This year will forever be remembered as the year of the
Covid-19 pandemic and trillions upon trillions of stimuli that jacked up asset
pieces and the stock market. It was a year of tragedy for many, but it offered
some especially important insights for those of us that make our living by
navigating the gyrations of the market.
The first and foremost lesson of 2020 is that it was impossible to predict what the stock market will do until we know how much intervention and manipulation the FED will be embroiled in, and how much fiscal stimulus would be generated due to the Covid-19 pandemic. Even those with concerns about the potential for a worldwide pandemic would have never guessed especially the US and subsequent global stock market reaction. The idea that the indices would fly to new all-time highs as a pandemic raged and millions perished would have been inconceivable to me a year ago. The flood of liquidity (FED and fiscal) created by central bankers around the world has been unprecedented and the market's robust response has persisted far longer than I thought possible fueling the bullish tonality. Not only was the overall market performance in 2020 stunning but other strangely bullish themes like the massive rise of SPACs and the flood of liquidity seeking out electric vehicles makers and suppliers were not foreseen by me.
Those of us traders and swing-traders that produced the biggest returns in 2020 were not those that foresaw what was coming, but those that reacted quickly and substantively as conditions shifted and inputs were known. Market participants that played strong defense as the indices started to crumble in February and then jumped back in as the trend turned positive in March and April are those that had the most success (we enjoyed over a 222% gain in our value play portfolio).
The easiest mistake to make during the past trading year was to look for a retest of the March lows and to underestimate the power of the V-shaped recovery fostered by massive FED intervention and massive FED liquidity and fiscal liquidity once it started. With this in mind, the best way to prepare for 2021 is as follows:
It is hard to resist the temptation to guess what is going to happen, but the much more powerful approach is to embrace the idea that you simply don't know, and we need to follow the “free and easy” money, “smart-money-players” and the trend which has been the bull’s friend so far. When you keep an open mind about the markets rather than hope it conforms to your expectations, then you are better able to adapt. Let the price action be your guide.
Stock market forecasting is largely about “the bigger picture”. There are articles I have written about how the economy, politics, valuations, Covid-19, and many other issues will impact the market. Focus on what I call reaction rather than anticipation unless you are a savvy technician. When you focus on price action it requires a simply reactive approach. I have repeatedly suggested to my group (and trading buddies) that you have to watch the market and various stocks that you desire to trade and try to understand the character of each one and how they move and what makes them move (initially limit your research and observance to a few say (8-16) so you can get detailed price, trend action. We never know when/what things will develop in this market. The best we can do is to understand and pick up on early tells and signs and then act swiftly and decisively.
In 2021 Please be prepared for volatility and view the pops and drops as trading opportunities. One thing I can predict about the market in 2021 with great certainty is that there will be uptrends and downtrends, mega pops and short-covering pops 😊. The market is not going to go straight up or down. There is going to be extreme volatility this year (watch the VIX, UVXY and VXX). Volatility should not be dreaded. It is our friend and provides us with a source of new opportunities. Rather than dread a potential market pullback I like to be prepared to celebrate the opportunities that will arise and be ready to enter plays you still like those that you missed or that got away from you. The key to steady trading (day or swing) success is to stick with the proven trend, believe in your technicals and focus on using decent money management (taking profit) realizing that we can always reload. I have found that those that do best [keep an open mind] and are those that trudge away day-after-day, through the bad days and the good. Opportunities and good outcomes come to those that work hard. The great thing about the stock market is that there is always another opportunity coming. We just have to be ready every day to find it and trade it. If you do these things effectively you will most certainly have a successful 2021investment/trading year no matter what the market may do.
Even before the Covid-19 virus-induced downturn wiped out the savings of tens of millions of Americans, more than one hundred million folks throughout the country had nothing saved for retirement; this my friends is a terrible real-life “retirement crisis,” unfortunately Americans are in deeper financial disorder than ever due to their lack of real savings and rampant (mostly unneeded) spending. It was back in 2016 when I first wrote about what I saw a huge economic contagion [that more than 100 million working age Americans did not have any retirement account assets in an employer-sponsored 401(k) type plan, individual account, or pension; a very terrible development; meaning that the American dream of a decent retirement after decades of work is now a working-class nightmare. In a world where the Covid-19 pandemic is resulting in an economic and life-altering “great reset,” small and medium-sized enterprises are being wiped out in droves as permanent job loss soars into the millions.
This a terrible issue in America today as there are a hundred million people that have nothing set aside for retirement (expecting to live off of government handouts and scraps) they have no investments which is basically a failure of financial literacy that started as far back as the 197’0s and massive greed “live for today, worry not about tomorrow” as we seldom if ever teach our children about saving, investing and nothing about amassing unstainable debt. The financial elites and most wealthy have long kept the population in a perpetual financial stupor while they rack up massive credit card bills, and became slaves to debt has just become a part of the American way.
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