I Hope Stocks Decline
Investors,
Stocks consolidated this past week, to which I ask a simple question: should we really be surprised (or even “scared”) given the strength of the rally since mid-March?
I’m not.
Thankfully, I avoided any damage and actually benefited from downside given the positions in my trading account. Notably, my Bitcoin-related equity exposure via Bitcoin miners played out perfectly.
I entered a position in RIOT 0.00%↑ on 6/15 and also BITF 0.00%↑ on 6/20. Given my sizable position in spot Bitcoin, I was happy to sell my entire trade in BITF for an +18.5% gain on Friday; however, I haven’t sold any RIOT and I’m still holding my full position in OILD (currently up +11% since entry on 6/8/23). I exited my short gold miners position via GDXD 0.00%↑ (shoutout to MicroSectors) throughout the week, netting a total return of roughly +19% on all shares purchased since late-April 2023.
As you can tell, despite the bullishness that I’ve been expressing about the market, I’ve been positioned to benefit from downside weakness in the “ugly” areas of the market. I want to be very clear that I am unwilling to short technology stocks or the broader market in the current environment. Nonetheless, I am mentally prepared for downside in the event that we see structural weakness in the S&P 500.
What do I mean by “structural weakness”?
Take the following chart of the S&P 500, which is still trading above the August 2022 highs despite last week’s -1.4% decline:
If/when the S&P 500 falls below this green zone, I’ll shift into a more defensive position in the market. If it falls below the green zone, then recovers back above it, I’ll flip bullish again. I’m willing to stay flexible and adjust my bias depending on how the market behaves relative to key levels of price structure.
Speaking of price structure, we’re seeing the Nasdaq-100 get rejected on an extremely logical resistance zone, dating back to the March/April 2022 highs.
Given the strength of the market so far this year (NDX is up +36.1%), market participants should be welcoming a consolidation here… or at least, that’s my personal sentiment. That’s exactly what I’ve been sharing for the past month, in fact:
In this thread, I continued:
“The interesting this is, a -5% to -10% pullback would actually be HEALTHY and improve the bull case. It’ll be hard to stomach in the short term, if/when it comes, but I think it’s a risk worth taking to increase exposure then. Patience is hard, but that’s why we plan.
It’s important to remember that a directional trend experiences three phases:
Extension
Consolidation
New breakout
Rinse & repeat.
We’ve been in an extension/new breakout since the selloff reaction to the bank failures. A consolidation is likely soon, with a rinse & repeat.”
Perhaps this recent consolidation is the early stage of a broader -5% to -10% decline.
Perhaps the YTD rally is over and we revisit the Q4 2022 lows (highly unlikely).
Perhaps the consolidation is over and it’s “up only” from here (also highly unlikely).
I don’t know, but I’ll gladly be transparent about my lack of a crystal ball. I’m prepared for an array of scenarios, combining my macroeconomic analysis with technical analysis & price structure to determine my own personal risk appetite and directional bias. At the present, I continue to remain bullish and I genuinely believe that a deeper consolidation over the coming weeks would create an attractive buying opportunity that actually strengthens the bullish argument.
As a reminder for premium members, our group call will be tomorrow evening (Monday), at 5:30pm ET. I look forward to seeing you all there and answering your questions.
To join our weekly premium group calls, and to read the entirety of this report, consider upgrading your membership to a monthly/annual plan.