In this post:
- What do GameStop, Chewy, and Carvana have in common?
- Why you shouldn’t do over-positioning unless your specific trading plan allows you to do?
- How to set up for a momentum?
So after the first and second week of November 2020, we got to see the first sample of how a market can very quickly change personalities. Not only did it grab my attention, but it was my first two consecutive weeks of very little profits. It’s a testament to the importance of never over positioning, unless your specific trading plan allows you to do so with either a tight stop or it’s a purely momentum play. But who are we kidding? Even though it’s extremely important to have a trading plan, that’s not really what I want to talk about.
I think what I’m most excited about in this market is actually the change of personalities that we are going to see in 2021. We have already seen a pretty sharp rotation into finance for the first week or two of 2021. There’s also a ton of high short interest names. GameStop, Chewy, and Carvana are really some major hitters on some great clean set ups for a momentum move higher. This is one of my favorite things about options and one of the main reasons why I’m a trader. With that said, yeah sure I would love to have a consistent bull market throughout the entire year just to make it easier on my long calls in all the names that we trade, but as you know that wouldn’t make much of a market. Frankly I’d like to see the volatility stay about the same as we’re outside now.
So when considering these very brief rotations in the Finance sector, and/or high short interest names, I tend to think that if we’re gonna have a new rotation every few months, then we should definitely keep our “Spidey senses” up and understand where that might flow to. We experienced something very interesting in the second half of last year: lumber went higher, homebuilding went higher, and then right after that was finished it was back to retail like LULU, NKE, RH, W, ETSY etc… by now you should know. Home Depot and other names like that have great moves every once in a while, especially within a squeeze. So, we can’t really focus on that, but that’s my point!!! There is so much to look at now, so let’s talk about the future and what I will focus on.
Now remember, we are in a period of time where we have Airbnb and Lemonade coming in to shatter the game, just like Zoom did in the beginning of 2020 and just like $GME, $PINS, and $PTON are now. So with that said, let’s go ahead and focus on buying major pullbacks, and that’s typically to the daily 21 in a lot of the names that I have mentioned. From above, those include the ones from the previous paragraph. A common theme has been waiting for a pullback to the 8 simple moving average or even the 21 but just not getting it, and then the question is what do you do. My answer is to wait for the next set up because this market is full of opportunity.
Remember that your biggest chance of surviving any markets is watching your position size. I will not be calling the top this year nor will I be chasing to short the selloff. I’m going to continue to buy because I am of strong belief that we have pump enough liquidity into this market for the next year or two, despite political changes and despite whatever outside occurrences may happen, and I even say that as we head into a new era of money – which is cryptocurrency. I believe that one of the biggest trades that one can make in the next two or three years is buying particular cryptocurrencies. I encourage you to do your own research, but I will tell you some of my personal favorites are $LINK, $XRP, $XLM, and $ETH. If you’re somehow unfamiliar with Crypto or how to start purchasing it, you can always start out at Coinbase.com. I just think now, if not any other time, is the time to start considering new alternative currencies.
So that’s my spill on generally what I’ll be focusing on, but let’s talk about Tesla for a second. We’ve seen some massive moves and I’m just gonna go ahead and say, I don’t think it’s over. I think the fact that Tesla is so vertically integrated not only across all the companies but the data being prepped to sell to either Google, Apple, or Amazon which – could totally happen, brings not only the S&P 500 higher but the general sentiment and buying of the market would hence not really disappear. I love being a contrarian whenever it matters and whenever there’s money to be made, but I cannot in good faith jump on the short side just yet. Anyone that’s been trying to call the top has felt the pain. I think we might also transition from other retail traders that have grown in massive numbers for the past two years to start learning the lesson and just buy the thing which would put more pressure on any hedge fund short out there which would repeat the same thing we saw in 2020 – major pullbacks followed by major buys. I’m going to be there ready to pounce, I hope you are too.
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