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How to play the game

Blog - How to play the game

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No Trend, No Game

No Trend, No Game Time

Oh Mr Trump, how I love your Technical game. It never fails to amaze me.

I know there are many of you out there “buying the dip” - but for me, it’s very much back to a defensive approach. (which most of you know serves me well)

It’s been lovely recently but I’ve said thank you very much Mr Market for the last 4 months, and I’ve now got my cautious hat back on, and here’s why.

Back on the 1st April, I presented a Technical bullish case for China, we got a little 5% move and then everything ground to a halt, and although I’m very much looking for Market Trends, when it’s clear there is no longer a market trend in play, I’m happy to stand aside and get defensive, and this is the case at the moment - I’m not comfortable Trading when I don’t know the definitive direction of price - logical isn’t it?

So here are the charts I’m observing at the moment.

Exhibit A - The Dow

Dow 13th May 2019.png

As we can see with the Dow, it met historic resistance (which is why I love Trump’s Technical game) - why does he always tweet at key Technical Market Levels?

We can observe there’s a base area of support there at the moment, however if that level doesn’t hold in the most important index on the planet, then it’s not great news for those of you “buying the dip”… for those of you buying the dip with your investing approaches (which is WILDLY different to my Trading approach) - there’s a danger you may have to overcome some mental hurdles IF that level breaks downs (which is still a big if at the moment)

If there’s 1 thing I’ve learned these last 18 months, the market can drop MUCH further than you think it can, and when we have unfavorable market conditions with no real structure - I personally don’t see the point in gambling on a recovery at this exact moment in time.

Exhibit B - QQQ

QQQ 13th May 2019.png

I’ve been bullish Tech for many months now, and looking at the chart, I hope it’s clear why, but like all good trends, they’ll either end or take a little breather, and at the moment, I’m still trying to figure out what we’re seeing in Tech at the moment.

I’m certainly aware of Key Levels - and I know what each level means… I understand what Momentum, and the various other Technical tools I use tell me also, but when I’m purely observing price action, we need to build a picture of the overall market, and not just look at your little stock (that may be holding up well in the current down turn)… because if there’s 1 thing we should be aware of, IF the Market falls off a cliff, it’s only a matter of time before your stock falls off a cliff too - and if you think back to last year - how did that feel at the time? It’s not great is it?

Exhibit C - Russell 2000

Russell 2000 13th May 2019.png

As we can see, on a Technical Level, we can see the basket of Small Caps Failed to Break Out 2 weeks ago, and we’re seeing a significant stalling for price at the moment, and this has had a direct effect on most of the small caps (and the overall Market as a collective)

As you can see, we have 3 major indices stalling and failing, and we now have to weigh up our risk vs reward propositions… I just see a bit more risk than reward at the moment, and if those support levels do break down, then it’s likely quite bad for those of you out there gambling a wee bit.

Of course, the market can absolutely rebound and resume it’s previous path, absolutely it can, but I think for the moment, the cautious hat needs to go on, as there’s a little bit of danger out there again, and unlike 10 days ago, when I was super bullish Tech… I’ve been forced to reconsider my thesis at a moments notice (thank you Donald), and I’m perfectly ok with that.

Buying the Dip just doesn’t seem particularly wise at the moment, and if you’re someone who can’t make the mental adjustment to a changing market environment, then maybe it’s best to get prepared BEFORE it happens again, because the Market WILL change sometime in the next few years…

If you’re someone who’s struggled over the last few months, or if you’re someone who just hasn’t gotten the success you’d like and would like to explore joining our client group to gain a bit more structure to your trading, you can click the link below to get started. we’re happy to talk to you.

Sam McCallumComment