I am starting this thread to record down my market observations and the actions I take. I have chosen to do it here in a community of elite traders because trading is a lonely game but humans are social creatures. I am pretty sure there is much I can learn from a community of elite traders. Hopefully, I can offer something back for people who spent time reading this thread. I humbly admit my hit rate is usually below 50%. Please do not follow my calls blindly because I do not know which one will be the right one at the point of making them but I am confident that over time, I can still be profitable because I usually make more money when I am right compared to the money lost when I am wrong.
I went mostly into cash this week. This is the S&P 500 chart. 04Nov2020 marks the start of a strong rally for the S&P500. Since then, S&P500 rallied 26.5%. In the past 11 months, there were 5 successful rebounds from the 50-day moving average. It failed on the 6th rebound this week. The greater the number of times a support line is successfully defended, the greater the significance when the support line is finally broken. Failure on the 6th rebound attempt off the 50-day moving average is a significant event for S&P500. Margin debt in the U.S stock market is at its peak today. The higher the leverage, the harder the market will crash when it finally crashes. This is because of the vicious cycle caused by forced selling in a margin call. Stock prices start to fall, someone receives a margin call and is forced to sell his portfolio. Prices fall further and this causes someone else to be hit with a margin call. Prices decline even more, another margin call and so on. Next week will be an important week to watch. If U.S stock indices continue to decline, we face the rising risk of a 2018 Q4 mini-crash. This time, the magnitude of the crash is likely to be larger due to the much higher leverage level compared to 2018, due to the participation of more retail investors. A weak U.S stock market is not only a matter of concern for U.S investors. Stock investors all over the world have to watch this market. The U.S stock market is a leader. When it falls, it is hard for other stock markets to stand firm. Most of my portfolio was in China stocks at the beginning of the week. It was a bad week. The first warning shot was fired on Monday, 27Sep2021. The number of new highs had exceeded the number of new lows. What was more noteworthy was that the number of limit-down stocks had vastly outnumbered the number of limit-up stocks. These were worsening numbers that I have not seen for some time. On 29Sep2021, the market took a turn for the worse from its already weak position. Shanghai composite index fell below the 50-day moving average and Shenzhen composite index fell below the 200-day moving average. The broad market fared badly too. It was time to switch to a risk-on mode for China's stock market. Shanghai composite index hit a 6-year high less than 3 weeks ago on 13Sep2021. The recent decline is off a 6-year high. This makes me uncomfortable as it means prices have more room to fall if a bear market takes over. I do not use sophisticated risk management metrics like VAR(value-at-risk) that are used in financial institutions. I try to keep things simple since I have a simple mind. The risk metric that works best for me is how much and how quickly my portfolio is losing money. When prices fall below my stop limits, I sell. By the end of this week, I am mostly in cash. If the market rallies in the coming weeks, I can always resume buying. In the meantime, with high cash levels, I can enjoy peace of mind as a spectator of the market and protect my capital. Stock market action to take: - Take a rest - Get the stops ready and sell remaining stocks in the portfolio if stops are reached. PS: I try to be as objective in my market analysis as possible. Since I am mostly in cash now, I am aware that I will be subconsciously biased towards the bearish side. So, readers need to be aware of my bearish bent. All of us tend to talk our own book.
Not to be judgmental or anything, but you are part of the problem. Put most of your portfolio money in US stocks, and not China. You think China is going to give you a better return with CCP shit? Dude, believe in the US! K, we had some riots and an insurrection and whatever, but it could be worse! They have little kids making Nikes!
Are you trading individual stocks? Any home country bias? I agree with the strategy of protecting capital. Better to lose opportunity than to lose money. I'm in a similar position, cash wise, as my stocks have been hitting their trailing stops.
I am an admirer of United States but I am not an American. You track the products that have made the most positive impact on the world's population in the past 20 years. They are made by US companies like Apple, Google, Netflix. So, why do I not invest most of my stock portfolio in your great country? The reason is U.S estate tax. If I am American, then I am morally obligated to pay some tax to the U.S government. As a foreigner, I don't feel comfortable doing so, especially when estate tax can amount to a lot. I am Singaporean. Your country will tax up to 40% of my estate which are in U.S stocks. I cannot know in advance when I die. So, the best way to manage this risk is to limit exposure to U.S stocks.
If you are a Singaporean, why would you pay an estate tax as if you are a US citizen? Your country of origin is Singapore, and you do not have an estate in the US? I dunno'. I leave this one in the hands of the handful of extraspecial accountants on ET.
I trade individual stocks. Some people prefer ETFs but my preference is individual stocks because they are more fun for people who love financial markets. I'm Singaporean. Our stock exchange is too small. There are not enough good and liquid stocks to choose from. We cannot afford to have home bias. Americans have this luxury to enjoy home bias but not Asians from a tiny city-state. I invest primarily in Asian stock markets like Hong Kong, Singapore and China. Occasionally, into Australian stocks.
I trade mainly Canadian stocks. Home bias. Looking forward to your journal. Hopefully you share your process and I might learn something.
There's no argument that he US stock market indices are weak right now, and there is always the possibility this weakness could develop into something far more negative. But the decision where to hold or place money has to be tied in to the duration of your position. If you're holding US blue chips or FAANG's with a view to funding your retirement in 40 years, you should hold on. I don't invest I trade, and I'm trading the index values not the component stocks: so right now I have no positions in stock indices. What is your time horizon for US holdings? Also, I never short the Dow etc. As soon as the Dow confirms an uptrend, I will get long again.
Even if you are an investor with a long term time frame , you should have a method of culling your poor performers. Stocks that are considered blue chips today, can change overnight. Remember the old saying "As goes GM, so goes the nation". Why hold on in a downturn? FOMO?