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To be a successful trader or investor you have to focus on the future and not the present.  Falling prey to the emotional tendencies that drive our urges to jump on a hot stock, or buy a breakout at a high is a recipe for portfolio erosion.

One method to reduce the impulsive nature that is within us all is to have a plan and strategy upfront.  Where am I buying, where am I a seller, and regardless of the emotional tendencies of the market sticking to that plan.

So while the herd is FOMOenting at the mouth with Bitcoin we are sitting back idly waiting for the market to pullback or prove itself.  While the herd is jumping into EV stocks we took our profits and ran.  As the news continues to promote new highs for stocks, we have been trimming our risk and building up cash.

We have specific percentages of cash and equity exposure we want to maintain during periods of the market.  Our plan dictates what percentage of cash we want to have as the market pushes highs, and our strategy is how we implement that.

Now whether you want to build up 10% or 100% cash into market peaks,  is dependent on your plan, strategy and risk tolerance.  It is important however to be consistent, and changes to your plan and strategy should be calculated not off the cuff because of emotions.

A pure trader may have a strategy that goes to 100% cash, a long term investor (10-30 years) may only want to build up 10% cash at market highs.  Someone that has the means to add monthly and add cash into dips, may stay 100% exposed.  There is no one-fit-all plan or strategy, it is dependent on current variables in life.

What we try to promote with our members is having a plan and strategy and sticking to it regardless of the emotional tendencies of the market.  One thing is for certain, having no plan or strategy will lead to underperforming.

It is the reason large fund managers clearly have an investment plan and strategy spelled out in their prospectus.  Some can not exceed a 10-15% cash position at any one time, others, are more flexible.  The key point is, you as an individual investor should have a plan and strategy as well.

So with the market at an inflection point we continued to build up our cash position, though we also took a couple trades, added a couple stocks, and also took a hedge against the market.  The following are the reasons for such a move from a technical stance.

Bitcoin

BTCUSD

As mentioned a few days ago on TV there was a long setup that we passed on taking as a trade.  A few things we did not like about the setup, but the main items are the following:

  1. Volatility forming at an inflection point
  2. Little too much hype about PayPal which can create FOMO
  3. 16k is a broader technical level going back to 2018
  4. The market is up 60% from the start of the run in early October
  5. The value zone between 10,250 and 12,000

So we had a plan to trim out into the 16k level a small position just to lock in some profits and look to put that money back in at lower levels.  From a technical standpoint initial support is in the 12,900 – 13,800 area with 12k being a reasonable level of support as it was prior resistance.

Does it push that low?  Only time will tell, but we are not moved by the recent red candle or wondering if we should blow out a position we bought in the 15k region due to noise.  We already took a little profit here.

If the market moves higher, so be it, we are still overweight the market and can look to position back in on a dip.  However probabilities favor at least a minor pullback to 12,900 -13,800 and where we can add back in the cash from our sale increasing our inventory ever so slightly, but over the long haul these little adds can drastically improve our performance.

Watch for an initial close below 16k today, this would be a sign of weakness, IF we get a close below 15k over the next few days and take out the low of that candle, 12,900-13,800 is going to trade pretty quickly.

Unless you have some insight the market as a whole does not have, all the news, events and fundamental changes to Bitcoin have been priced in.  To think that PayPal, stimulus, QE, or an election is going to push to 20k is silly, the market has priced all this in and the fact it is showing some hesitation here, implies that it is likely overbought at the current time.

Why is this?  Well first of all there are only so many participants in the market at any one time.  Though Bitcoin is slowly changing personal views on Bitcoin as a store of wealth, anyone that is a believer has already bought.

What we need is new believers, new buyers, and it is more likely those that bought over the past 2 years at lower levels are taking some profits here.

Most think you are all in or all out, but if you bought 100 million of Bitcoin at 10k and it is now 160 million at 16k, you are likely to take at least 16-32 million off the table.  This is how hedge fund managers think, they do not go on hopium!

In addition, most large funds have a maximum size for any one investment.  Say the fund can not be over 10% in any one equity (for obvious reasons), if they start getting close to 10% they are forced to sell, just because their prospectus does not allow them to have all their eggs in one basket.

You hear fund managers say “we have 5% exposure to gold” well if gold goes up 50% that exposure is now 7.5% and they rebalance.  It really is that simple, and Bitcoin is no different.

They do not think like the Robin Hood (RH) investor, “ohhh its going to the moon, let me buy more!” they have a plan and strategy in place and do not change it because of market emotions.  They are selling to meet the strategy of their portfolio.

Ethereum

ETHUSD

Ethereum not in a great position here, and now might be giving us a secondary sell signal if we get a close below 460.

All they hype about the switch to Point of Stake is not new news.  Ethereum developers have been talking about this for at least a year as Stephen Lubka spoke about on our show.  You have to be in before the even, as often it is where larger players are selling the news.

By the way if you are new to our site, or even a long term follower, we have a weekly show we broadcast on podomatic and YouTube which  you can watch live and ask questions or catch up at your own time.  Check out the link here we appreciate you joining and giving us a thumbs up.

Initial support is around 410, but I expect us to revisit the value zone between 350-390.  I am interested in longs out of that area, not up here slightly under the 490 resistance level where selling pressure picked up dramatically back in September.

Overall I think 600 is tradeable from here, but I am not a big fan of alts, have not been for a while, so if I am going to buy it MUST be out of a low, not a high.

Do not see a lot of institutional investors jumping into Ethereum and other alt coins in any significant weighting.  Bitcoin has not proved itself throughout the bear market and though we are open to a Monero position, and some of the other major alts, keeping our risk very low (under 10%) is our strategy moving forward.

You hear “potential 1000% move in CRAPUSD coin.  Ok so if I invest 1% of my risk capital in it and it goes to zero I am not discouraged, but if it does make a 1000% move, well that 1% is now a 10% gain in my crypto portfolio.

I think the days of dreaming of 10000% returns are over in the space, and though there may be a coin here or there that performs that well, you have to take a lot of losses to find it.

If you are here to get the insight on how to turn $1000 into a million in less than 12 months, well that is not what we are about and you are simply chasing wet dreams!

Monero

XMRUSD

Monero is one of the majors that we are interested in.  The privacy aspect of this coin makes sense and is provides a use case moving forward for potential further gains.

I also like the pattern here which is technically called an “Adam & Eve” setup, but essentially it is a steep decline in an instrument, followed by a lot of buying enthusiasm “Adam”, followed up by a slow broad accumulation where it retests the low and recovers in a pretty solid structure.

This is a sign of strength, and it attempted to take out the broader resistance level where Ethereum and others like Bitcoin Cash are still struggling.

The value zone is between 80 and 100, so this is where I am interested in adding, specifically around the 90 support level.

One of the few alts on our list we are interested in owning moving forward.  Yes I know, SPCEUSD is going to revolutionize how money is issued in space. Alt coin projects are great at solving problems the world is not looking for at the current time.

Remember all the “revolutionize healthcare, voting, gaming, gambling etc…” coins that are now in the crypto junk yard?  How many are using Tron right now for playing Zombie Apocalypse?  NONE and that is likely to continue.

The interesting thing about Bitcoin is anyone can create a side chain, and just because you invent a side chain does not imply it has value.  Some might have use cases like BAT and potentially Theta, but unless they become adopted widely they are nothing more than subway tokens, and the price will be what the market prices a ride on the subway.

Monero may be the exception here.

Nasdaq

NAS100

Going to start with the Nasdaq 100 as it has been a leader since the March market low.

Simply in a broad consolidation over the past 2.5 months and we area trading nearer the upper end of the range.  Couple notes here:

  1. Sellers are active above 12k the prior two time it pushed through 12k.
  2. The recent attempt to take out 12k failed miserably as evident with the long wick and sell signal that evolved after.
  3. A short setup is still active as we took out the low of the bearish candle and are struggling to retake 50% of the swing.
  4. Whomever was buying at the lows, is likely taking profits after a 65% run.
  5. Getting more volatility with large up and downs swings which is generally a sign of a top or bottom.

This does not take into account countries and states are talking “lockdown” again as Covid cases increase, nor the fact we are trading nearly 25% higher than the 2020 high.  Yeah ripe for buying here!!

No this is the area we have been selling, taking profits and building up our cash position in accordance with out plan and strategy.  May take weeks or months to play out, but investing is a game of transferring wealth from the inpatient to the patient.

We remain patient here, and though we are open to adding stocks, we need to trim something to add in order to maintain our cash position as dictated by our overall plan.  Whether that is 5% or 40% it is predetermined based on our risk tolerance.

The 10,400 level is an initial level of interest, but the value zone is down around 8800-9600 and do not think 7400 can not trade, it can.  Maybe not next month, but I would not be surprised to see sub 8000 by May 2021.

There are signs the market is overbought everywhere.  Apple beat, Amazon crushed it and Facebook had great earnings, yet those stocks are not pushing new highs, they are printing lower ones.

In addition stocks like NIO CGC LI and ACB are going nuts here.  Here’s your sign.  Now markets can remain elevated longer than most can remain patient and shorts can remain liquid, but this is not where I want to be chasing.

I want to be buying when all these Heysayers are Naysayers!

S&P

S&P

There has also been a disconnect between the S&P and Nasdaq recently which is a sign of market rotation.  S&P holding up stronger here into Nasdaq selling pressure.

As mentioned hedge funds and funds managers are required to keep a specific percentage of their portfolio in stocks.  Many are 80-90% or more.  So unlike the individual investor once they hit their max cash position, any other sales must go into a stock.

Look at the DowJones outperforming, the IWM pushing new highs.  This is a likely a rotation into value and dividend paying stocks where fund managers get a return even into a pullback.

Technically there are no bids above 3600 so unless this level is taken out early next week, expect selling pressure to resume and a push lower.

The market is attempting to range here, between 3200 and 3600, so why would you buy the top of the range, unless you are required to do so?

We are looking for a retest of 3200, but potentially the 3000-3150 area offers the best entry for value buys.  Like the Nasdaq do not think 2400 is out of range here.  Want to have cash for buys in that area if we get to it.  Maybe we don’t, but markets like to retest their prior lows and 2100 is not out of range here.

Gold

XAUUSD

Once again QE, Fiat printing presses, election, zero rates, blah blah blah was already priced into Gold.  Investing is like preparing for a hurricane. You prepare for these events, not react to them.

Many walk through Home Depot and there are Generators on sale in the springtime.  Specials on bottled water and other necessities like canned goods.  However try and get a generator a week before the storm hits, or get in line to buy a case of bottled water only to see the canned good section of the grocery store is bare.

There are those that prepare, and there are those that react!  Those of us that prepared for the eventual economic downturn, QE and low interest rates were buying physical gold when nobody wanted it.  From 2015 to 2019 you could buy Gold often at spot or slightly above.

There were always deals on eBay, “Gold Eagles $9.99 over spot, Silver eagles 29 cents over melt”.  Few prepared, and now many are reacting.  Gold premiums are now in excess of $125 over spot, Silver premiums are off the chart sometimes 30% higher than melt.

But yet Gold is struggling here why?  Well because those that prepared are now selling to those that had no plan, walked past the deals over and over and are now buying their generators and water at a premium.

Technically I still do not like Gold long here, though I would not be shorting.  We have been patient for nearly 4 months waiting for a pullback that provides more value and have trimmed out some physical along the way.

Again the transfer of wealth from the patient to those that react.  I am interested in covering my inventory in the low to mid 1700’s.   If we do not get there, well I still have the majority of my position to unload to those even less prepared at higher pre-determined levels.

Because the premiums are elevated with physical gold and silver, we are looking at buying miners into any significant sell off.  We started an initial position, but are going to be patient and wait for lower prices, or for gold to prove itself.

Nothing to do here as 1900 is now minor resistance and there are a lot of bag holders above this level that may head for the exits on any break of 1850.

Tyson Foods

TSN

We have several stocks on our radar for adds in the near term and one I want to talk about is Tyson.

I could care less about someone’s political views, I care about what companies are going to make money regardless of who is in office and one of those stocks that may be a sleeper with a more China friendly administration is Tyson Foods.

Tyson has been ranging between 56 and 64 for the most part and any selling pressure into the 56-58 area we are going to start picking up some stock.

New administration is going to have to cut some deals and the one trade item we have to offer China that will appease farmers is Chicken, Pork and Soybeans.  So we are looking at these types of companies, that pay a dividend, for investing into.

Notice how TSN is showing some strength recently into a weak tape.  This is just one of the stocks we are looking at in the near term as we went over the fundamental reasons with our members this week.

NIO Inc

NIO

Nio the next Tesla…… OR NOT!  Like the cannabis stocks, sector stocks can get hot.  We took an options trade back in late September with NIO off the consolidation setup and sold into the gap. Nice winner but the stock continued to climb.

Ohh well, we made money.  We had a plan and our strategy was to take profits not invest for the long haul.  These companies have limited futures for the most part, they are highly speculative and none of them have the backing of the major car companies that are in the top 10 in EV sales.

Ford, Audi, Nissan, Toyota, GM, Porsche all have EV in the top 10 of global sales.   Now Tesla is a rare bird, they are bucking the trend as they have a cult like following.  If you think NIO and others are going to be the next Tesla, you are most likely going to be disappointed.

When your NIO breaks down where are you taking it?  All the major manufacturer’s have a dealer network which provide distribution and service.  Tesla has broken that barrier, but to think all these others are going to, I take you back to the early 1900’s and the Packard, Sudebaker, Desoto, Tucer, Edsel, Saturn (which was a GM brand), among the dozens of others that failed!

This is the likelihood of these “up and coming EV manufacturers”.  A Tesla type company is rare, so do not get caught in the hype.  These are speculative and should be treated as such.  Buy into lows, sell into highs, they are not 10 year investments as most will not be around in 5.

The NIO IPO was priced in at $5 in late 2018.  The investors that invested in it made money, accredited investors and fund managers, along with the banks that brought forth the IPO priced it at $5.  This was probably over priced, but you really think $45 is fair value 2 years later?

You are nuts, and so are those that are buying at this level.  Value area is in the 10-16 range, do not think $5 can’t trade either, it can.  Selling pressure picking up and personally I do not trust Chinese companies to begin with.

Anyways, these are stocks you get in, you get out IMO, but you have to buy before the FOMO not during it.

Summary

It is important to have an investment plan, those investing off group blogs on Facebook and other sites are simply running with the herd, and the herd is not who you want to run with.

It is also important to have patience, not get caught up in the emotional tendencies of the market and to stay the course though it is counter your emotions most often.

We are looking for selling pressure to resume over the next couple weeks and have positioned ourselves with a decent cash position, entered a hedge on the market and are simply in a holding pattern, though we are continuing to make adjustments, selling this, buying that etc.

If you want to become successful, sit down and make a plan, then a strategy to execute.  Will have more on making a plan in an upcoming article.

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