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Scott Redler: 10 Trading Rules I’ll Teach My Son
The son becomes the father, and the father the son. -Jor-El, father of Superman Last year, I had back surgery to correct a sequestered spinal disc. That pretty much meant the end of my competitive racing career. But as one Redler falls… another rises. I’m winding down. And my son Chace is winding up. On Monday, he ran the 38th annual President’s Cup 5K Run in Millburn, NJ in 20:15.28. Here’s a picture of us after the finish. I ran the race alongside him… until he passed me by. Chace broke the record for 8-year olds for this particular race. And he may have posted one of the top-3 5K finishes EVER by an 8-year old. (official records are a little spotty) I think running and competing can take him far in life. And I’m not just talking about college scholarships. He’s learning the value of discipline and hard work early. But maybe one day he’ll leave running behind. Maybe he’ll follow his old man into another competitive, testosterone-filled career… trading. If he made that choice, I’d drag him into the garage, lock the door, and not let him out until he understands these 10 trading rules: 10) Trading Is a Business People think trading is like hitting the craps table at Ceasars Palace. But it’s a business just like any other. You have to balance your books every month, make it through slowdowns, and most of all, not put yourself at risk of bankruptcy. The average guy on the street thinks trading is really exciting. You lose $10 million one day, and make $20 million the next. NOTHING could be further from the truth. Every successful trader knows that… 9) Trading Should Be Boring Thrill-seekers always fail. Always. Here’s a pretty common scenario: A trader starts his career, and BAM! He has a huge day. Let’s call it $50K. I gotta tell you, $50K all at once can ruin a trader’s life. They start thinking that big money comes easily. They start thinking about making $100K a day… or $200K a day. So they keep taking more and more risk… until they run into a day like the August 24, 2015 flash crash. 5 minutes after the open, the margin clerk’s demanding more cash. The trader doesn’t have the money to put up, so their positions get closed out, right at the bottom. So they’re put out of business just before the rebound. I’ve seen it happen again and again. So if you’re just getting started, I recommend that you… 8) Focus on Execution First, Money Second If you get good at anything, the money’s going to come eventually. So focus on developing your skills, and properly executing the strategies you learn. That’s what’s going to keep you in the game for the long run. Fast money leaves just as fast at arrived. Your #1 goal should be to develop a set of trading strategies that can give you consistent profits, no matter what’s happening in the market. Once your brain gets big, your wallet follows. But let’s not forget about your heart, because… 7) Your Temper Can Kill You Self-control is more important than brainpower. You can have all the intelligence in the world, but if you can’t stay calm when you’re losing money, you’re toast. You need the self-awareness to know when you’re at risk of letting emotions dictate your decision-making process. I just read an article in the Wall Street Journal about a banker that used basketball to judge job candidates: Some employers confessed to weeding out applicants in the gym. John Osbon said when he was a Wall Street managing director he played basketball with job candidates. He would step on their feet or yank their shirt in games, he said, to see how they reacted. If they kept their cool, they passed the test. “They were all fair fouls, and I didn’t hurt anyone,” Mr. Osbon said. “You have to take someone down to size.” Sounds like a pretty effective way to judge a trader’s ability to take pressure! How easily do you keep your cool? And what can you do to work on being even-tempered? But we all know we can’t keep our emotions perfectly on check. So I recommend that you… 6) Use Reverse Psychology on Yourself We’re only human, and we can never perfectly manage our emotions. I’ve been doing this for 18 years, and I still get too excited sometimes. And when I feel that coming on, I know my ego is getting the best of me. So I force myself to trade more cautiously, because I’ve put myself in the danger zone. And when I start every trading day, I try to… 5) Be Naturally Neutral I don’t expect too much at the start of a trading day. And I don’t expect too little. Every day is different, and if I’m in a neutral mood, I’m ready for whatever opportunities present themselves. If you start your day dreaming of piles of cash, or worrying that you’ll go up in smoke, you’re doomed. Now, once you’re out there, not every trade will go your way. You’re going to lose money. But that’s okay, because… 4) Great Traders Are Losers Every trader out there loses money. I lose money all the time. Some of the richest traders I’ve met lose money every single day. But the reason I’m still in the game after 18 years is that I don’t lose big. Say I’m long AAPL from $150, and I get stopped out at $148. I’m not gonna celebrate, but I’m not gonna cry either. You know why? Because small losses won’t knock me out of the game. Now if I rode AAPL down to $130, that’s another story. If you dig a deep enough hole, you may need 10 winners to make up for 1 loser! Understanding this can help you… 3) Start Thinking Like a Pro Like I said, brainpower isn’t everything. You can have a 180 IQ, but you’ve got to adopt the mindset of a pro. Pros don’t think about Ferraris
Continue Reading -->The Red Dog’s Roadmap
The SPX futures are up 2 ahead of the Fed this afternoon. It has been a methodical move since clearing the descending channel above 2430 to take out 2453 before making a new all-time high at 2481. Now we’ll look to see if the active bulls stay in control with upper support at 2464 and yesterday’s low at 2474. IWM gave another calculated entry Monday after it reclaimed $142.25 and cleared $143.55 to hit a hgih of $144.25. It will need to hold $143.21 to keep active bulls happy and, if it can, extend another day towards a target of $145. XLE is trying to stay relevant as some are long vs the $64.50 stop while others want to see if hold the 50day of $65.86. IBB has its first bearish engulfing candle in a while and I did tweet that I sold around $329.50. After this move from $310, some digestion makes sense. Look for banks to be in play on fed day as JPM had a nice 2 day move. If it is able to hold the $92 area, I will be looking for it to make a move towards all-time highs in the days ahead.
Continue Reading -->Weekly Sentiment Report: Fear Is Here!
Last week, I asked if the bulls went too far. Options traders were buying call options like crazy, betting on a big pop into quarter-end. Turns out, the only thing that popped was the VIX, which rose 56% intraday yesterday, its 5th largest range ever. Take a look at this chart: So let’s take a look out our 5 sentiment indicators to see just how bearish traders are after yesterday’s volatility spike. (click here for a primer on the 5 sentiment indicators below) 1) VIX Spread – Bullish This VIX rose so fast yesterday that the curve actually inverted for a short period, indicating extreme fear. But less than 24 hours later, the VIX is around 11ish and the 3-month spread has reinflated back to +2.75. So everyone that bought puts yesterday to bet on a further decline today is getting spanked. 2) CNN Fear & Greed Index – Neutral The Fear & Greed Index is at 53, flat from last week. F&G operates on a 1-100 scale, and a reading of 53 is right smack in the middle. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that just 29.7% of individual investors are bullish, dowm from 32.7% last week. This 29.7% reading is well below the 38.5% long-term average, and indicates that individual investors are fearful. Throughout this year, individual investors have tended to not trust the market, and this latest reading indicates that nothing’s changed. On a related note, two weeks ago, I compared 2017 AAII numbers to those back at the 2007 market top. Individual investors were downright loony in October 2007, not the least bit worried about the deteriorating housing market. They’ve been much more skittish in 2017 even though we’ve had almost no volatility this year. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.69 yesterday, which is a bearish reading. The 3-day moving average is 0.66, which is slightly above the long-term average. These numbers indicate that traders are modestly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 90 (90 calls bought for every 100 puts. The 10 day moving average is just 81.5 (81.5 calls for every 100 puts) This indicates that traders are bearish. Conclusion Out of 5 sentiment indicators, we have: 1 bullish (down from 2) 1 neutral (down from 2) 3 bearish (up from 1) Clearly, traders are more bearish than last week. So we’re seeing the same old trend — every time the market hits the rocks, traders get real real bearish real real fast. I know it’s trendy to say that everyone’s bullish, but that’s just plain wrong. If you want to see what real bullish sentiment looks like, go back to 2007. As I noted earlier, we’ve seen very little volatility this year. So the fear isn’t coming from troubling price action. The problem seems to be two-fold: 1) People are fixated on Washington DC headlines and assume that political volatility will lead to a down market 2) The bull market’s gone on for so long that people assume it just has to hit the wall — what goes up must come down The bears will be right eventually, but who knows when? Jeff Cooper is making a very good case for further downside, so I suggest you read his latest piece: These Rallies Were Made for Selling
Continue Reading -->7 Things You Should Know Before You Short a Stock
“As a very successful investor once said: “The bearish argument always sounds more intelligent.” -Peter Lynch, One up on Wall Street The stock market is the greatest wealth creation machine ever created. But every so often, you’re going to be tempted to bet against the market, or a particular stock or ETF. Maybe you see a technical pattern you don’t like. Maybe you see an economic downturn coming. Or maybe you think you’ve spotted an outright scam. But shorting is not as simple as you think. Shorting requires an intimate understanding of market mechanics, and the harsh reality that stocks sometimes go up for no good reason. So let’s go through 7 things you absolutely need to know before shorting a stock or ETF. 1) Understand What Shorting Really Is Shorting stock isn’t quite as simple as buying it. Shorting requires borrowing shares from another investor. Your brokerage firm facilitates this process for you. Then, you sell those shares in the hope that they’ll fall in price. If it drops, you’ll buy the shares back (which is called ‘covering’ a short), capturing a profit. For example, if you sell Amazon.com (AMZN) at $1000 and buy it back at $950, you’ve earned a profit of $50 per share. 2) You Can’t Short Everything You Want Not every stock is available to be shorted because it can’t be borrowed. Typically, when a stock is widely disliked or is facing a scandal, it will be so heavily shorted that your broker simply won’t be able to locate shares for you to short. Every brokerage platform has some mechanism for indicating that a stock is hard to borrow, or not available to borrow at all. For examples, as of June 12, 2017, shares of the troubled radio company Cumulus Media (CMLS) can’t be borrowed. With the company rumored to be on the brink of collapse, it’s already attracted plenty of shorts. So there are no shares left for new potential shorts to borrow. 3) Know Your Expenses and Margin Requirements If you want to short stocks, you are required to have a margin account. And you must have enough capital in your account to back up your short positions. For example, if you want to short $10,000 worth of stock, you may be required to have $5,000 of cash in your account. Plus, shorting isn’t free. To short a stock, you have to pay your broker a “stock loan fee.” And the more volatile a stock is, and the more difficult the shares are to borrow, the higher that fee is. Check with your broker for exact terms. 4) Realize That the Interesting Bear Argument Always Sounds Better Most investors want the stock market to go up. But many traders are attracted to contrarianism, and the often-sexy arguments of bears. For example, for years many bears have used obscure financial metrics like the Schiller PE (CAPE) Ratio, market cap to GDP ratio, and NYSE Short Interest to imply that the SPX is overvalued. These arguments always sound a lot more clever than the typical bull rationale, which revolves around plain old earnings and economic growth. And yet, the market’s done nothing but gone up: So think twice before buying into doomsday scenarios, no matter how attractive they sound. 5) Don’t Short Momentum Stocks on Valuation Never short a stock simply because it’s trading at 50 times earnings. You know why? Because it might be worth 60 or 70 times earnings a week from now. Momentum stocks have a tendency to go way farther than may seem reasonable, especially if they are reporting strong earnings. We suggest watching Scott Redler’s recent video lesson Facebook (FB) so you can see how a stock with consistently strong earnings can destroy the bears: And look at momenutm favortie Salesforce.com (CRM). It’s regularly been called overvalued throughout this bull market: Now look at this chart: The bears — as smart as they may be — have been wrong. Why? Because traders love to buy momentum stocks with strong earnings. 6) Your Timing Must Be Impeccable If you want to short a hot stock or the market as a whole, you need great timing. Being right doesn’t matter if you’re not right at the wrong time. For example, many experts correctly called the housing bubble and subsequent collapse of the financial system very early. We’re talking 2004 or 2005. But bank stocks didn’t peak until December 2006. And in the last 5 years, how many times have you heard that there’s a bond bubble?: The bond bubble people may be right… but the TLT chart hasn’t really broken yet, has it?: 7) You Are Betting Against Gravity The S&P 500 has returned an average of 11.4% since 1928, according to NYU Professor Aswath Damodaran. And when it’s rising, even the worst stocks can go up. So you are betting against the market’s reverse gravitational pull towards the sky. We’re not saying you can’t make money shorting. Just be careful!
Continue Reading -->Why You Need a Trading Checklist
Checklists can save your life. Literally. Anesthesiologist Peter Provonost studied how 100 Michigan hospitals inserted central lines (also known as intravenous tubing) into patients’ chests. . Central lines deliver lifesaving medications, and proper installation is critical for avoiding life-threatening infections. 30% of the time, surgical teams skipped 1 of 5 essential steps in the process. But by using a simple checklist, the infection went from 4% to zero, saving 1,500 lives and nearly $200 million. That’s not all. Checklists keep planes in the air. Checklists keep nuclear power plants operating safely. And checklists can keep traders like you avoid simple errors that can cost you money. Here’s a simple checklist you can use to avoid errors when they’re most likely — the order entry process. Before we get to the checklist, make sure your trading platform is set up in a way that works for you. For example, many trading platforms let you set defaults for trade parameters including share size. You can also often set little things like how your mouse interacts with the platform. Depending on your settings, you could even place orders with a single mouse click. And set your chart time frames in a way that corresponds to your actual trading. Since all platforms allow you to save your screen layouts, keep yours saved so you can always go back to square one. So take a half hour and go through your platform’s default settings. This will reduce the risk of placing accidental orders, or of accidentally looking at the wrong charts. Now let’s take a look at an actual order entry checklist that can prevent you from making errors: Step 1: Ask Yourself If You Have a Good Reason for Making This Trade Since they’re constantly bombarded with news, data, and ideas, traders are always tempted to act impulsively. You can counteract this tendency by asking yourself: do I have a good reason for doing what I’m about to do? Often, that will be enough to stop you from getting in bad trades. Step 2: Form an Entry and Exit Plan If you’ve got a good reason to make a trade, now it’s time to decide on an entry and exit plan. Know where you want to get in, and where you want to get out. You should have a stop loss to minimize downside risk, and a target price that gives you room to make a solid profit. This will prevent you from getting in a trade, and then asking “so what do I do now?” Step 3: Double Check Your Ticker There are two types of “fat finger” trades. That’s what happens when a trader hits the wrong keys on the keyboard, and a whole lot of money ends up in the wrong place. In 2015, Deutsche Bank’s foreign exchange desk accidentally sent a hedge fund $6 billion because of a simple typo. If you’re not watching carefully, you could very easily buy Advance Auto Parts (AAP) instead of Apple (AAPL). You could mix up Agilent (A) and Alcoa (AA). Or Dominion Energy (D) and Dupont (DD). Step 3: Double Check Your Share Size Let’s say you want to buy 100 shares of JP Morgan (JPM) at $80. That’s $8,000 — a decent chunk of change. But what if you accidentally pop in another zero, and buy 1000 shares? Well, you just made an $80,000 trade. That’s an an extra $72,000. And if the stock suddenly drops $2, you’re down $2,000. Had you bought just the 100 shares you wanted, you’d only be down $200! Step 4: Double-Check Your Expirations and Strike Prices on Options and Futures If you’re trading any instrument with an expiration date, like options or futures, you must absolutely double-check the expiration dates of what you’re trading. You’re often looking at dozens or even hundreds of small numbers on a single computer screen, and it’s easy to make mistakes. Make sure you select the right the expirations and strike prices. This is especially important if you’re entering an order with multiple legs. You may fool yourself into thinking you’ve found an especially attractive calendar or butterfly spread, when in fact, you just got ripped off! Step 5: Perform a Post-Mortem Analysis of Your Best and Worst Trades We recommend that traders keep a diary of their trading activities so they can accurately track their trading history. We’ve found that this piece of advice is mostly ignored. If you’re not willing to take this step, at the very least, do after-the-trade breakdowns of your best and worst trades. Was your rationale for the trade correct? Did you get lucky? What could you have done better? How did you know when to get out? Be honest with yourself, and you’ll start to understand your true trading nature.
Continue Reading -->The 7 Deadly Sins of Trading, and How You Can Cure Them
Greed, for the lack of a better word, is good. That’s what Gordon Gekko said in the classic 1987 film Wall Street. And indeed, a little greed goes a long way. Greed can push you to work harder to bring home a bigger paycheck. It can push you to save more money for retirement. But greed can also eat you alive… even if you have all the money in the world. Greed is only one of the 7 deadly sins you’ve heard about from religious texts or pop culture. And as you’re about to learn, they all apply to trading, and they all have cures if you understand them. Lust is often associated with sexuality. But there’s another kind… the lust for money and power at all costs. That’s a recipe for disaster for 2 simple reasons. An obsession with making more money can push you to take bigger and bigger risks. You’ll put yourself in harm’s way when there’s no good reason to. It can also push you to cross ethical and moral boundaries. Remember, once you cross that line, there’s no turning back. The Cure for Lust Replace your desire for money with a desire to learn. As you become a more skilled and experienced trader, you’ll likely earn more money. So focus on building your skills and gaining experience, NOT the potential rewards of skills and experience. It’s like dreaming about buying a Ferrari before you’ve even had a job. It’s downright childish. Grow up, get good, and the rewards will come. 44% of lottery winners go broke, according to a 2015 study by the Camelot Group. Why? Because most people can’t handle sudden wealth. Traders are no different. Once a trader achieves financial success, he’ll be tempted to overindulge in everything from food to clothes to travel to cars to real estate. An upgraded lifestyle means upgraded living expenses So what happens when that trader has a bad month or bad year? Panic, frustration, and inaction. When the mortgage is due today and there’s just $28.71 in the checking account, it’s pretty dang hard to focus on the charts. The Cure for Gluttony As you earn more money, save a higher percentage of what you take home.. Let’s say that after a year of trading, you have $25,000 left over when all your taxes, trading expenses, and bills are paid. And let’s assume you feel comfortable spending $7,500 of that on “fun stuff” like new clothes, travel and entertainment. That’s 30%. On your next $25,000, take it down to 25%. And the $25,000 after that, reduce it down to 20%. The exact numbers don’t matter. The point is, by scaling down your spending, you’ll keep a safety net in place for the rough times. It’s okay to want a bigger house, a nicer car, and private school for your kids. And it’s okay to dream about having $10 million in your bank account. But if you’re trading just to make money to buy more stuff… go do something else. To become a great trader, you must love the process of trading. It’s not easy to stare at computer screens for 9+ hours a day, trying to make sense of news and charts and price action. Most people burn out from it. But the best of the best can’t pull themselves away! The Cure for Greed Revisit what you really love about trading. Is it the process of scanning through 200 charts to find the one that speaks to you? Is it the rush of adrenaline you get when you nail a trade? Or is it just plain fun? Your trading results are important. If they’re not, you shouldn’t be in this business. But it’s equally important to enjoy the process. So shift your greed for money to a greed for sheer enjoyment. Experienced traders often get nostalgic for the ‘good old days’ before high frequency trading, decimalization, and overactive central banks. Many of these traders run into trouble because they do more complaining than learning. Instead of learning new skills, they get left behind. Evolution is a cruel beast. And it comes for the weakest traders first, the ones that don’t adapt. It’s 2017. The strategies you use today may not work 3 years from now. What are you gonna do about that today? The Cure for Sloth Put yourself on a regular schedule for continuing education and personal development. Don’t give yourself the option of NOT improving. You could set a goal of reading 2 new books a month. Or learning 4 new chart patterns. Or writing out 3 case studies about your best — or worst — trades of the month. The possibilities are endless. And don’t forget about improving your non-trading self. Some of the biggest trading lessons are learned away from the desk on a racquetball court… or on a wild boar hunt in Texas. (seriously) An angry trader is one that just lost money, and is on the verge of losing more. If you’re angry, you’re impatient. If you’re impatient, you’ll make more bad trades. And if you make more bad trades, you’ll get even angrier. That’s when the ‘revenge trading’ starts. That’s when you lose $2,000 in the morning, and you’re determined to ‘make it up’ with more trading. Before you know it, you’re down $5,000. And then $10,000. And so on. And so on. The Cure for Wrath Clean up your mess as best you can. And then walk away from your trading workstation. Don’t come trade again until you have your anger out of your system. Talk to your buddies, watch a funny movie, or take a walk. But get it out of your system. And if you feel like you’re getting out of control too often, seek professional help. Anger won’t just hurt your bottom line. It will also destroy your body. On Wall Street, you can make $1 million a year and still feel poor. Why? Because the guy next to you made $2 million! Traders are competitive by nature. It’s no wonder so many love
Continue Reading -->Do You Need a Trading Intervention?
There are a million courses and instructional videos on chart reading, economics, fundamentals, and quantitative analysis. Most traders come up through the ranks by taking information from various sources and mixing it together to create an individual path. You don’t need to be original or overly creative to be a great trader. You must simply be able to curate strategies that work for your personality and trading style. But the ugly truth is that a lot of trades desperately need a wake-up call. Sometimes, we think we’re putting things together in a very rational and controlled fashion, but we’re still not getting the result we should. That’s often a failure of mindset rather than of intelligence or natural trading acumen. So we put together a list of 9 clear signs that you need a trading intervention. If you suffer from 1 or more of these symptoms, then it’s time for a gut check! 1) You Suffer from Brain Freeze (and we don’t mean the ice cream kind) You do your best to learn a strategy or methodology, but when it comes time to implement it, you freeze up and do nothing. Quite often, traders are more comfortable with the idea of risk than risk itself. When traders find themselves freezing up, it often makes sense to dramatically cut position sizes to get acclimated to executing real trades. 2) You Make Conscious Errors You realize that you are doing something that does not fit into a logical strategy, and yet you do it anyway. This is a bizarre mix of anxiety and arrogance, as it’s based on two illogical beliefs: that doing something is always better than doing nothing, and that things will miraculously work out in your favor. Both are wrong on all counts. 3) You Are Underconfident You exit winning trades too early, stunting the potential of your winners. As unusual as it seems, traders often have difficulty letting winners run. Many traders want the security of having locked in a gain, which means they miss the bulk of a move. The best traders look for clear signs of exhaustion in trends before exiting winners, because trends often last longer than may seem logical. 4) You Have Too Much Patience You exit trades too late, allowing your winners to turn to losers, and losers to turn into bigger losers. This comes back to the belief that things will somehow just work out. Many traders have a problem with wanting more! more! more! out of a winning trade, even after it’s showing signs of of change in trend. So they’ll let emotion take over, and they’ll watch a position decline in the hope that it will magically turn around and restore prior gains. Traders also sometimes have a hard time dealing with losses, so they’ll sit and wait for them to turn around, even when they have no rational reason for doing so. 5) Not Enough Patience You chase trades aggressively, giving yourself bad entries, which eventually causes you to get stopped out. The fear of missing out is pervasive among traders. We see a stock go up $10 and we start to wonder if it’s going up another $5. A smart trader accepts that sometimes, trades just pass you buy. You’re never going to catch them all, and trying to do so means acting out of emotion instead of logic and analysis. 6) You Don’t Take Responsibility for Your Results You blame others for your problems trading problems instead of taking responsibility. We can’t control anything in the markets beyond our own strategies and risk management techniques. But since we all consenting adults engaging in an uncertain business, we must accept responsibility for our own results. We’ve all stepped into this arena by choice. So we must own the consequences — both good and bad. 7) Your Stop Get Hit Constantly You are dying of a thousand paper cuts, getting stopped out constantly, which adds up to huge losses. Many traders set extremely tight stops, which is death in today’s volatile, algorithm-driven markets. There is a misplaced belief that hard stops ensure limited losses, but that’s not always the case. A stop strategy must be adapted to current market conditions, and if you are getting consistently stopped out, you must reassess your thresholds. Quite often, traders that suffer from an overload of stop losses find that they’d actually have profited if they’d held on a little bit longer, or set their stops a little looser. 8) You’ve Forgotten That Trading Is Work It’s easy to view trading as an unstructured entrepreneurial adventure rather than a job. It takes a big streak of independence to become a trader. But beware of too much of a good thing. Traders often find themselves living an unhealthy lifestyle, including bad sleep habits, heavy hunk food intake, and zero exercise. If you want a healthy trading mind, you must take care of our body of first so you can show up ready to work effectively every day, just like any other job. When you’re tired, unfocused, and unprepared, you are throwing money away. 9) You Are Not Compartmentalizing We all have life problems. But when we trade, they must be put away to be dealt with later. You must be focused on the task at hand. You can’t be thinking about the fight you had with your spouse the night before or how you’re going to make the next mortgage payment. So when it’s time to trade, stay focused on the task at hand.
Continue Reading -->Weekly Sentiment Update: The Bears Are Growling, But No One’s Listening
Permabulls always say everyone’s bearish. And permabears always say everyone’s bullish. But let’s look at the actual numbers to see how the crowd actually feels. Last week, bears started sneaking out of their caves just in time for Spring. And with the bulls continuing to hold steady in the face of doubt, let’s see if anything’s changed. 1) VIX Spread – Bullish The VIX spiked to 15 early Monday, but it’s back down under 12. That has the 3-month VIX spread is at +2.69 which indicates that traders are moderately bullish. 2) CNN Fear & Greed Index – Bearish The Fear & Greed Index is at 34, up slightly from 30 last week. F&G operates on a 1-100 scale, and a reading of 34 means traders are bearish. 3) AAII Sentiment – Bearish The latest AAII Sentiment Survey shows that 30.2% of individual investors are bullish, down from 35.3% last week. This is well below the long-term average of 38.5%. 4) CBOE Equity Put-Call – Bearish The CBOE Equity-Put Call ratio was at 0.64 yesterday with a 3-day moving average is 0.67. This is indicates that traders are slightly bearish. 5) ISE Sentiment – Bearish The ISE Sentiment Index is at 83 (83 calls bought for every 100). The 10 day moving average is just 90. This indicates that demand for put options continues to outstrip that for calls. However, I am strongly considering dumping ISE Sentiment from this weekly update simply because it’s almost always reading bearish no matter what happens in the market. I may replace it with the CBOE Skew Index, which measures how much traders are paying for protection against tail risk. Conclusion Out of 5 sentiment indicators, we have: 1 bullish 4 bearish 0 neutral This shows even more bearishness than last week. So while the bears are pushing an age-old theme — everyone’s complacent — I’m getting the feeling that traders are waiting for another shoe to drop, even though we’ve seen improvement in the action below the surface. Yesterday, the Nasdaq and Russell showed relative strength, and on Tuesday, we saw great upward action in the banks. So while some of the so-called “Trump Trade” has unwound itself, the bears’ growing isn’t adding up to much. But there’s an important question to ask here: how can sentiment be bearish if the SPX is 2% from all-time highs? We’ve seen this over and over throughout the bull market — markets hovering near record highs, but sentiment reading negative. My guess is that there’s inherent distrust in the market, and traders are eager to turn bearish on even small declines. And those that are buying often appear to be doing so reluctantly. It’s more of a “I might as well buy” attitude than “I’m buying because we’re going straight to SPX 3000.” And that’s a big difference from the last two bull markets.
Continue Reading -->Throwback Thursday: Two of Our Most Popular Articles
Meet the Traders! 8 Questions With Sami Abusaad 5 Reasons Forex Trading Might Be for YOU! Bonus Article: Trading: Trend Following vs. Counter-Trend
Continue Reading -->Vintage Wall Street: The Paul Tudor Jones Documentary ‘Trader’
Paul Tudor Jones, founder of Tudor Investment Corporation, is one of the greatest traders of all time. Jones has amassed billions of dollars in assets under management and personal net worth trading everything from futures to currencies to commodities. In the 1987 documentary Trader, PBS takes us inside Jones’ world of high-stakes, practically 24/7 trading. In it, you’ll learn: Why like our own Scott Redler, Paul Tudor Jones wakes up so early in the morning Just how quickly Jones can change his mind in the heat of the moment The awesome-at-the-time-but-horrible-now fashion choices of 80’s Wall Street giants. If you’re interested in learning about Jones’ trading style, we suggest you watch the embedded YouTube video — complete with Russian subtitles — above now. When it does surface online, it tends to disappear due to copyright claims. Interestingly, in the 1990’s, Jones requested it be removed from circulation, possible because it revealed too much about his trading style.
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