Stocks are roiling after the Trump Administration’s “Liberation Day,” but let’s be real here – stocks were already in a technical downtrend in the short-term, and the market’s internals have been weak for a couple of months now.
Even with sentiment down in the dumpster, it doesn’t seem or feel like we’ve had true capitulation yet. This leads me to believe that there’s still more downside on the table.
In terms of operating in this environment, it ultimately comes back to what type of trader you are and want to be. I talk a lot about time horizons, but let’s dive into what to do depending on your strategy…
Planning Versus Reacting
Let’s start off with the long-term investors here. You better believe that there were people panic-selling yesterday’s open following the nasty gap lower. Periodically, I like to tease buy-and-hold investors for owning markets in downtrends, but the fact of the matter is this: U.S. stocks are still in a long-term bull market. If your time horizon spans years, this isn’t the worst environment to be buying the dip, especially in some of these mega-cap tech names.
Next are position traders. These are classified as individuals who buy stocks with the intent of holding them for a period of at least one to three months. The bulk of my trades fall into this category, and while I’ve been selective with some longs in this tape, I’m still holding a decent chunk of cash in the portfolio. The short-term trend is now, so looking to buy high and sell higher simply isn’t going to cut it in this tape. Cash is far from trash for position traders.
Then come the swing traders. This is where it gets fun in this environment, because going short the weakest names or markets can come with big gains in short periods of time. There are also some select defensive names in this market that are still seeing new highs, so you could even focus on those on the long side. A bit of cash is still warranted here, but if you’re trading the short-term trend, then most of your bets should be to the downside.
Lastly, there are day traders. Nothing really changes for you in this tape. It’s just a matter of realizing that volatility is elevated, and sharp intraday reversals are on the table. You end the day in cash anyways, so it really is business as usual.
Sometimes, it helps to just review what type of trader you are, and understand that when the market environment isn’t cooperating with your strategy, it’s important to stand aside. Because one thing is for sure – once this market bottoms and turns around, there’s going to be incredible opportunities back on the long side.
I’ll be sure to let you know once things start improving internally,
Gianni
