Let’s face it, we have all been very very naughty over the past decade. And it was great fun while the easy money lasted but those days are over now and alas it is time to adjust our trading accordingly.
Clearly Santa is in a very foul mood this year and he’s not taking any prisoners, as a matter of fact he and his intrepid elves are working overtime to dish out some mighty comeuppance to any bag or purse holders.
I was preparing a video tutorial on market types yesterday (to be released next year) and this chart actually does a good job of showing us what is going on.
Take a peek at the three the three indicators below. I wrote them a few years ago scheming evil deeds with Scott and they are based on market type classification concepts as taught by Ken Long.
The SlopeStat and StretchStat indicators show us the direction of the medium term trend, and the VolStat, as you probably guessed it, shows us realized volatility. And all three horsemen are pointing toward a high volatility bear market in the making.
Which incidentally is the most difficult market of all to trade. Take this from someone who has done it and lived to tell the story. So sign up for a monthly Gold sub right now to ensure you’re staying ahead of the tape during what’s heading for us. Plus you’ll finally stop feeling so guilty for freeloading so long here at Evil Speculator 😉
I’m not kidding by the way. The Fed made it very clear that the Powell put is kaputt, and that the Fed is dead serious about abandoning the easy money policy it has been engaged in over the better part of the past decade.
Sorry guys, those days ain’t coming back, so we need to adjust to our new reality.
Tenets For Bear Market Survival
What that means for us are several things. One, obviously markets are going to crap the bed here and even if we’re seeing a bounce in the near future I expect high volatility conditions to reverberate for the coming weeks and months.
Two, we will have to adjust our trading activities accordingly. Even back in 2008, the fabled glory days of the bears, trading stocks was a royal pain in the ass. If you do then focus on the handful of stalwart leaders and buy them at medium term or long term support levels (a few examples below the fold).
If you insist on trading short equities then find hapless victims that already looked weak during the roll over period and then STFR (sell the f..ing rip). On that end I greatly prefer sector ETPs, e.g. tech and financial stocks and ETPs should be of great utility for the consummate short stock slayer.
Three, we need to start inoculating us against perma-bearish bias and only trade the tape in front of us. Believe me, everyone I bothered to listen to back in 2008 was dead wrong. I don’t expect them to be right this time either.
Four, we need to start looking for easier markets, as lame as this may sound. Instead of trying to guess where the stock market may head next, we should be looking for sideways MR or low volatility bull markets in other sectors.
A strategy that usually does well during economic turmoil is trend or momentum trading of futures and related ETPs. Which is what your average CTA or managed futures shop will be doing. Most of them are currently in drawdown for 2018, which usually a good time to invest or to follow them. Dunn, AHL, Aspect, QIM …they all do the same with different levels of volatility.
Five, and this ESPECIALLy holds true for bear markets, completely ignore the news. The less news consumption the better as it’ll completely fuck with your brain and lead you into committing trading mistakes.
Remind yourself that the majority of the people who write this crap are paid to do it and probably know less about trading than you do.
And six, trading bear markets is a high-stress-no-prisoners-taken-zero-margin-for-errors-activity. For that reason alone all tenets which usually apply should be followed even more closely. As a refresher I point you to a seminal post on this very topic I wrote almost exactly a year ago.
And seven, subscribe to Evil Speculator. Sorry for being a pushy mofo today but this place frankly doesn’t pay for itself and you think it was tough to keep you guys in the clear this year then I’ll probably be working overtime in 2019. So if you’re on the fence then ask yourself if you’re better off with or without Evil Speculator.
Alright, I’m starting to run behind as I still have a bunch of charts to share. Meet me in the lair:
It's not too late - learn how to consistently trade without worrying about the news, the clickbait, the daily drama and misinformation. If you are interested in becoming a subscriber then don't waste time and sign up here. The Zero indicator service also offers access to all Gold posts, so you actually get double the bang for your buck.