The ability for this market to continue this pace is on the borderline of absurd. Regardless, of what we may think where this market is about to head, we must make sure we maintain our risk process. How many traders last week bailed on the market thinking we were ready to collapse? We continue to maintain our long positions moving up our exits as this market pushes higher. Why miss out on gains when we can contain our downside? We would rather lose a little rather than gain nothing missing out gains. Missing out is almost as bad as not cutting your losses. We do not have a crystal ball and while it is likely there will be some downside ahead, we’d rather react than predict when it will occur. Stay the course.
Earnings will continue to pick up as the month of January rolls on. Valuations remain hot, but its not a surprise given we have seen this story before. Now, what is left of those who lived through the late 90s know all too well what high valuations were like. Is this time different? Do we have IPOs coming to market without sales and earnings? No need to digress, but the point is it does not matter whether this is like 1999. We need to stay focused on the task at hand and leave it to the pundits to argue over high valuations will doom the stock market.
At some point this market will go through a correction. At this point, given the rise in the market a 5-7% correction should not be out of the question. Many will view the next correction as the start to a big downturn. We at Big Wave Trading do not know when the next big correction will happen. Are we going to repeat 2017 where the market never had a correction? Sure, 2018 was tough and certainly ruffled the feathers of many traders. However, 2017 should prove to you guessing when the next correction happens is a fool’s game. Stick to what works best.
One thing we do want to caution traders on are stocks breaking out now versus back in October. We have been on a heck of a run since October. While breakouts will happen as the run-up ages the tendency for breakouts to fail increases. Be vigilant with your position sizes as well as your exit strategy. There is no need to waste your hard-earned capital on failed breakouts.
We hope you had a nice long weekend and wish you the best of luck this week!
