipop… maybe she doesn’t… It’s tempting. But sooner or later the sugar crash comes. And the more lollipops she’s had, the worse the crash is. That’s when mom all of a sudden has a cranky toddler to deal with.
This example may seem kind of silly, but believe me: The exact same thing happens to traders all the time.
In fact, the “sugar rush” is what I refer to as the first phase of a market meltdown. The second phase is that the markets start to dive. And when that second phase comes, let me tell you: It happens fast – way faster than the sugar rush phase. And it wipes out enormous amounts of wealth.
So why am I telling you about this right now? Well, by the looks of it, we are in the midst of a sugar rush at this very moment. And I’ve seen this before. I know what’s coming next.
Winning the Day Trading Game
As many of you know, I’ve been trading professionally for the better part of five decades. I’ve seen and done it all when it comes to investing.
A pivotal moment for me was when I saw the markets crash back in 1987. I saw how quickly wealth could disappear. I saw livelihoods wiped away literally overnight.
It became clear to me that all of the techniques and strategies that my career in investing had been based on up to that point were flawed. I knew that if I kept on following those philosophies, I would be exposing myself and my clients’ to an undue amount of risk.
From that point on, I started approaching the markets very differently. I began immersing myself in high-percentage day trading techniques as opposed to the more “traditional” approaches I had been following. I started looking at every single day with new eyes. And I saw how much risk I was effectively eliminating by following this new philosophy.
It’s been more than thirty years since that pivot in my career, and it has made a world of a difference. The concepts that I’ve mastered since then are the same ones I talk about in my bestselling book – Winning the Day Trading Game.
Balancing Fear and Greed
Everything I discuss in my book is precisely what has made me and my subscribers so successful since I made the big change.
But if there’s one nugget that feels particularly relevant during this sugar rush it’s this: You have to know how to balance fear with greed. If you are blinded by greed when the markets are booming, you are just asking for trouble. It happens every time there’s a sugar rush. Somehow, investors seem to make the same mistake over and over.
On the flipside, if you’re too cautious when things look bearish, you’re probably missing some great opportunities.
The good news is, the concepts in Winning the Day Trading Game will allow you to succeed no matter the market condition – whether we’re in the midst of a sugar rush or on the precipice of a meltdown. It will allow you to stay confident every single day that you’re trading.
So be careful with those sugar rushes. Remember to always take things one day at a time. And like I always say…
I’ll see you on the flip side,
Thanksgiving is a special time for me, always has been. There are few things I enjoy more than gathering around a table with family and friends and sharing a home cooked meal together and a good conversation.
This year it feels particularly important…
I think we can all agree that this pandemic has challenged us in ways that we couldn’t have expected. It seems like every single person has been affected in some way or another. I thought I had seen it all going into this year, but life has a way of surprising you sometimes.
Despite this year’s challenges, I still feel quite fortunate. I think it’s important to take note of the many blessings life gives us, especially on a day like today.
So here are a few things that I’m grateful for.
1. My Daily Routine
Anyone who catches my daily TBUZ TV updates knows that I get to see the ocean pretty much every single day.
There’s something so calming and soothing about walking in the sand along the water, watching the sunrise over the ocean, and hearing the sound of waves crashing on the shoreline.
And even though I do these things practically every single day, I don’t get tired of it, and I never take it for granted.
I’m also a creature of habit when it comes to investing. My daily routine when it comes to the market is something I am grateful for. Checking in on the 7 Sisters keeps me sharp about what’s going on. It allows me to help my subscribers be successful investors every single day.
2. My Bullish Outlook on the Markets
As most of you know, I’ve been a trader for a long time. I’ve seen and done it all when it comes to investing.
After the market crashed in 1987, I started doing things a bit differently. I found new ways to eliminate risk, and it’s made all the difference in the world.
I’ve always been an optimistic person, but my change in approach from that time has made me even more bullish as an investor… The techniques I adopted and mastered are all laid out in my bestselling book Winning the Day Trading Game.
This week has been spectacular for the markets, all thanks to the news of the vaccines that will help us put this pandemic behind us. The markets are bullish, and opportunities abound.
I’m grateful not only for the opportunity I had to adopt an even more optimistic (and pragmatic) approach to trading, but also for the bullish way markets have responded to the truly amazing vaccine news.
3. Living in the Greatest Country in the World
As some of you know, I take a lot of pride in having served our country in the Air Force. It was one of the greatest privileges and honors of my life to have performed this duty for this country that I love.
There’s no question that 2020 has been a challenging year to be an American. Between the public health crisis and divisive politics and protests, some people would be tempted to think America’s day in the sun as the greatest country on earth is over.
But that’s hardly the case. America is better than ever.
We’ve proved that once again with a safe and secure election. Even if you weren’t completely happy with the outcome, you have to be happy with the fact that we’ve been able to carry out our election in a civil manner. We’ll come away from all of this feeling more unified than we felt before.
4. America’s Income Project
Like I said before, I’ve seen and done it all when it comes to investing. A lot of trading techniques require expertise and education in order to execute successfully.
But there’s one strategy that takes virtually no training that I’m grateful to share with you. I call it America’s Income Project.
It relies on a technique called the “two-minute trade.” What’s incredible is that it can generate as much as 6 times as much income as the average Social Security check. Whether you’re on a fixed income or need to alleviate credit card debt or perhaps need a boost working towards some saving goals, it’s a technique that anyone can learn to perform.
It really upsets me to know how many people have lost their jobs this year due to this pandemic. And while America’s Income Project is not guaranteed to work every single time, it offers a way for anyone to make up for that lost income.
If you want to learn more, check out this presentation.
Enjoy your Thanksgiving, folks – even if it looks a little bit different this year. Don’t forget to be mindful of the things you’re grateful for. And like I always say…
I’ll see you on the flip side,
What a start to the week it’s been for the markets…
On TBUZ TV this morning, I talked about how good of a day Monday was. And I made that comment that, if only every day could be like Monday. Well, so far Tuesday has asked that you kindly hold its beer.
Meanwhile, the Dow has soared past 30,000 for the first time ever. That’s good news for today, and perhaps the rest of the week…
Will we see markets keep soaring higher, every single day?
As traders, we of course know that’s just not how the markets behave. It’s not wise to try to read too far into the future based on what the market does in a single day or even a couple of days. We have to keep following the trends and taking it a day at a time.
I’ve been talking the past couple of weeks about the phase of a market meltdown. The first phase is what I call the ‘sugar high’. The markets fly to crazy, crazy highs. What comes next? Well, that’s when the markets start to dive.
If you get caught up in the sugar high, you put yourself at risk for making a greedy or careless mistake. No matter what happens, you have to always stick to a plan. Every. Single. Day.
Support, Pivot, and Upside Target
For days like today and Monday, it’s important to keep our heads and not get caught up in the sugar high. The best way to do that is to stick to a plan. I usually do that by keeping just a few numbers in mind for the S&P 500.
Here are the numbers I’ve been paying attention to at the start of this week:
Upside target / new high over last week: 3645
I want to stress that these are the numbers that we’ve been keeping our eyes on through Tuesday. With the way the markets have been going this week, I could very well be sharing new numbers with my TBUZ TV subscribers tomorrow morning, bright and early.
My Favorite Stocks This Week
My TBUZ TV subscribers also know the two ticker symbols I told them to pay attention to this week. I’m still feeling very good about those right now.
(If you are interested in getting my TBUZ TV updates in your email inbox every day, follow this link here.)
We’re going to keep following those tickers, but stick to our plan as always.
The week has started great. Who would have thought we’d see the Dow cross 30,000 for the first time ever? A lot of people though that was a sacred number that would never be touched…
But, please: Don’t get too caught up in everything. Stay with the trends. Stick with your plans.
And like I always say…
I’ll see you on the flipside,
Successful trading is all about having a vision for what’s going on. A lot of newspapers (and frankly, most mainstream financial news) will try to get your attention with a new IPO or some big merger or acquisition that happened.
In other words, they normally tell you about the shiniest new toy on the shelf…
Once in a blue moon, those stories will point to something worthwhile. Most of the time, it’s just a distraction. Problem is, if you focus all of your attention on the stories that the news outlets are feeding you, you’ll lose sight of what’s really happening.
On the other hand, unless you have a regular system for seeing what’s going on, it’s easy to get lost out there. The easier your plan is to follow, the more predictable your success becomes.
The Global Markets Never Stop
Today, I’m going to teach you one of the most important lessons about trading: It’s that the global markets never really stop.
Take a careful look at this chart. It’s a summary of each trading day…
How many traders out there realized that each trading day actually begins at 5 o’clock in the afternoon the day before?
This is actually when the markets are opening in Asia – when most Americans are going home from work. Their trading day ends in the middle of the night – at 3:30 a.m. ET – right when the markets are opening up in Europe. Then as Europe is winding down – 8:30 a.m. ET – is when premarket. trading is getting started in the U.S.
This means that, by the time U.S. markets actually open, the third phase of the global trading day is underway.
Another way of thinking about it is that there are three days within every single trading day. And the times that markets and close within each of these days are what we call trend changes.
How Trend Changes Point to Opportunity
If you’re ever wondering why you’re making money in the morning and losing money in the evening, or why you’re making money in the evening and losing money in the morning, it’s because of a simple fact.
It’s because of these trend changes that happen all throughout the day, based on when other global markets are opening and closing. It may seem like things happen mysteriously overnight or before markets even open, but as I always like to say: Where is the sun?
In many cases, you may be able to better understand based on what happened where the sun was when you made (or lost) money.
The better you get at reading the global markets and understanding these trend changes throughout the day, the more you notice the patterns that repeat themselves. This is a good way to increase our odds of winning.
Not unlike the seven sisters, having a good read on the markets in Asia and Europe – and understanding how activity in those places create trend changes – gives you a leg up when you need to make steel in the gut decisions.
Reminder to TBUZ subscribers (and those who caught my Sunday strategy meeting from last week): the pivot number for this week is 3522.
My subscribers know what this means. If you want to learn more about pivot numbers and join us on the next strategy call this Sunday, check out this link here.
I’ll be sending you some homework over the weekend. Keep your eyes peeled for that.
Catch you on the flip side,
Well, we got some pretty big news at the beginning of this week…
American pharma giant Pfizer and German drugmaker BioNTech announced that the vaccine the two companies have been developing together has proven effective with a 90% success rate.
This is amazing news, obviously. We have a vaccine that can help us get out of this pandemic…
Or do we? Anyhow, the markets have been on a wild ride. On Monday, we saw new highs in the S&P 500 for the year.
Just brimming with opportunities it would seem…
But then by Tuesday, Amazon saw a drop of about 200 points from its high on Monday.
So what’s going on exactly?
One thing is for sure: this Amazon chart does not bode well for current trends that we’ve been seeing.
The Market is a Bit Overextended
I’ve been saying all along that volatility would be expected this time of year. It seems like the dust hasn’t completely settled with the election.
When there’s volatility, the key is to not get overwhelmed and try to look too far ahead into the future.
The most important thing to remember is to trade where the odds are in your favor.
It seems like the markets got a little overexcited with the vaccine news. As if the news of the vaccine’s efficacy alone ended the pandemic altogether.
That didn’t happen. We are closer to the end it seems. But there’s still a ways to go.
In fact, there was (and there continues to be) quite a bit of confusion about this .
While Pfizer did make a deal worth nearly $2 billion with the U.S. federal government to provide 100 million doses, the Pfizer vaccine wasn’t actually part of Operation Warp Speed. The company spent its own money in order to develop the vaccine.
See, something like that really doesn’t mean much, but it’s a reminder of how much we don’t know. I know I sure have some questions about the vaccine and how it’s going to be distributed.
By the way this week has gone, it seems like the markets have a few questions as well.
Trade Where the Odds are in Your Favor
Once again, we are reminded of the importance of taking it a day at a time. We can’t try to look too far into the future. We have to remember to trade where the odds are in our favor.
Right now, that’s trading the reference bars: that’s the only safe bet right now. (Check out this report that I recently shared with my TBUZ TV subscribers.)
In the meantime, what we have to do is to judge this just a little bit. We know the market is a little bit overextended right now, and we have to let some dust settle.
There are going to be some opportunities – and when they come, we’ll be ready to take advantage of it.
You all have a great day. And like I always say: I’ll see you on the flip side.
Successful trading is about taking it one day at a time. Never overload your wagon. Think about what you see. Make decisions accordingly.
If you try to look too far into the future, you’re going to overwhelm yourself with too much information. All that noise will make it much harder for you to make solid decisions based on what you see.
You may get lucky from time to time. The stars will align and maybe your timing will be just right. But take it from someone who has been trading since the ’70s: Your success will be hard to repeat.
On the other hand, if you’re able to make a routine to check in on what’s happening in the markets, you’ll make life much easier for yourself. Just like your habit of seeing what’s what, your success in the markets will become a habit.
One of the habits I’ve been following for years is to look at what I call “the seven sisters.” It’s so simple, I do it while I have my morning coffee. Since I’ve been in ‘watch mode’ this election week, I thought it would be a good time to give a refresh on what I look at every day.
The Seven Sisters
Like I said, the ‘seven sisters‘ tell me what’s going on in the market. I check in on them every morning, and it gives me the context I need for making decisions.
It may sound like some kind of alchemy or wizardry, but it’s simpler than that:
1. E-Mini S&P
The E-Mini S&P (ticker symbol ES) is traded on the Chicago Mercantile Exchange’s Globex system and is one of the most popular equity index futures contracts in the world.
Hedge funds tend to prefer ES over the big S&P 500 since it’s on an all-electronic system, so there are no delays that affect prices and the execution of trades. The average daily implied volume for ES is over $100 billion, which is a lot more than the combined volume of the 500 underlying stocks.
2. E-Mini Dow Futures
The E-Mini Dow Futures (ticker symbol YM) also trades on the CME. It’s based on the Dow Jones Industrial Average, so it represents the cumulative value of the 30 blue-chip companies represented on that stock index.
3. Deutscher Aktien Index
This is an index of the 30 largest and most liquid German companies on the Frankfurt Exchange.
4. E-Mini Nasdaq-100 Futures
This is an index of the top 100 companies trading on Nasdaq that allows traders to speculate on the future value of Nasdaq.
This refers to the trading price of an ounce of gold. Gold is priced below $1900 / ounce as of this writing.
This refers to the trading price of a barrel of oil. As of this writing, the West Texas Intermediate (WTI) is priced at just below $38 per barrel.
This is the 30 year US Treasury Bond. Instead of looking at the yield, the bond future looks at the price of the bond. As interest rates move higher, bond price moves lower, and vice versa. This let’s us know what interest rates are doing.
I tend to keep the information I need about the seven sisters in a chart that looks something like this:
This information (along with the ‘four vitals’, which I’ll discuss next week) gives me a good idea of where the opportunities are going to be in a given day. This is the baseline information I need to understand what’s going on in the markets.
Follow the seven sisters, and you can ignore all the shiny toys.
Election week is finally here…
I’m sure you’re just as tired as I am at the hype, the mud-slinging, the name-calling, the finger-pointing, the “anonymous sources,” the phone calls, the emails, and everything else that’s been filling up our newsfeeds and our attention spans during this grueling 2020 presidential race.
We probably won’t know the outcome tomorrow night – or even Wednesday or Thursday. Heck, we may not even know by the end of the week (or next week!) who the President will be in January. It will surely make for a lot of noise, and it’s a bit unpredictable exactly how everything will play out. But there is one thing I can guarantee, no matter the outcome… it’s this…
We are going to be fine.
Everyone is glued to their computer and TV screen as ballots are counted across the country this week. For many people, anxiety is going to be at an all-time high…
Not me. If there ever was a time for steel in your gut, that time is now. Successful trading is always about taking things just one day at a time. And sometimes that means being patient.
The markets are going to be a bit unpredictable until this election is over. There’s going to be a lot of volatility. That’s why I’m taking it easy at least until after the dust settles. Let’s not lose our heads out there.
Do me a favor: Make sure you drink plenty of water and get some rest this week. Eat three meals a day. And try not to let all the noise make you queasy.
I’ll check back in with you later in the week…
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The Dog Days of Summer in the Market
Geoffrey A. Smith, DTI’s Chief Instructor
Sirius, the Dog Star (constellation Canis Major), is seen ascending in the early morning hours with the sun during the summer months. This happens during the hottest part of summer here in the US. Of course, we associate summer with kids being out of school and vacation to cooler places or the beach. This also pours over into the market and we see markets “cool down” because volume lightens up as families head to their favorite place to relax. Though we have seen some volatility this summer, the markets have really gone sideways if we look at a bigger picture.
The chart above is a S&P Futures Daily Chart from June to the Middle of August utilizing our RoadMap™ market analysis software. Notice that the 2072 area is a magnet (pivot). The market is holding it as support and resistance depending on the “mood” of the market. Coming into earnings the market was below this pivot number, and now that earnings have pretty well passed, the market is holding above this pivot number. Yet you have heard on the news that the market was way up today, or way down today based on some geopolitical or economic news, it really has gone nowhere.
So where does the market go from here? The market has been on a bull run for the past 5 years. We have seen some corrections along the way, but if you look at the all time highs, the market is not far from them. In fact, some of the biggest leaders in the S&P 500 are making new all time highs during this sideways period and many more are making 52-week highs. Based off that alone, this bull has not worn out yet, but we will have to get past the summer months to get the evidence we need to determine if indeed the markets will continue to move higher.
As we come out of summer, we will end the third quarter of the year. This takes us into October where the first couple of weeks are usually down as mutual fund and money managers “dress up” their portfolios, pitching the sour grapes and adding the fine wines to make their year look better. Then another round of earnings pour in to help feed the bull. This will be the evidence we need to see if the bears go into hibernation or if they are still hungry enough to devour the bull.
They say a picture is worth a thousand words. Whether it is or isn’t, stepping back and looking at a broader picture of the market can help put some perspective on overall direction. The summer has been, for the most part, flat, but times ahead will tell if we break up or break down and start a new trend to end the year.
Good luck trading!
The Bond Dilemma
Geoffrey A. Smith, DTI’s Chief Instructor
Bonds are what make the world go round in the financial markets. Bonds are a lending tool that people use all the time and really don’t realize it. When you take out a mortgage on a house, you are selling a mortgage bond. When you sell something, you bring money in (you receive it), and when you buy something you push money out (you spend it). So when you take out a mortgage, you sell a bond, and you receive the money to pay for the house. In turn, you agree to pay back the “loan” with interest. The riskier the load the higher the interest rate. This will deal with your credit score but also on the current economic conditions as well. As the economy strengthens, interest rates move higher since people have more money and lending increases, but as the economy contracts (weakens) interest rates move down to spur economic growth. So when the economy is doing well, mortgage rates are higher, and in a weak economy mortgage rates are lower.
When buying bonds, you buy then at a specific price and it will have a specific interest rate attached to it. Bond price is inverse to bond yield (the interest rate). It is a simple supply and demand scenario. If I own a bond that yields 5% and interest rates drop to 3.5%, then who wants my bond? Everyone does since they can make more money, so the bond price will be bid up because of demand. If I own a bond that yields 3.5% and interest rates move to 5%, then who wants my bond? No one does since they can get a higher rate buying new bonds, so price goes down.
Now that we have that out of the way, bonds have been very strong (price increasing) this year. Since the price has been moving higher, interest rates have been moving lower. This argues that the growing economy is not growing so well. But the FOMC (Federal Open Market Committee) has been threatening to raise interest rates which would push bonds down. Below is a weekly 30-year Treasury Bond Futures chart. Notice the strong uptrend until recently. Since the Fed has been threatening to raise rates, bonds have been pushing lower, but the trend is still up overall.
The economy in the first quarter of this year contracted (GDP was negative), which argues that the economy is not strong, but weak, and bonds should be moving higher. But the Fed is saying that interest rates will be raised in the future which will push bond prices down. So then dilemma is which way do bonds go? Should they go up because of the contracting economy, or should they go down because interest rates will be pushing higher?
Because of this question, traders will be hanging on the words of the Fed in the June and July announcements to see if they are still wanting to raise rates, or have they backed off and bonds begin to move back up. Bonds (based off the September contract) have support at 147-00 and resistance at 155-00. This is the current range, and until they break out of this range, we will not have a true direction (again a dilemma). Be patient, only time will tell which direction they will go, but once they break out, we will know where they want to go.
Good luck trading!