Good morning, traders…
Jeff here.
We need to address the elephant in the room…
The thing that every stock trader, from novice to master, is currently grappling with…
The volatility and unpredictability of the current market.
To say we’re witnessing an extremely tough trading environment right now is a massive understatement.
This is one of the most difficult tapes I’ve encountered throughout 27 years of professional trading…
And right now, the bearish warning signs are hard to ignore.
Inflation is sticky, the Buffett Indicator is reading 211% (indicating that stocks are 66% overvalued), and the Mag 7 now makes up 34% of the S&P 500, creating a fragile “house of cards” in the major indexes.
Additionally, earnings guidance has been weak so far this season — and the reactions have been negative. Look no further than Walmart Inc.’s (NYSE: WMT) post-earnings returns for evidence of this.
Meanwhile, the highs and lows have been more exaggerated than usual, leaving many traders scratching their heads in confusion or rubbing their temples in frustration.
This might be the bubble pop that I’ve been warning you about, so let’s make sure we’re ready.
I’ve survived many markets like this in the past. Let me show you four ways to do it…
Tip #1: Always Keep Cash on Hand
Remember the age-old saying, “Cash is king?” Well, it’s more true now than it has been in years.
In this market, you should always have a liquid cash cushion.
Doing so can give you three big advantages:
- Guaranteeing that you have enough cash to jump on potential trading opportunities when they arise…
- Offering a liquid ‘safety net’ when trades don’t go according to plan…
- Knowing you have a financial cushion can make it easier to maintain a level-headed approach, making decisions based on strategy rather than fear or greed.
In other words, holding cash in volatile markets provides flexibility, security, and peace of mind.
The problem with having no cash is opportunity cost.
If all of your cash is tied up in open positions at a time when the market is experiencing crazy volatility, you’re likely to miss the truly slam-dunk trades when they come across your screen.
Don’t put all your eggs into the market right now. Dry powder is crucial.
This is a time when, once again, cash is king.
Tip #2: React to the Present (Don’t Try to Predict the Future)
While predicting long-term market moves can be tempting, these unpredictable times call for a shift in your approach.
Instead of always trying to be two steps ahead, it’s more practical (and safer) to react to what’s happening right in front of you.
Think of it like driving on a winding mountain road with zero visibility … you can’t anticipate every curve or turn.
In such situations, you’ve gotta focus on the immediate path ahead, that crucial five feet in front of you.
Smaller position sizes and shorter holding times…
This allows for better reaction times and sets you up to make decisions that align with the current moment.
Tip #3: Prioritize Macro Headwinds Over Earnings Season
Interestingly, earnings, which often dominate trading decisions, have taken a backseat to macro headwinds recently.
These broader economic forces — coupled with political uncertainty — are proving to have a bigger effect on market direction than individual company earnings reports.
Considering this, you should keep a close eye on global economic news, geopolitical tensions, and other macro factors right now.
A single news story can shake the market to its core right now.
You should track the potential impacts of these catalysts and adjust your strategy accordingly.
However, don’t get too deep in the weeds, trying to trade based on things you don’t understand…
Tip #4: Stay in Your Lane
Ultimately, if you wanna win in the stock market, you’ve gotta recognize (and play to) your strengths.
If you’ve been trained and have experience in stock and options trading, stick to that.
This isn’t the time to dabble in unfamiliar territories. For instance, many stock traders (myself included), make poor bond traders (and vice versa).
Each trading arena has its nuances, requiring a different mindset and set of skills. Don’t worry about the corners of the market that you don’t understand.
Stick to what you know best and you’ll be a better trader for it.
It’s no secret that navigating the current market is challenging.
But remember, every market condition, whether bullish or bearish, presents its own set of opportunities.
The key is to be adaptable, observant, and most importantly, patient.
Stay disciplined,
Jeff Zananiri
P.S. Nvidia’s earnings report TODAY is a crucially important test for the market…
*Past performance does not indicate future results
