I’ve now had 3 or 4 traders in the last week or so ask me my opinion of the economy and I’ve been saying for months that we are in a recession. If it walks like a duck, quacks like a duck, it’s a duck. However, the next thing they do is give me their own view of the economy which many times matches my discussion of the lousy economy we have going on lately.
I then tell everyone, a week or two ago, that my hedge indicators are flashing a buy sign, the hedge is off, and now up to 95% of the sector ETFs are long and they are to a person mystified. “How can you be so negative on the economy, yet long stocks?”, they ask. Simple: “The Market Will Do What The Market Will Do!” is my typical answer.
Let’s think this through. the equity in my account is based in dollars. When I buy a position, the ONLY way that I can make a profit on that trade is if the price moves up and I sell it at a higher price. My position and the market don’t care what the FED is doing, or how the economy is struggling or how the government is recklessly spending our money and helping to create more inflation. The market and my position don’t care about what’s on the evening news, what the daily news on Musk is or whether it’s Monday or Friday. One more time and repeat after me: the ONLY way that I can make a profit on that trade is if the price moves up and I sell it at a higher price.
https://enjoytherideworld.odoo.com/hedging
As a citizen of the world, I care about what happens to our country, where interest rates might go with a potential future real estate purchase, what’s happening with future developments in energy and automobiles. These trends, good or bad, affect my personal life and are important to me. But how do these things affect my trading? NOT AT ALL!
The indicators smooth out the prices and measure where noise is and where trends shift and when the trend changes, the stops are hit, my positions change and I’m positioned with the new trend.
When I saw the indicators going over this time, I have to admit, I was thinking, mmmm, this might be a bear market rally and I’m going to be scrambling out of these positions, probably at a small loss in the next month. But, I’ve already constructed time-tested ways of measuring the trend and I know that some of my best trades have been ones where I’m, like so many other traders out there are, wondering why the market is doing what it is doing.
I’ve heard mention of trillions of dollars of cash on the sidelines looking for an opportunity. I’ve heard of a possible FED pivot with a weak economy. I’ve seen some decent earnings reports. I’ve heard some say maybe the market has already priced in a recession and it’s not going to be that bad. For every market move up or down, you can bet that more than one person will come up with an explanation. The real reason that the market is going up, and you’ll never hear it on the business shows, is that there is more buying pressure on prices than selling pressure. The result? The market moves higher and that position that I purchased long appreciates with the wind at its back.
What does that mean to your trading? Set yourself up so that you are not trying to look at a different set of data in an effort to predict price movements. If you do that you are likely to some day in the future find yourself watching prices move without you and will sit there wondering what was wrong with your analysis. KEEP IT SIMPLE, use price movements to trade your portfolio and enjoy the ride!
Perfectly stated in my opinion.
Agree completely. Too many Questions to ponder. Will the recession turn down more than exp'd, hence deeper est cuts? Markets are close to avg valuation. If we have a slow/ no growth economy and flattish EPS for some time what will drive multiples? What if inflation stays sticky above 5% ? So, what will EPS growth be? What is the right multiple? Is liquidity/ The FED about to slow rate increases? Will it be enough to sustain equities recent move ? No one can answer these. All a guess. Follow price and all of this is immaterial.