The Stock Market Rarely Makes Sense | Podcast Episode #92

0:07
Hey, I’m Ryan Mallory, and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever-changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market, and I’m ready to show you how. Hey everybody, this is Ryan Mallory with Swing Trading the Stock Market, and today I want to talk about why the stock market rarely makes sense. Now, when I was coming up with this title for this podcast, I actually pondered calling it why the market never makes sense. But that’s not true. The market does make sense sometimes. Right now, it’s not making any sense. Oftentimes, it really doesn’t make much sense either. Stocks oftentimes do not make any sense in what you see them doing. Yes, you get big news events, they go straight down. But have you ever seen an earnings event where the, where the stock crushes it and then all of a sudden it goes straight down, even though it beat expectations like in a major way across the board, but yet people sell it.

1:05
So I mean, rarely does the market make sense. Rarely do does trading make sense. That’s why a lot of times there’s no need to really follow the news because you just have to follow the charts. The charts make more sense than the news or what you think a stock market should be doing because The chart represents the reality.

1:22
So when did it make sense? Well, it made sense when we dropped 36% right out of the gate during the coronavirus, right? I mean, it made perfect sense. You’re shutting down an entire global economy. It makes sense for us to completely tank. You’re not making earnings. What, what’s what’s the stock market gonna be good for?

1:37
If you don’t have companies and you have people losing their jobs to the tune of 30 million people in the United States and so many more worldwide, yeah, the stock market’s going to tank. The economy is going to be awful and it reflects that, that situation, the economy. Now, the market doesn’t equal the economy. The market has gyrations.

1:54
I mean, go back to like what was it, May 2010 when we had the fat finger flash crash. I can barely say that without stuttering. But anyways, the fat finger flash crash caused the market to like instantly go down like 10% intraday. Huge sell-off.

2:09
Does that equal the economy? No. But in the, in the bigger grand scheme of things, it’s a reflection of the economy. So now we have this huge, huge rally off of the lows, and that it makes zero sense to me why people would want to be putting their faith in the stock market right now. I mean, places aren’t really opened up.

2:26
I mean, I went out last night for the first time when the restrictions here in Florida were lifted, and they have like 25% capacity restraints on them right now. So a business can’t fill up more than 25% of their restaurants. You couldn’t even get 25% in there.

2:42
The places were empty. People weren’t going out. The the government at all levels have scared people half to death of this virus. Nobody’s going out. We’ve shut down an economy just thinking that it’s a light switch that you can shut down and turn it right back up, and all that, all that revenue that you missed out on, it’s just gonna come right back up.

2:59
You’re gonna get all that back again. And that’s not happening, guys. You’re not just gonna get all that revenue right back into the economy. You’re just not. Instead, what you’re gonna see is you’re going to see consumer behaviors different. People are going to be less likely to spend because they’re going to see how close they came to almost going bankrupt or running out of money, so they’re going to start seeing the need to put some more money away for rainy days.

3:18
Not everybody. You’re still going to have idiots out there that spend every dime that they can get their hands on. But you’re also going to have businesses do the same thing too. They’re going to say, hey, look, we need to figure out how to do less with more with our staff. We don’t need to hire as many people as before. In fact, I was talking to, to uh a restaurant owner that that I know, and he was saying that, hey, we typically sell our, our meals for $40 to $50.

3:39
A plate. We’re scaling back. We’re combining our lunch menu with our dinner menu. We’re going to make it more affordable because we don’t think we can bring that kind of money in after all this. People will not want to pay $40 to $50 for a plate anymore, and I mean, you can go to a lot of places and there will still be people that are willing to do it, but he, he’s not just saying like, everybody’s not going to be willing to, but there’s gonna be a huge part of the population that’s not going to spend like they were spending before.

4:02
There’s gonna be a huge chunk of businesses that are not going to hire back everybody they just laid off. And then you’re going to have the people who are making more money on unemployment because of all the stimulus checks and everything else that they’re like, I don’t know if I’m really ready to go back. So there will be a lot of people though that will refuse to go back as long as they can keep getting the free money from the government.

4:21
So the market doesn’t make sense in that regard. It is a reflection of the economy because why? Because the Fed is just pumping trillions and trillions of dollars into the economy, guaranteeing everything, making it a risk-free environment to the best of their ability, and it’s working.

4:36
Guys, the, the S&P 500. On March 23rd was at 2191. I can get why it was at 2191. That makes sense. The economy sucks. It sucks then and it sucks now, and it hasn’t gotten any better. But the Fed put all this money into the market.

4:52
So what do you expect? They’re just gonna pump it right up as high as they can. What what’s bad is that, that’s where you get bubbles. So you got all these people jumping into the market for the first time. They literally think this stuff is easy. You would be shocked to see the emails that I get from people talking about how easy the stock market is.

5:08
And it’s not, it’s never going to be easy. When you start to think the market’s too easy, that’s when you get the rug pulled out from underneath you. We’re talking about the restaurant earlier that I was talking to the owner. I, I go there to eat all the time and I, I went down there and one of the bartenders who was, uh, making drinks and everything, I, I was telling him, I said, look, man, and this was literally back in like mid-February. I had just closed out like SPCE for, for like a 76% gain. It was amazing. And it was like in days that I made that. I told him, I said, this market is getting too easy. And I don’t like it when it gets easy. He’s like, what are you talking about? I was like, I know something bad is about to happen every time the market gets easy. Anytime it gets easy, everything falls apart.

5:44
And that’s what we’re in right now. We’re in easy mode. And where, where it’s difficult is for traders like me who, who knows that it can’t be this easy and you, you try to be good managers of risk because you know what the potential downside is, and the market is going to burn people who manage risk. It doesn’t like those kinds of people, not when you have trillions of dollars going into the market, but eventually that runs out too, guys, because then you start creating a bubble, and those bubbles do burst. We saw it in 2000 and oh my gosh, it was a disaster. NASDAQ lost like 87% off of its all-time highs.

6:19
It took 14+ years to get back to those highs. We have been in a market that puts the shame, the dot-com bubble in terms of its depth, its length, how much has rallied, and at some point this bubble’s gonna bust too. I mean, I kind of thought we were busting it and then, you know, the market just, you know, went bonkers because of, you know, the free money, but it’s a disgrace. It really is a disgrace what the Fed has done. And I’m not even getting political here. Notice I’m not talking about Congress. I’m not talking about the president. I’m talking about an unchecked entity.

6:40
If you look at his press conferences, it is the biggest sham I have ever seen. You get the press, they will question politicians left and right. They will dig into the person’s past, talk to people he roomed with in college. Where is that same kind of ferventency behind the Federal Reserve? We treat these people like freaking gods. It is nuts. There’s no auditing. Nobody holds these people accountable.

7:13
If you want a good job, be a chairman for the Federal Reserve. All right, guys, I’m gonna get off my soapbox there because it really pisses the heck out of me. I get so mad about it, and it’s not because the market’s doing something that that I don’t want it to do or anything else. I hate the Fed 24/7 all the time.

7:32
It’s no different than a Ponzi scheme. What is a Ponzi scheme? Let’s go to Investopedia.com and just look at it right there by Googling it. It says here, a Ponzai scheme is a fraudulent investing scam promising high rates of return with little risk to investors. The Ponzai scheme generates returns for early investors by acquiring new investors.

7:49
This is similar to a pyramid scheme in that both are based on using new investors’ funds to pay the earlier backers. What are we doing? We’re taking the money from later generations. And we’re just putting it into the stock market. We’re printing more money. We’re just keeping printing it, adding more debt, boost those stock market returns.

8:07
It’s a Ponzi scheme, people. Let the market have a recession, man, there is such a good cleansing to an economy when you have a recession. It doesn’t mean I like them, but they’re necessary. You gotta have a recession. And we’re trying to avoid it. If you look at what they’re saying, they don’t even realize they’re saying it, but what they’re saying is like, we need to provide stability to the economy.

8:26
No, what you’re saying is, is that you don’t believe the market should ever sell off. You don’t believe that the market should ever go down. And that’s bad. That is so bad. OK, I’m for real now. I’m going to get off the soapbox. OK, so anyways, the market does not equal the economy, but the market is a reflection of what’s happening in the economy.

8:45
But in terms of the market not making sense most of the time, that’s true. Even with the Fed intervention, we shouldn’t be up this high. I mean, it, it’s crazy that we’re up this high, but the market doesn’t care. It can stay irrational longer than you can stay solvent. It always will be. I don’t believe in this market rally at all.

9:01
I’ve seen enough of these dead balances, yes, this one’s going beyond anything I’ve ever imagined or seen before. It’s crazy. Retail investors, they just keep piling in, man, pushing this stuff up. There’s low volume. There’s nothing pushing this market up. It’s not, it’s not big money piling into this market right now.

9:16
If it was, you’d have bigger more volume flowing in. This is just retailer traders that are just piling in because they think stock trading is easy. This is your Robin Hood traders that are saying, hey, I’m gonna go buy USO because somehow I think that’s linked to the price of oil. It’s not. And I have a huge distrust. I always have a distrust in the stock market.

9:34
I’d never have a good comfort level with the market. I get nervous when it gets too easy because the market is rarely easy, and when it is, it’s usually right before something bad is about to happen. A easy stock market is euphoria in the stock market. It’s when so many people are just blindly buying that keeps the asset prices going higher and higher that there’s no need to worry.

9:54
Euphoria eventually gets destroyed by the stock market. That’s what we saw in February. Let’s take a look at the stock Wayfair, symbols W. Have you seen what the stock has done. It reported earnings today, and it’s up like 24%. That’s not even the biggest move. This thing literally was trading just 32 trading sessions ago was trading at $22 a share.

10:17
It’s now trading as high as 180+ dollars. Guys, that’s like a 700% move, a 700% move. And this, this company, I mean, they’re not even making a profit right now. It’s trading at all-time highs, blowing past all-time highs in the middle of a pandemic, in the middle of a recession.

10:36
Amazon’s doing the same thing too. But again, the market rarely makes sense and it doesn’t care what your beliefs are. The reason why I do think that we will go back down sooner rather than later is because The charts have always shown it to go down these dead cat bounces. They go above 50% to 61% in terms of recovering the losses, and then they, they crash.

10:56
There’s a 50% to 61% retracement. Sometimes if the dead cat balance isn’t that strong, it’s like a 38.2% retracement, and that’s using Fibonacci’s. 2018, we saw a 61.8% retracement. We’ve hit the 61% retracement and been unable to break through it. Now you take the Nasdaq, Nasdaq’s like God, just give me new all-time highs. I could care less.

11:14
But um, the S&P 500, which I use as my measuring stick, that one’s, that one’s holding pretty firm. I mean, what’s what’s crazy is that who in the world is buying Wayfair at $180 right now? Why would you want to buy Wayfair at $180?

11:30
That is like peak stupidity. But you get enough stupid people into a stock. Guess what? It’s gonna keep going up. It’s going to create a bubble, and those bubbles eventually do burst. I’m not a permit bear, guys. That was long up until this coronavirus started and it knocked me out of pretty much all my long positions within the 1st 3 days of the selling.

11:49
I had some short positions to offset that. Right now I have a couple of long positions and I have a few short positions. So I’m not a permit bear by any means, but at some, some point, the reality of this economy and everything, it, it will start to seep back in when they start seeing the, the cases spike again or when they see the unemployment.

12:07
Shoot even higher than they expected when less people are getting hired back than what they expected. It’s, it’s going to stall out the, the economy and eventually that will be reflected in the stock market. What can you do in the meantime? Well, you gotta, you gotta continue to be managers of risk. I say it in every podcast, I’ll continue to say it in every podcast because I wholeheartedly believe trading success is found in managing risk.

12:26
Because when the market doesn’t make sense, according to you, you have those stop losses to protect you. If I was going into earnings, and I traded earnings, which I don’t, but if I did, I would have said, Hey, you know what, I’m gonna go short into Wayfarer’s earnings because stocks were on up like 600%.

12:43
No way that thing could keep going higher, no way, and I would be dead wrong. The stock went up another 23% today. So when the market’s not making sense, when stocks are not making sense, when they don’t do what you expect them to do, you have those stop losses in place to protect you when the market doesn’t make sense.

12:59
That’s gonna do it for today. If you have any questions, feel free to email me, ryan@shareplanner.com. I’m I’m uh trying to take as many of your emails as possible. I’ve been getting a ton lately, so it’s taking me a little bit longer to get back to people, but I do try to get back to everyone. I’m sorry if I’ve missed any of your emails in the past.

13:15
Keep writing and, uh, and, uh, I will, I will get you a response. All right guys, take care, God bless. Thanks for listening to my podcast, Swing Trading the stock market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world.

13:32
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13:54
If you have any questions, please feel free to email me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.