2x Champion Trader Goes SHORT
The wild statistics are flying now. At the depths of the price action on Friday, the bearish tape was as bad as any seen since the COVID lows.
2% corrections in the Dow Jones Industrial Average, NASDAQ and S&P 500 all signaled broad-based selling and the obliteration of just about every sector.
Nothing was left unscathed. From technology to healthcare, and almost everything in between, the losses were palpable. Fear had taken over and that was represented in a doubling of the volatility index from the lows.
Then this tweet captured the sentiments of many traders who saw Jim Cramer offer comfort that a recession was not on the horizon.
F*CK F*CK F*CK
Jim Cramer, when asked: “are we going into a #recession?”
He responds, “No! Of course not!”
🪦
— Meet Kevin😇 (@realMeetKevin) August 2, 2024
So what comes next? A 2x champion trader offers key insights.
Key Points
- When technical breakdowns occur, it’s easy to stay bullish and cling to hope but it’s better to trade the trend.
- One champion trader advocates a heavy cash position now and has gone net short the market.
- Now is the time to critically evaluate all your holdings and decide which ones are worth holding.
Watch Out Below
With the tape so bearish, it’s easy for traders to now get up in emotion and storytelling. But this is precisely the time when Steve Cohen’s advice is most needed. Make decisions based on reality, not narrative. What does he mean?
Well, if you have been around the block trading for a while, now is the time when you can view a chart and tell yourself a story, such as “it will bounce back” and you might be right.
But what if you’re wrong? Can you handle the next 2% drop or 5% drop or 10% drop or 20% drop? It’s easy to say yes until it happens and you get tempted to panic sell.
Before the worst case outcome happens, now is the time to look at reality:
- Did the stock I own break technical support?
- Does it look like a falling knife that I would want to catch if I didn’t own it?
- Am I staying in the trade because taking a loss means I have to admit I was wrong?
If the answers are Yes, No and Yes, the reality is that sticking with a position means you are likely trading on hope or storytelling or a narrative versus the reality of the chart and price action.
2x Champion Goes Short
If you ever wondered how champion traders become so good, one answer is they get really good at being disciplined in sticking to the rules of trading what they see, not the story of what might happen in the future. If AI stocks are set to become the biggest thing ever, that’s great, but if their prices are crashing, the champion traders are not holding and hoping.
Prior to the Friday meltdown, champion trader Mark Minervini wrote that he was 100% in cash and net short the market. In fact, a day prior the market was up and he was fending off the slings and arrows of bulls who claimed he was going to miss the next rally. Yet his reply was you generate an edge or alpha not by following everyone else but by following your process. His process said technical breakdowns were occurring and he should go short, so he did, and that should be an ominous sign alone to bulls clinging to hope.
The market is under pressure and the picture is getting more ominous. The VIX has now officially doubled off the lows. As of yesterday we were net short. With our STEM model RED (its most cautious reading) since 7/17 and few stocks meeting our criteria in buyable position… cash… https://t.co/KzmgHC8eNC
— Mark Minervini (@markminervini) August 2, 2024
