11 Minute Read

Tales of a Technician: The Nightmare Before Christmas

December 18, 2018

By | 1 Comment

If you’re wondering if we’re in a “bear market,” we are. If you’re wondering when it will end, nobody knows. If you’re wondering where Santa Claus is, stop it. He’s been eaten by bloodthirsty and unholy bears. And that means his rally likely isn’t coming. Unless, of course, Jerome Powell spontaneously sprouts a beard ala The Santa Clause and releases a flock of doves tomorrow.

It could be a Christmas miracle.

But even then, I suspect it would be short-lived. What with the heap of resistance looming overhead and all.

Scary stats, you want scary stats? I have them in spades. Or, I should say, I’ve borrowed them in spades. How about this one?

Poor small-caps. And just so we’re clear, “on record” means “in history.” As in, we are on pace for the worst December ever for the Russell 2000. Side note, with yesterday’s bloodbath the RUT reached the -20% threshold officially qualifying for Wall Street’s definition of a bear market.

But maybe it’s just the little guys. Perhaps their balance sheets lack the wherewithal to survive adverse winds. What of the S&P 500?

Even though the Index is only down 13% right now, the majority of its constituents are already traveling in bear country. Like I said – bear market dude. If we look past December and assess the entirety of Q4, we discover equally dismal stats.

Meanwhile, crashing oil prices continue to depress the energy sector bringing 2008 comparisons to the fore. Feel free to quibble over the cause of crude’s nosedive. Too much supply, too little demand, global growth concerns, recession fears, etc. The why doesn’t matter. Crashing oil prices typically aren’t bullish for equities.

So what’s a trader to do? The answer as always is it depends. And I’ve outlined numerous ideas recently here as well as over at my beloved Options Theory blog. But allow me to review a few highlights.

First, don’t just do something, sit there! Consider the emotional status of a hyperactive trader trying to nail every swing during the last two months versus one who went to cash at the first sign of trouble (early October). The former is likely exhausted, the latter is poised and ready to pounce when new opportunities arise. Here’s a quote from the great Jesse Livermore:

“Don’t try to play the market all the time. It can’t be done; too tough on the emotions.”

Second, deploy more bear trades. If you’re a trend trader who thrives on going with the flow, then you should be a lot more active on the bear side. You may even dispense with bull trades altogether. They are challenging for all but the nimblest of traders when the S&P 500 is submerged beneath every major moving average.

Third, focus more on volatility trades that rely more on movement and less on direction. These could be long or short volatility strategies like condors and butterflies or straddles and strangles.

Fourth, reduce your position sizing. If you usually risk $200 a trade then drop it to $100. This will limit the ability of market turmoil to wreak havoc with your portfolio.

Fifth, be nimble. When there’s elevated volatility in both directions, it’s important to take profits sooner rather than later. So don’t be afraid to take ring the register if you get a quick move in your favor. Because there’s a good chance it will be gone tomorrow.

Sixth, never forget the seeds for the next great bull market are sown during a bear market. This will pass and extremely profitable opportunities lie on the other side for buyers.

Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

Financial freedom is a journey

The Tales of a Technician series is brought to you by Tackle Trading.

Sign up now and gain unfettered access to all of the quality content and powerful Scouting Reports that our Pro Members enjoy for 15-days absolutely free with no strings attached and let us show you what your trading has been missing.

Sign up now for a 15-DAY FREE TRIAL #

Legal Disclaimer

Tackle Trading LLC (“Tackle Trading”) is providing this website and any related materials, including newsletters, blog posts, videos, social media postings and any other communications (collectively, the “Materials”) on an “as-is” basis. This means that although Tackle Trading strives to make the information accurate, thorough and current, neither Tackle Trading nor the author(s) of the Materials or the moderators guarantee or warrant the Materials or accept liability for any damage, loss or expense arising from the use of the Materials, whether based in tort, contract, or otherwise. Tackle Trading is providing the Materials for educational purposes only. We are not providing legal, accounting, or financial advisory services, and this is not a solicitation or recommendation to buy or sell any stocks, options, or other financial instruments or investments. Examples that address specific assets, stocks, options or other financial instrument transactions are for illustrative purposes only and are not intended to represent specific trades or transactions that we have conducted. In fact, for the purpose of illustration, we may use examples that are different from or contrary to transactions we have conducted or positions we hold. Furthermore, this website and any information or training herein are not intended as a solicitation for any future relationship, business or otherwise, between the users and the moderators. No express or implied warranties are being made with respect to these services and products. By using the Materials, each user agrees to indemnify and hold Tackle Trading harmless from all losses, expenses, and costs, including reasonable attorneys’ fees, arising out of or resulting from user’s use of the Materials. In no event shall Tackle Trading or the author(s) or moderators be liable for any direct, special, consequential or incidental damages arising out of or related to the Materials. If this limitation on damages is not enforceable in some states, the total amount of Tackle Trading’s liability to the user or others shall not exceed the amount paid by the user for such Materials.

All investing and trading in the securities market involve a high degree of risk. Any decisions to place trades in the financial markets, including trading in stocks, options or other financial instruments, is a personal decision that should only be made after conducting thorough independent research, including a personal risk and financial assessment, and prior consultation with the user’s investment, legal, tax, and accounting advisors, to determine whether such trading or investment is appropriate for that user.

One Reply to “Tales of a Technician: The Nightmare Before Christmas”

  1. JacobAgbor JacobAgbor says:


Comments are closed.

Chart Modal

Tackle Trading