- A 2 step plan to profit and avoid being a sheep to slaughter.
- A 1 step strategy for 10x profit in 4-6 weeks the next major market drop like in 2020 on covid news.
- The conditions are finally ripe to get people to take these simple steps and eventually cut the umbilical cord to their financial advisors who have failed them in the past.
Twas the week before Christmas and the markets were still stirring with market makers playing games with the sheep. Since Thanksgiving they have merrily played, first down, then up and back down again hard. Naysayers then shouting, "Beware! We told you so!" Then quick as a wink, with a nod of their heads, up the markets rose and on the rooftop they sat. Now all Whos in Whoville were huddled in awe and despair, what's next they asked? As quick as they rose, down the chimney they fell and again rang the bells, but not of good cheer, of alarm! Fear not, it's Christmas they said to themselves, and up went the markets like naughty young elves. So now what to do, asks wantingly all of you, well pull up a chair and I'll tell you what to do.
As shown above, you can clearly see that the 'trend is your friend', meaning when it's going up, stay with it. The first rule of investing is never lose money, and the second rule of investing is don't forget rule number 1. The question each person needs to decide for themselves, is how much they are willing to 'lose' which I put in quotes since it's not really black and white. First of all, the key is to be quickly in profit so you're losing profit, not your original investment.
As you can see above, markets change direction suddenly for no apparent reason and often reverse very quickly, leaving you on the sidelines if you chose to sell. The key factor to remember is that you can jump back on just as quickly. Don't get caught in a double fake. When Connor McDavid is coming down on you fast, you know he's going to throw several fakes before he makes his real move and all you can do is try not to commit and get burned.
The main goal of this article is to convince you, as a novice, that you can take care of your money better than your financial advisor, or in partnership, if they're willing to follow your rules, which are rules 1 and 2 above.
If you sold all your investments pre-covid, shorted the market, doubling your money, then went long again in March and are now sitting on +100% gains since the March low, then you don't need to change your plan. All you need to do is tell 5 of your friends how to do it themselves. If you didn't do so well, then keep reading and then tell 5 of your friends how to do it themselves.
Now let's take a quick look at that time period to get a clear idea of what happened and what we could have done.
This is a weekly candle chart of the S&P 500 and it's pretty clear that in late 2018, right around Christmas the markets were again having their fun, dropping hard before Christmas and shooting higher on Boxing Day. I remained a non-believer, expecting a reversal and Connor McDavid blew past me like I was an oak tree on ice. You can bet I won't fall for that move ever again. Sure, markets were arguably in nose bleed territory back then, but if they go higher, don't fight the trend, it's your friend, so trust it.
A year later with no Christmas shenanigans, late January 2020 was the first red on the weekly chart to be seen since September. The bears don't usually sleep so long without rousing from their slumber, so with the markets back near the upper trendline and Avi Gilburt saying get ready for a large drop, it was wise to be ready and waiting for the first sound of alarm.
Clearly, the 2 week drop starting Monday, January 20 was the first sign of trouble and with Avi predicting a very large drop on the horizon, caution was warranted. Two weeks later with the S&P making new all time highs, it was reasonable to wonder if Avi was wrong. But, it was also a hard ceiling so selling there was the wise choice, the same as it was in January.
On Thursday, February 20 the markets dropped sharply from a ceiling of 3380, a mere -1.2% at the low of 3341 and bounced back to close only slightly in the red. You're up 41% in just over a year, the markets have hit a hard ceiling, they're due for a pullback and coach Avi is hollering "Denfence!". So, hit the sell button early on Friday from its open/high 3360 if you didn't already sell on Thursday. Remember rule number 1 and rule number 2. And remember you can always buy back in on Monday, even at 3400, a mere 1.2% higher and new all time high (ATH). If it does drop, then you managed to sell less than 1% from the top, locking in 40% instead of 41%.
And remember that Avi has been telling you for a month already to get ready for a major pullback. He was already short EEM since January and sitting on a profit. And finally, remember it's easier to sell 1 ETF versus 100 individual stocks.
Clearly Avi made a prescient call about the markets dropping a month before covid news 'caused' the markets to drop. As Avi loves to say, news events do not cause markets to drop, they are simply triggers that cause an action that was ready and waiting to happen, and, similarly, you need to be ready in advance of it happening.
The simple daily chart of the S&P500 above is a clear snapshot of what happened during covid. Everyone can agree that it was necessary to sell on Monday or Tuesday if you didn't take the cautious approach and sell on Thursday or Friday. And you can also show your financial advisor that chart and ask them why they didn't sell, but I can tell you now.
Having a financial advisor watch over your finances is like a farmer having a contractor watch over his cows. And this contractor is watching over all the cows for a lot of farmers. When the weather forecast predicts a storm, how does the contractor get all the cows of all the farmers safely in the barns before the storm hits or as it's hitting? He can't, just as a financial advisor can't sell all the shares in all the accounts he's managing. It's time to start taking care of your own cows.
And let's face it, most of us don't want to be farmers. It's a LOT of work. Having one 'cow' that provides all the 'milk' you need is easy for anyone to manage.
Now, notice how incredibly similar this past week's move is to the move Monday March 20, 2020. A red candle with a long tail on Monday, followed by a hard move up the next 3 days. Let's be honest, even Connor McDavid has a few favourite moves and a limited bag of tricks, so reviewing game tapes, mentally preparing and practicing as a team will help you maintain stellar defence and keep him off the score sheet.
On Sunday, Dec.19, Avi wrote, "When seemingly negative news is disregarded and the market rallies in the exact opposite manner in which one would expect, as we saw this past Wednesday, it tells you quite clearly that positive sentiment is in charge. Support in the market is in the 4550-85SPX region. And, as long as that support is held, I am looking for a continuation rally to 4900+ in the coming weeks. Alternatively, should that support fail, then the bigger 4th wave pullback I have been expecting in the first quarter of 2022 is likely in progress earlier than I had initially expected."
The low on Friday was 4600. Monday gap opened lower at 4562, fell to 4530 at 11-11:30 then slowly climbed to 4573. Having reviewed game tapes, practiced and listened to the coach's message the day before, you were totally ready to take the shot on Monday. Tuesday gap opened higher at 4606, hit a low of 4583 at 10:30 then climbed steadily to 4644, so consider it an 'easy' win because you were ready, had a plan and took action.
When I was kitesurfing in Tarifa, Spain, it was amazing how well they predicted the wind, even completely reversing directions, 30 knots each day but in opposite directions. Based on their repeated accurate predictions, I learned to trust their predictions. Likewise with Avi, I've learned to trust his predictions and am always ready to take action.
And note that even if the markets had gapped open lower on Tuesday at 4500, that's only -1% from where you bought and you simply sell, put the cow back in the barn and go for a hike since the predicted wind didn't come. It really is that simple.
Hopefully I have now 'set the hook' and you believe that it is possible and necessary to take charge of your own finances. In Canada, Questrade has been advertising a lot, especially during hockey games. In one ad, friends using Questrade have bought a new house so it's time we switched. In another, a brother says, "You're not still using Mom and Dad's guy are you?" It's all good fun, but it's not that simple. You can't just go to Home Hardware buy some tools and materials and build a house.
Finally, the banks struck back with various ads, one with a ticker screen in the living room to keep track of your investments. Or a friend who says, "Oh, look how much my investments made this year! I guess my advisor was right, lower fees aren't so important after all." Again, it's all good fun, but it ignores the fact that these same advisors haven't done well for people in the past.
The result, however, is that the issue is now front and center in people's minds. Everybody hates talking about money and investments, but now it's possible to broach the subject and they're likely to listen and with a general frame of reference already in mind. Top that off with free trade accounts, like Wealth Simple in Canada, and the stage is set for change.
All we need now is a plan. So, here are the first 2 steps: Step 1, open an online trading account, install the app on your phone and transfer some money to the account. And it can be as little as $50 like my friend on the beach in Baja, Mexico. Step 2, get ready to buy 1 'cow'. QQQ which follows the Nasdaq is good, or SPY which follows the S&P 500 (HXS in Canada). That's it, your skates are on and laced and you're ready to hit the ice.
Now, let's have a look at the S&P 500 back to 2004 and you can think about what you would have done based on what you've learned so far.
In 2004, the market was in a horizontal channel, which can be very profitable and are super easy to trade, simply sell high and buy low. The trick is to then jump back in when/if it continues higher. So, in mid 2004 you were holding your SP500 ETF and nicely in profit by the end of the year. You may have then traded the channel again, but with a rising channel, it's okay to just let it ride. By mid 2007, the seas are getting choppy, perhaps a storm is brewin' and you've got a nice boatload of cash in the hold, +48% in 3 years, so it's an easy call to head to shore.
That's also when there was all the news about the housing bubble, so why tempt fate, time to take safe harbour, and as you can clearly see, when it broke lower around Christmas 2008, only fools were still out in the open ocean instead of being safely home for the holidays.
In 2008, the trend is still your friend and it's a perfect time to pull your boat out of the water completely, keep it safe and dry, then take a well earned and fully funded vacation. When the typhoon hits, you're shaking your head, watching the news and wondering why people didn't get ready for the flood ahead of time. No amount of sandbagging is going to help the situation now.
As with any storm, it passes, the flood waters recede and there are likely bargains galore, so get ready for the sun to come out, but you still just need to buy 1 ETF that encompasses all the bargains and keeps life simple for you. If you buy on a move up and it reverses, sell. Just like a rain delayed game of tennis, golf or baseball. If you hit the field and it starts to rain again, go back under cover and wait again for the sun to come out. Eventually the rain will stop and the sun will come out and stay out and you can enjoy the game.
Now, the rules of this game are pretty simple: don't lose money, which includes not giving up paper profits. Each person can decide for themselves how much drizzle and rain they'll endure before heading for the clubhouse. Perhaps you're able to continue your game as the weather/markets turn, but even those who took cover can get back on the course when the sun comes out.
If you stayed in the game for 2 whole years, enduring all the storms, you were still up 93%. If you took cover and then got back on the course, you did even better. Did your advisor get you to safe harbour in 2007? 2008? Did your investments grow 93% or were you simply getting back to where you were before the storm?
I hope you're starting to see just how simple it can be and ignore people when they tell you you can't predict the markets. You don't even have to predict the markets, just make sure you quickly head for cover when the storm hits. And you always have several days or weeks to do that. Which is plenty of time since it's just the click of a button on your phone.
As you can see, in 2011, the markets hit a hard ceiling, just like in 2004, so you could have traded the horizontal channel, selling high and buying low, or you could have gone on another well funded vacation with a 90% return you pocketed in 2 years.
In the middle of 2011, on the third trip back to the floor, it broke through, which you were ready for, obviously. I mean, if you keep hammering down on a rickety floor it's liable to break. No problem though since you already profited on 3 trips up from there and you jumped off as soon as you broke through. When it hit the next floor lower, you were a lot more cautious, remembering 2008 and when it broke through that floor, you quickly jumped to safety again.
Now, we recall the game tapes where Connor McDavid triple faked, broke through, then dished the puck off to his team mate who hammers in the goal with the rookie defenceman taking the fake. We know not to take the fake. Of course, you have to sell, in case it continues much lower, but you buy it back when it reverses. It is after all just one click of a button on your phone.
Perhaps you then let it run for the next 2+ years since the trend remained your friend. Early 2014, you're up 68% and it looks like it may have hit another ceiling. Perhaps you pull out your phone and finally click the button from a 2 hear hiatus, or perhaps you wait to see if the clouds blow over and the sun comes back out. It's your call and, more than likely, Avi was giving accurate weather reports then as well.
As you can see, the sun kept shining and even the flash thunderstorm later in the summer was only a drop of -6.5% (and you definitely should have sold and re-bought). Then we got a hard ceiling in early 2015 where you had months to sell if you wanted, ready to re-buy on a break higher. If you didn't sell when it broke the lower rising support line, then you were really pushing your luck. And if you didn't sell when it broke through the floor several weeks later, then you officially broke rule 1 and 2 and deserve to have been with the other sheep taken to slaughter.
When a floor holds and moves up, buy. When a ball hits the floor and bounces, it will generally continue up unless someone smacks it back down. Similarly, a high fly ball makes a clear arch and then falls back to earth, so when the ceiling is reached, sell. It will fall unless something pushes it up higher and then you simply hit the button on your phone again to join the fun.
Going long again early 2016 was easy since you already saw that move with the double tails a few months earlier. When it hit the same ceiling and started falling, you likely hit the button and sold. Then you were ready to buy as it held the same floor that it held late 2015. And you should buy, ready to sell quickly if broke lower, and trade the channel if it stays horizontal. You were also checking in weekly for Avi's 'weather reports' and most likely he called it right.
So, in early 2016 you're boarded and on your way for a one a half year cruise with only one storm that caused concern. The storm passed with the hatches battened and from December 2017 on it was smooth sailing.
The summer of 2017 looked very similar to early 2014 with a possible ceiling or simply a lull in the winds before fair sailing resumed. Our weatherman Avi predicted strong trade winds for another year, so sail on.
Celebrations Christmas 2017, carried through to New Year and the party raged on for another few weeks before the balloons popped. If you didn't see that party ending you were WAY too drunk to be playing proper defence.
I'm sure you understand the game plan by now. And any of you who are offence minded may be asking how to capitalize on these drops instead of just sitting safely on the sidelines. Great idea and we'll get to that. As a teaser, during the covid drop, the plan gave a whopping 10x return in 4 weeks.
Fair sailing resumed for all of 2019, netting a tidy 41% return in just over a year, but if you were blindly enjoying the ride, expecting another 2 year trip without keeping an eye on the horizon for storm clouds, or checking with weatherman Avi, then it was man overboard for you and many others.
It was a bungee jump of -34% from the safety of the ship's deck where Avi told you a month earlier to batten down the hatches and get ready for a storm. Luckily, it was indeed a bungee jump and the markets quickly recovered, but before you give you or your financial advisor a pass, remember that you did lose all the money you made in 2019. Call it a paper loss if you want, but that's like going to the casino winning 100k, then losing it all the last night. Conversely, you could have taken the 100k, placed the reverse bet and made 10x your money and gone home with a cool million bucks.
Allow me to introduce the volatility ETF, UVXY.
That was an 'easy' gain of over 10x that will be available again the next time the markets crash, and everyone agrees that the markets will indeed crash eventually. The hardest part of this trade, was hanging on for the full run and jumping off at the top. Getting on at the bottom was easy, right after you got your one cow in the barn and hit the button on your phone to clear your cash off the table. And you had a month to get around to doing that after weatherman Avi told you to get ready for a storm.
Then, you took that cool million, went long with your 1 ETF because Avi was pounding the table that the bottom was in and the S&P 500 was going to 6000 from 2200. That will be nearly 3x your million if he's right, and he's been right since 2004 so there's no reason to suspect he'll be wrong. Plus, as you've seen from these charts, they were 'telling' you just as plainly what to do.
Perhaps you're content to take your 2 million and take a holiday, but good farmers know, make hay while the sun is shining. Avi is still predicting a 20% return in the markets for next year and if you cash in now, you will likely suffer from FOMO (fear of missing out). Plus, he's predicting a possible 2 decade bear market after that, so you'll need to pace your spending of 3 million.
Before carrying on, I should make a disclaimer. I did indeed ride UVXY for a 10x gain, but I was still a rookie, was living on the beach in Baja, Mexico and didn't get the 'weather report' from Avi, so I wasn't remotely ready when the storm hit. Plus, I wasn't getting any news so I had no idea how severe the covid thing was. I kept selling some and locking in gains instead of staying fully loaded for the full run. There's nothing like playoff ice time though to gain valuable experience. Next time, I'll be ready and hanging on with both hands. As I said earlier, getting on was easy, hanging on for the full run was difficult. Every athlete will tell you that training and visualizing are the keys to success. You'll likely have over a year to practice, in real time with real money, and you can review the past game tapes to get ready for your first trade and then review your trades. They typically come every 2-3 months. I'll write a detailed article on them later, like having a practice focused on your power play.
Did I buy the bottom of the market crash as Avi recommended? No. Unfortunately I didn't get that weather report either and I flew back to Calgary the end of March so I wasn't willing to jump back into the markets without being able to watch things closely, plus I was looking at all the opportunities instead of focusing on just 1 ETF. Oil at $20 was a no brainer, except it went to -$40 overnight, completely broke the leveraged oil ETFs and that money was lost forever. I was also focused on hitting home runs, and we all know that home run hitters have the highest strike out percentages. Base hits and doubles win ball games.
Picking a home run stock takes a lot of time and effort, just like finding a prize winning cow. Why bother? All you really want is some milk. You don't need to get more milk from your cow than all your neighbours get from theirs. So, unless you really enjoy spending the time and effort and risk of picking a home run stock, buy your one ETF and go do what you do enjoy doing.
And that's it, that's the plan. People will give many reasons why it won't work, but you've seen clearly how it could have worked in the past. So just try it and see if it does work. Nothing ventured, nothing gained, and you're not buying a stock that might drop 50% overnight. We had that happen to us with EXRO, a great sounding company from Calgary. It still has great potential and may prove to be a winner, but in the meantime we're sitting on a pretty big paper loss.
Dad remembers from his Dale Carnegie class that you should limit yourself to a 3% loss, never more. Many people will say that you will then be whipsawed out of positions and take additional losses if you buy back in higher. That's definitely a concern, but you're buying a big old cow that doesn't move very quick. You're not buying a young calf or yearling.
To check the facts, I reviewed all the daily drops in 2020 for the US500 and there were only 5 days where it dropped more than 2%. For the entire year, there were only 5 alerts to check on your cow. And how much are you paying your financial advisor to watch your cows?
Here they are from the most recent which was the most severe in the days following the one day drop.
Clearly, no cause for alarm, but you have to check. You have to hold the blueline, and keep the puck in so your team mates can try to score a goal. And more importantly, you have to back up and play defence if holding the blueline seems risky.
Now let's go back to February, 2020, and remember that a month earlier, the markets were down over a 2 week period and Avi predicted a large drop coming soon. The markets were also at a hard ceiling and recently spiked up to a new ATH. This is not the best time to be pinching and trying to keep the puck in. You're liable to give up a breakaway. This is the time to play good defence!
On Thursday, Feb.20, the markets fell hard and recovered. If you weren't already out, that was the first thunder and lightning to wake you up. The next day it opened down slightly and fell all day. If you didn't quickly get back on defence, then you were likely benched. If you didn't sell quickly on Monday, then it's a case of 'deer in the headlights' and you needed help to avoid the oncoming crash. Don't worry, we'll be here to sound the horn to get you off the road. This is another good image to show your financial advisor and ask why he didn't sell and jump to safety, remembering that he couldn't.
After a week of red, down nearly -12%, the big rally on Monday, March 2 was to be expected, but if you thought the storm was finished, you were a fool. How many winters have one week of cold weather and snow?
As I said before, it's not possible for your financial advisor to get all their clients to safety. It's like trying to turn the titanic. It can't be done. Likewise with the big ETFs, it's impossible for them to sell all their holdings, it would crash the system. It can't be done. You, on the other hand, even with an account of over a million dollars can sell with the click of a button. Five minutes tops from the time you get the alarm, review the situation and make a decision. Then put in a new alert 1 or 2% higher, and get on with your day. It's as simple as that and all your money is completely safe.
If you think gold is a safe haven, you're wrong. Gold and gold miners crashed unbelievably, over 50% the first week of March, 2020, completely reversed the next week and continued to triple in value by August, 2020. You can imagine the FOMO going on then, especially from those who sold out at the flash bottom. Since August, 2020, it's been a long, bumpy slide lower, compared to the smooth +113% gain with SPY since the March low. Incredibly painful for all gold bugs and it defies all logic since most gold miners are making big profits now.
Still, the rules you already learned would have had you safely out and buying off the reversal. The trouble is, GDX is a lousy ETF and holding a handful of good miners makes it very difficult to sell out and get to safety. Trade the miners if you like, but it's not easy and not fun to be holding stock in a good company as its share price continues to fall relentlessly.
Years ago when I was travelling in Europe, I met a young French guy who was travelling because it was hard to find a decent job in France and the pay was terrible. He had 10,000 Euro in savings and asked me what he should do with, and was wondering if gold was a good investment. I told him no, gold is terrible, it's much better to hold cash and then play UVXY when the opportunity presents itself. If he took my advice, he will have funded his travels indefinitely. If I had taken my own advice, I'd also be set for life financially. Unfortunately, not all good coaches are good players, but you can bet I'll be playing by my rules next year, and I won't be double faked or even triple faked out. Plus, I'm a rookie with 1 season of playoff experience. ;)
So, have yourself a wonderful Christmas and New Year and help 5 friends seize control of their financial future!
---Update to Friday, Jan. 14, 2022---
We started the year long SPY but still concerned of a potential market drop. Here's what happened.
Once it hit a hard ceiling of 4800, it was clear that caution was needed, particularly on Wednesday, Jan. 5 at 2pm ET when the FOMC minutes are released. Typically there are share moves at exactly 2pm and usually there is at least 1 fake, often 2 and sometimes 3. This time it was one fake that lasted 30 minutes, then the markets dropped sharply. And the news was exactly the same as on Dec. 15 that 'caused' the markets to rally sharply. Clearly the news doesn't 'cause' a reaction and it's generally completely unpredictable. You simply need to be watching and ready, knowing that the first move or 2 will be fakes. It's also important to remember that the next day might be a complete reversal like on Dec. 16.
As far as SPY is concerned, it's not a big deal but it's still worth the effort. The FOMC holds eight regularly scheduled meetings during the year. The next one is Wednesday Jan. 26, so be ready.
Note that Monday Jan. 10 was another sharp reversal from a low that touched the up trend line. If you had sold, then that's a target to re-buy and if it drops further, simply sell for a small loss but you already avoided a 4.2% drop.
Now let's look at the volatility during that period and the trades available in UVXY.
You could have bought early Wednesday, Jan.5, as it moved up from a low, regardless of the fact that it was FOMC day, but especially since it was. When it took off higher, buy more and hold it. The next day, be ready for an early reversal because that's what it often does (and did Wed. Dec. 15). That was an 'easy' 14.5% or better with minimal effort or time. You could have stayed with the trade on Jan.6, but no need since it required a lot more time and effort. Friday, Jan.7 provided a perfect early reversal after 30 minutes for a quick 5.5%, sell and stay out.
One could decide that the markets were likely to fall further, so you could buy some at the close on Friday, Jan.7, but it's really best not to, since you'll be tempted not to sell for a loss if it opens lower. If it does open higher, be ready to buy if it moves up further and simply take the gain while you're in control and able to sell if it reverses.
Lucky you if you did buy, but honestly, it's better not to rely on luck. Buying early and selling when it stalled still got you 6.7% following the simple rule of checking for an early move up. This chart also shows clearly how quickly the 'fear' can die down. It fell -19% by the close of next day. You MUST sell this ETF when it starts to fall. Never take a loss of more than 2%. Once volatility is back down, then you can comfortably buy again on an early move up on Jan.12 and 13. Nothing much happened on Jan.12 so best to have sold, take the small win and wait for the next setup. The next day it makes another early reversal, the markets a showing weakness and several of the 'weathermen' are predicting a drop, so you definitely take the trade again, and more aggressively since you've already had success. If it fell back to your early buy price, then sell for a small gain or break even. It closed up so let it ride. If it opens lower the next day, be ready to sell or buy more. If it opens higher, still be ready to sell or buy more. In this case, you sold, locked in 13.4%, put in a stop buy for some at 13.60 (+3.4%) or whatever you choose and took the rest of the day off. Or you could have traded the small moves for a bit more and most importantly sold out and maybe bought at the close, or not.
It's really that simple. Minimal time and effort, +33.4% on 3 trades. Sure, you didn't trade a large dollar amount, but most importantly you had live practice and proved to yourself that you can do it. Similarly, you also saw how to sell your SPY and re-buy it at a target price. Trading these 2 ETFs in tandem will set you up nicely a year from now when US500 is predicted to reach 6000 (+25% from 4800). And notice that it might provide a 25% in 1 year or more, while UVXY already did that in 3 trades since the year started 2 weeks ago.
I should also emphasize that you mustn't hold UVXY while it's falling and don't even hold it if it's flat and falling slightly. Just hold cash. Below is the volatility index, VIX. It will hold a bottom but UVXY is a leveraged ETF and while the VIX remains flat, UVXY will decay about 90% every year. Also note how small the VIX moves were that gave a 34% return with UVXY in 3 trades.
Come visit again in 2 weeks for another update.
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