I hate writing bearish comment. I’m a bull by nature. I like being long, I like being vested and seeing bearish times ahead spoils my game. However, one of the core rules of trading is to ‘trade what you see.’ Like most classic sayings, that doesn’t immediately mean much, until it does.
“Trade what you see.” Of course, we always trade what we see, why would anyone do anything different.
The thing is though, we often trade what we think not what we see. Our biases get in the way of seeing the obvious and previous environments and positions make us see what we want to see, not see what we don’t want to see.
Let me give an example.
What do you see here?
With QT (Quantative tightening) apparently soon to be over and whispers of more QE possible on the way, you would think the markets would be ready to hold this level with the possibility of an upside move. Personally, I don’t think a breakout rally is on hand but a lot of people seem to want to hold expensive stocks at these elevated levels and the only reason is to be there for yet another rise into the stratosphere.
However what I see is this:
This is the Dotcom crash. Lets see them both together.
This is what happened next if these market moves are going to be twins.
So this is what I see, not what I think, because with QT out of the way there is no pressing reason for a crash.
But that is the point about ‘trading what you see.’ What I see is the same pattern as the dotcom crash.
So what to do?
Know one can exactly predict the future. The best you can do if have a series of scenarios worked out and watch which one of them if any unfold.
The US is going into a realm of giant fiscal deficits with a political environment that has seldom been more fragile. The Federal Reserve is experimenting with a new QE/QT NMT environment and the global economy is teetering on recession and we have a trade war.
WCGW
Of all the what-ifs, this is the one to watch.