When Markets Go On Sale…

I’ve been watching the news and listening to podcasts as usual over the past week, and many people seem to be having a hard time keeping their emotions in check as they watch their portfolio’s value decrease substantially.

When the markets sell off like they have, removing emotion from your investing is absolutely vital to your mental well-being.

Each investor needs to find their own way of balancing their own mind, but, for me, rather than looking at down days as negative and up days as positive, on up days, I think “Which of my positions have I not taken profits in lately?”

On down days, I think, “Is anything approaching a price point where I’d like to buy it?”

Basically, when the market goes down, it’s like Amazon’s Prime Day with a great sale on some of your favorite products.

When the market goes up, that rich neighbor just offered you more money for that lawn ornament you love (or something you own that you actually care about). Sure, you love it, but you could buy another one when they go back on sale.

Remove emotion from investing. Up days are not good. Down days are not bad.

They just are what they are.

And with that, let’s return to our regularly scheduled programming…

Summing Up The Week

With no Fed meetings on the horizon and earnings season wrapping up, the markets are driven by Trade Wars and geopolitical news, and, as you already know if you’ve watched the markets this week, the news is not good.

This week, it’s all about China and the actions the country’s taking to retaliate against the tariffs Trump has announced he intends to apply in the ongoing trade war.

Let’s take a look at what moved the markets…

Market News

China Strikes Back – Devalues Yuan 

China struck back against Trump’s promise to increase tariffs on September 1 as the Chinese Central Bank devalued the national currency – the yuan – against the U.S. dollar, reported CNBC on Monday.

By devaluing its currency, China makes the cost of their exports cheaper in order to help mitigate the cost of the tariffs to its trading partners. In addition, the Chinese government instructed state-owned firms to cease all agricultural purchases from the United States.

While retaliation from China to Trump’s threats was expected as part of the ongoing trade war, the markets sold off with a ferocity not seen since Q4 of last year as the uncertainty shows no end in sight.

China Changes Its Mind… Wait… What??

Almost as if it was only firing a warning shot across America’s bow, China stabilized its currency after the market closed on Monday, reported CNBC.

Following the U.S. Treasury Department officially identifying China as a currency manipulator on Monday – the first time the country has officially identified China for using the practice – China stabilized its currency overnight.

Market futures went from predicting a potential 350-400 additional drop in the Dow to going positive before Tuesday’s open. The euphoria was short-lived, however, as the feeling of impending doom from Trade War escalation pushed the markets lower again.

This kind of rollercoaster volatility creates an excellent environment for traders, however, for long-term investors, the whipsaw action can cause nausea and heartburn.

What’s a long-term investor to do?

Avoid checking the market too often.

If seeing huge changes in your portfolio value causes an emotional response that may result in you wanting to take action against your trading plan and make mistakes by buying during rallies due to FOMO or selling during crashes to avoid losing money, the best course of action is to do nothing at all.

If you can’t sit on your hands, just don’t look. Close the browser or put down your phone and do something else instead.

If you can stomach the price action, professional advisers recommend a counter-intuitive contrarian approach – buy when everyone is panicking and sell when everyone is greedy, a technique also known as “buying when there is blood in the streets.” Of course, there’s always the possibility that the markets will drop even lower after you buy…

Next Week’s Gameplan

We’re out of the frying pan and into the fire now. With no positive catalysts in sight except for a fleeting hope that the Fed may actually cut rates once again, we’ve got nothing but negative thanks to the China Trade War combined with any of a myriad of bad news events on the horizon staring us down.

We’re in Buying Season once again, almost perfectly coinciding with when Buying Season kicked off in the fourth quarter of 2018. If you have significant profits and truly need the money, try to wait for a bounce to sell, otherwise, batten down the hatches because the market promises to be bumpy ride for the foreseeable future.

As for me, it’s time to look for lower levels to add to my favorite positions, but I’m taking care to leave dry powder – we have no idea how far down the market’s ready to take us.

This Week in Play

Stay tuned for this week’s episodes of Investments in Play and Trades in Play coming online later this weekend! 

Crytpo Corner

Bitcoin Price Action

“It wasn’t supposed to do that.”

Professionals have always been confounded by Bitcoin’s price action as the crypto sector continues its bounce from last week with barely any pullback at all. As I said last week, ever since I started trading the crypto sector, I’ve learned that – as cliche as it is – you absolutely must expect the unexpected.

Bitcoin has continued higher even though all the “professionals” thought we’d see a pullback to $7000-8000 or even lower. Bitcoin and the other crypto coins simply do not adhere to traditional Technical Analysis (TA), and this fact has to be taken into account when planning trades.

Now, just because we haven’t doesn’t mean we won’t, but the way Bitcoin moves requires a more patient and loose approach.

For traders who absolutely must buy at the “lowest low” and sell at the “highest high,” the crypto sector is a great way to lose a lot of money, as its sudden movements in either direction will rip their faces off.

Bitcoin Gameplan

Bitcoin never made it above $12,400, topping out at $12,320.40 when I was targeting $12,500 for my final sale last week, so I ended up getting stopped out when BTC pulled back below $12,000. Currently, I’m not in a trade as everyone’s waiting to see if Bitcoin will push its 2019 high of $13,868.44 or collapse to test its monthly low of $9,071.00 (its low of the last week is the lower hashed line in black at $10,321.42).

When it comes to Bitcoin, I prefer to make my entry points on oversold conditions based on the Relative Strength Indicator (RSI) in the 4-Hour or longer time-frames. However, lately Bitcoin has been showing pretty impressive strength, only rarely entering oversold conditions on the 4H timeframe, so there’s a lot of doing nothing while I wait for the trade to set up. Sitting on your hands and waiting for the trade to develop is definitely the name of the crypto game more than in any other asset class.

Warren Buffett has a useful quote to describe trading and investing, “There are no called strikes like there are in baseball, so there’s no harm in letting the pitch fly by.” In other words, if the market doesn’t give you the setup you want, let it go and wait for the next wave.

Yes, I am the Binging with Babish of mixed metaphors, combining ingredients to make a metaphorical concoction unlike those ever seen in investing websites.

For the moment, I’m not doing anything in Bitcoin until we see a sell-off. While Bitcoin’s current strength has been interesting to watch, I’m betting we haven’t seen the end of stomach-flipping drops. 

DISCLAIMER: Anyone considering speculating in the crypto sector should only do so with funds they are prepared to lose completely. All interested individuals should consult a professional financial adviser to see if speculation is right for them. No Get Irked contributor is a financial professional of any kind.