A lot of folks like MrTopStep for its straightforward approach. We say it like it is and our ultimate source is the “street.” We have no corporate owners, political agenda, or economic theory to push. We follow the money and listen to people who back up their opinions with their own money, at risk day after day. Some others try and emulate our service but you know what? They were not in the S&P pit in 1987. My desk was. After handling the buying and selling of hundreds of billions of dollars over a quarter century, and trading millions of your own, you learn a few things.
They may not make for easy-to-digest TV with simplistic graphics and silly (yeah, we said it) sound effects. But we tell the truth. When we’re wrong, we tell the truth about that. In the end, the only truth is price, someone buying and someone else selling. Not what politicians or the Fed do, not what economists think, not what might happen. When we give our outlooks, it’s based on our understanding of patterns of buying and selling and the news that correlated with or caused it.
Complacency Killed the Cat
If you do a Google Search on “ Stock Market Bubble” you will find an abundance of stories and forecasts. Over the last several week there are more stories showing up in the media warning about a “big” decline coming when the Fed starts its taper process in the fall. Mark Faber posted something on the CNBC blog titled “Look out: another 1987-style Crash Coming.”
As we have said hundreds of times, we are not analysts, nor have we gotten the call that the fix is in. Remember, that’s what the Pit Bull spoke about in his speech to the Amherst Investment Club: some have better seats than others. In this week’s Opening Print series we are going to ask the MrTopStep pros what they thinking about the coming months and how best to prepare for a potential letdown in the stock market. Last week stocks had their worst week since June. Nevertheless, year-to-date the US major indexes are up: Dow +17.17%, S&P +18.60&, NASDAQ +21.22% and the Russell 2000 up a whopping +23.44%.
We kick off the series with MrTopStep COO Vikram Rangala, who has over 15 years of experience as a futures and options trader as well as his skill as an editor, writer, and teacher.
I call my method STIFF, an acronym that reminds me of the key elements: Support & resistance; Trend lines; Indicators; Fibonacci; and Fundamentals. I’ll skip indicators and just show you some lines.
When the market corrects… Wait, let’s deal with what to call it. You’ll hear words like “crash,” “collapse,” and “meltdown.” That’s for TV. Over the long run, the market always goes up. Our job is to invest that market growth in real growth and keep the dips from creating the kind of grotesque inequality that weakens us now.
Whatever happens in the market or our portfolios, that’s the real story. But it doesn’t make for a good TV, with whiz-bang graphics and thumping music. That’s a good way to know you should be skeptical. Just listen for the music.
My analysis may seem simple to some of you. “This guy’s not smart! I’ve read three paragraphs and he hasn’t made me Google ‘bear put spread’ or ‘contango’ even once!” What can I say? I don’t like drama. I don’t like fancy jargon. I just want to profit. In the end, like all successful traders—all of them—I am a trend follower.
Start with support and resistance. Look for clusters of bars of similar price ranges over several days. The market debated whether to go up or down. And once it decided, it moved out of that range, well, decisively. If it returns to that level, it is to take profits, cut losses, and let new blood in.
The market often has a “been-there-done-that” attitude now and will repeat the previous move out of the range. As with everything I’m describing, this action could happen just as easily in a down-trending market. When it bounces off that previous level, it proves the old adage, “What was support now becomes resistance; what was resistance now becomes support.” In the S&P weekly, you see levels like 1340 where resistance became support for continued upward movement.
When an S&R level coincides with a Fibonacci level, that’s a further sign the level is important in the market’s collective memory and will act as a magnet. When Fibonacci levels from different time frames meet at a price level, that makes it even more significant. We see this at 1477. Expect the market to pause there on its way down.
Already, we have enough to say that when the market corrects, it will drop to 1566, then through 1500 to 1477. What about 1600? It will be a blur. There is little there to make it very sticky. If there is a dramatic selloff, expect it to be the 100 points of the 1600s.
And why will the market drop? Hell if I know. But what goes up must come down—within the big picture of an uptrending market overall. My only job is to be ready for the move when it happens. As I often tell myself: “Ours is not to question why. Ours is but to sell and buy.”
Like that one? How about this one, when it comes to opinions about what’s going to happen in the market in the future? Some of us do our best not to have an opinion. In every market there are three groups: the bulls , the bears, and the I-don’t-cares. I’m an I-don’t care. I don’t care what’s going to happen or why. I just want to ride the trend when it does.
I’ll leave it there for now. Since I’m close friends with the editor, I’ll post follow-ups, which may or may not have to do with put options. For now, I’m excited to read the opinions of our professional traders, analysts, and educators. It’s going to be a great education.