Stock Market Update

I got a lot of great feedback on the format of my weekly update last week; thank you to everyone who replied! It is very clear my Real Money demonstration is going to be a hit, so I am busy putting this together for you… It will take me a little while as I have to do a few things:

• Open some new accounts
• Move money around
• Decide on the overall strategy for each account
• Perform capital allocation
• Hook the accounts up to the Smart Stock Automation Engine
• Create the reporting mechanism to share the results

This is going to be a fun project!

Let’s look at what the markets have been doing this past week…

US Stocks

The US markets ended the week with a bit of a burst of strength on Friday with 79% of S&P500 stocks up for the day, but that was just one day and 60% of stocks in the index still ended the week in the red.

The big change from last week, however, was in the Energy Sector which was down 5.2% after being the strongest sector last week. I really don’t like to be highly concentrated in a single sector for exactly this reason – conditions can change quickly and a portfolio diversified across a range of sectors is much more stable than a concentrated one.

The chart I want to highlight this week shows the difference in performance between the large and small ends of town. There is continued divergence between the largest stocks as shown by the uptrend in the capitalisation weighted S&P500 since October 2022, while in the same period the Russell 2000 Equally Weighted index has been grinding slowly lower (see chart below).

The S&P 500 has pulled back to the 200 day EMA, so if it declines further then we might be on for that downside move that we discussed last week, but Friday’s strength may be indicating that support will hold and the intermediate uptrend continues. We should be ready for either eventuality (as always) and I am probably a bit of a perma-bear so I am thinking the downside move is more likely… but I would never bet on that. I just know that if there is a downside move the Slippery Dip (my US Short System) will turn on, and if the rally continues then all the long systems will work.

Don’t fool yourself that you can predict the future… it is far more useful to look at the charts, imagine the possible scenarios and then check you have systems in your portfolio that will benefit from those scenarios.

The Australian / Canadian / Hong Kong markets continue to underperform the US market and all experienced more weakness this week. Of course we may see a rally on Monday in Australia and the Asian markets following the lead of the US markets on Friday, but it will likely be nothing more than market noise in the context of the sideways trend we have had for 2 years now!

Trend following is simple… but it is hard emotionally because of periods like you can see on the charts below. This sort of sideways market action is difficult for trend followers as you get chopped up and it feels like the drawdown goes on forever. The feeling is like “death by 1000 cuts”… but know that sideways markets don’t go on forever – eventually it will break out and trend following in stocks will start working strongly again in these markets (ASX / TSX / HK)… in the meantime our job is to keep following the systems, keep risk small and monitor for evidence of system breakage.

I was emailed a good suggestion for the global stock market indices by region so we can easily see how each region is performing. I have taken this suggestion on board below. I have grouped the global stock indices by geographic region and then sorted them from largest to smallest within those regions.

Asia was the strongest region on average outside of the Nasdaq with several of the markets making gains. Out of these markets, I am only trading Hong Kong at the moment…and since I am short in Hong Kong right now this was not very helpful to me 🤣😂🤣😂

I would love to hear if you trade any of the other Asian markets. I have developed systems that work for India, Malaysia, China and several others but I am not trading them right now – comment and let me know if you are. In particular, I am interested in Japan as I have spent a fair bit of time this year looking at potential Japanese stock trading systems (without a huge degree of success so far I might add).

Looking at the currencies (including crypto), Bitcoin was the standout performer in the last week as ETH actually dropped. In Fiat the US dollar index took a breather in the last few days, but the strong uptrend is still well and truly in place there.

I wanted to show you a quick reminder of what has happened in the last two Crypto Bull markets… just in case you have forgotten because of the recent market conditions. The chart below is the S&P Cryptocurrency index ($SPCBXM) which excludes the mega-cap tokens. As you can see the bull markets are epic, so are the declines afterwards and there can be several years of sideways action in between.

This is why I always say that PATIENCE is the number 1 personality trait of successful traders!

If you quit because you are bored or you are in drawdown then you miss the prize. If you are going to work on anything, work on building patience because that will help you stay in the game so you can win long-term.

Trading Tip of the Week

Know what game you are in. Most traders are in the game of long-term wealth building… but the problem is most traders think they are in the game of earning an income from the markets.

These are two totally different things, and if you think you are in an income generation game but you are actually in the wealth-building game you are in for a very frustrating time. This is because in wealth building you don’t make money every week or month and sometimes you can be in drawdown for a long time… but if you are thinking you are supposed to be earning an income from the market then you will FEEL LIKE A FAILURE because you are not earning a regular income.

Contrast this with the trader who knows they are in the wealth building game and realises that this game comes with periods of drawdown and losses.

This trader doesn’t feel like a failure when they have a drawdown or they are not making new equity highs because they are judging their performance against the correct yardstick.

Now I can hear you saying, “but Adrian, can’t I trade for a living and make my income from the markets?”

Yes, you can, but you need to think about it differently. When I am thinking about trading for a living I separate out the “making profits from the market” from the “drawing an income from my trading account”.

Making profits from the market is lumpy – you don’t get profits every day or week or month… but over time you can grow your account.

Drawing income from your trading account is easy – I use a margin account and just withdraw the money I need. It does not have to be this week’s profits. In fact I don’t care if my account is up or down this week because I need the money so I just withdraw it and because it is a margin account I can keep all of my positions the same. I don’t bother to scale down my positions because I am only withdrawing a small amount relative to my account, but the next time I open a new trade, the position size is a little smaller because I took some money out of the account (and all position size calculations are linked to my account balance).

The trick is to make sure you only take out a small amount of money as ‘income’ relative to the size of your account. If you are trying to take $5,000 per month income from a $30,000 account you are doomed to failure. You probably need a lot larger account than that. If you try to draw too much ‘income’ from your account you will kill the account and ruin the compounding.

This means you probably need a lot more money to trade for a living than you were thinking, but it also means you don’t have to stress too much about earning super smooth returns every week to generate your ‘income’, because that is not the way I think about it at all.

One thing I do know is if you want to ultimately rely on your trading to support you, you need a diversified portfolio of trading systems that you have thoroughly backtested and built confidence in… and that is exactly what The Trader Success System gives you… what it doesn’t give you is TIME… the longer you wait, the further off your trading goals are, so if this is what you want then it is time to take the step and join The Trader Success System!

Member of the Week

My member of the week is Achim… Achim has started writing articles for Enlightened Stock Trading, contributing hugely to our community.

Articles he has written include:

• Unlocking the power of monthly stock market seasonality trends
• The monthly calendar effect: profit from bitcoin’s september weakness
• How to use the on-balance volume indicator to outperform the market

I also interviewed Achim a few weeks back and produced a number of insightful videos from that interview.

I have created a dedicated Author page for everyone who writes for EST… you can see Achim’s author page here.

If you are interested in trading research and writing like Achim, please let me know and we will see if you are a good candidate to join the EST team!

News from EST

Not a lot new this week as I was in Sydney visiting my mother, taking my son to an essay writing course and touring some of the universities with my kids.

This coming week will be more focused for me as the kids are back at school and I will be home all week 😉

I am out of time today and there was one trading system that I wanted to talk to you about but I will save it for next week’s update.

If you are interested in learning about one of my favourite systems with a backtest equity curve that looks like this, please comment below with the word “System” to let me know you want to hear all about it…

On the Home Front

Spring in the southern hemisphere is here (finally) and I am starting to defrost. I know the North Americans will think I am soft, but I really hate the cold. I like it when the temperature is 27-30 Celcius (80-86F)… this is probably why my ‘uniform’ is a black t-shirt because I am trying to warm up constantly 😜

The garden is growing like crazy, I now have pumpkins, cherry tomatoes and all sorts of greens coming online and every morning when I go out to check the garden the plants have grown bigger than the day before!

I still haven’t done anything about the cannibal fish… I think they prefer to eat each other than their fish food. Maybe I need to buy a different brand of food?!?!

That is all for today, it is Sunday and time to take the dog for a run on the beach followed by a wash (he stinks!!!)

Have an amazing weekend all!

Trade Safe,

Adrian

Founder & Master Coach | Enlightened Stock Trading