We’re back it for another week of trading and the markets are up
modestly to kick things off. Again, we’re going to keep a close eye on
the two NASDAQ levels we pointed to on Friday, specifically 5,851 and
5,880. Should we get a close below 5,851, the reversal trigger will have
been put in.
Should we close above 5,880, the signal will have been negated, this eliminating the technical context for a potential market reversal. It doesn’t mean it can’t happen, it just means the context for the reversal is reduced.
There’s no question these markets are well overdue for a much needed breather, but the markets don’t care about breathers when there’s a melt-up in play. As a matter of fact, melt-ups could care less about fundamental valuations, as we’ve seen on a few occasions over the last twenty years.
However, we also don’t believe we’re in the same type of market environment than the last two most recent market melt-ups. Meaning, unless some sort of black swan surfaces, the fundamental context is there for better earnings going forward, and therefore higher levels ahead for stocks.
From a long-term perspective, the key to maximizing returns is not just about being in the right stocks, it’s also about how much exposure one has to stocks at certain key pivot points over the years. Obviously, the entire name of the game is to buy low and sell high. Of course, right? But, due to emotions getting in the way, investors often have a tendency to slip up and forget what’s important when it comes to long-term investing, and even short-term trading.
This brings me to some very golden market rules, which we thought would be very useful at a time like this in the markets. And, mark our words here, there’s never been more truer words spoken.
Jesse Livermore (July 26, 1877 – November 28, 1940) was an American investor and security analyst. Livermore was famed for making and losing several multi-million dollar fortunes and short selling during the stock market crashes in 1907 and 1929. He started his trading career at the age of fourteen. With his mother’s blessing, Livermore ran away from home to escape a life of farming his father intended for him. He then began his career by posting stock quotes at the Paine Webber brokerage in Boston.
While working, he would write down certain calculations he had about future market prices, which he would check for accuracy later. A friend convinced him to put his first actual money on the market by making a bet at a bucket shop, a type of gambling establishment that took bets on stock prices but did not actually buy or sell the stock.
By the age of fifteen, he had earned profits of over $1,000 (roughly $27K in today’s currency world). In the next several years, he continued betting at the bucket shops. He was eventually banned from most bucket shops for winning too much money from them. He then moved to New York City and devoted his energies towards trading in legitimate markets. This change would lead him to devise a new set of rules to trade the market.
During his lifetime, Livermore gained and lost several multi-million dollar fortunes. He sometimes played hunches, famously selling Union Pacific railroad short right before the 1906 San Francisco earthquake. Most notably, he was worth $3M and $100M after the 1907 and 1929 market crashes, respectively.
Adjusted for inflation, $100M in 1929, equals about $1.4B today. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one’s position as it goes in the right direction and cutting losses quickly.
Livermore sometimes did not follow his own rules strictly. He claimed that his lack of adherence to his own rules was the main reason for his losses after making his 1907 and 1929 fortunes.
Should we close above 5,880, the signal will have been negated, this eliminating the technical context for a potential market reversal. It doesn’t mean it can’t happen, it just means the context for the reversal is reduced.
There’s no question these markets are well overdue for a much needed breather, but the markets don’t care about breathers when there’s a melt-up in play. As a matter of fact, melt-ups could care less about fundamental valuations, as we’ve seen on a few occasions over the last twenty years.
However, we also don’t believe we’re in the same type of market environment than the last two most recent market melt-ups. Meaning, unless some sort of black swan surfaces, the fundamental context is there for better earnings going forward, and therefore higher levels ahead for stocks.
From a long-term perspective, the key to maximizing returns is not just about being in the right stocks, it’s also about how much exposure one has to stocks at certain key pivot points over the years. Obviously, the entire name of the game is to buy low and sell high. Of course, right? But, due to emotions getting in the way, investors often have a tendency to slip up and forget what’s important when it comes to long-term investing, and even short-term trading.
This brings me to some very golden market rules, which we thought would be very useful at a time like this in the markets. And, mark our words here, there’s never been more truer words spoken.
Jesse Livermore (July 26, 1877 – November 28, 1940) was an American investor and security analyst. Livermore was famed for making and losing several multi-million dollar fortunes and short selling during the stock market crashes in 1907 and 1929. He started his trading career at the age of fourteen. With his mother’s blessing, Livermore ran away from home to escape a life of farming his father intended for him. He then began his career by posting stock quotes at the Paine Webber brokerage in Boston.
While working, he would write down certain calculations he had about future market prices, which he would check for accuracy later. A friend convinced him to put his first actual money on the market by making a bet at a bucket shop, a type of gambling establishment that took bets on stock prices but did not actually buy or sell the stock.
By the age of fifteen, he had earned profits of over $1,000 (roughly $27K in today’s currency world). In the next several years, he continued betting at the bucket shops. He was eventually banned from most bucket shops for winning too much money from them. He then moved to New York City and devoted his energies towards trading in legitimate markets. This change would lead him to devise a new set of rules to trade the market.
During his lifetime, Livermore gained and lost several multi-million dollar fortunes. He sometimes played hunches, famously selling Union Pacific railroad short right before the 1906 San Francisco earthquake. Most notably, he was worth $3M and $100M after the 1907 and 1929 market crashes, respectively.
Adjusted for inflation, $100M in 1929, equals about $1.4B today. He subsequently lost both fortunes. Apart from his success as a securities speculator, Livermore left traders a working philosophy for trading securities that emphasizes increasing the size of one’s position as it goes in the right direction and cutting losses quickly.
Livermore sometimes did not follow his own rules strictly. He claimed that his lack of adherence to his own rules was the main reason for his losses after making his 1907 and 1929 fortunes.
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