Today, according to me, markets continue going down. Which is a bit surprising because both QQQ and SPY are actually going up.
I looked at SPY and QQQ for the first time in years, just now. I usually don't look at indexes anymore, and I don't play them. Rumor has it that the magnificent 7 drive the entire market. So what's the point of looking at the index for me, exactly?
There is another matter as well. Suppose I start looking at indexes on the daily basis, like I look at my positions on a daily basis. Will that help me to trade or no? Will I make better decisions, if I look at indexes?
Well, if my positions are in eg TSLA and META and the market is "going up" but my two stocks are going down, then to me it doesn't matter what the rest of the market is doing. I'm used to thinking that the whole market is locked into step: a rising tide lifts all boats, and when the market goes up, everything goes up, and when the market goes down, everything goes down. There are some exceptions, but I'll skip them and speak in generalities instead. And so if my underlyings are going down while the market is "going up", how do I become a better trader at this step?
Here is one example. It could be that I believe the overall market more than my underlyings. In which case I'd anticipate my underlyings to be going up later in the day - because the market is going up, and I believe everything is locked into tandem. But this only works if the reversal happens - but will it happen? There is also a problem with this thinking, in that I am doing the opposite of what the data says. I'm expecting a reversal, ie the opposite of whats happening currently. Not strictly wrong, but special care must be taken when acting "against" reality in such a manner. More on this later.
Another example. I can dismiss what the index is doing. This is currently my preference, although it may change later. And, I play short-term derivatives on individual stocks. Indexes do not directly make or lose me money, whereas each underlying, directly, will make or lose money for me. So, we say no to indexes, yes to a list of like 5 stock prices. I don't look at charts right now either, I only look at the current price. So tracking 5 assets instead of a single index isn't too much info.
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The reason my stocks are going down today is the stuff Trump said yesterday and today. It's a particular market mechanic being used a lot these days. He attacks Iran or escalates something in the Strait of Hormuz. The markets tank. Then a week or two later, he says the war is over, there are no more hostilities at all, and that everyone is besties forever now - the market skyrockets.
Noone (without insider knowledge) knows then the down-ward or up-ward action will happen, exactly. So right now we're in the middle of the down-ward action, that's why the stocks are tanking. Since nothing fundamentally changed, we expect this to be short-term, to be reversed possibly next week. This means we're bullish, we've closed our shorts, we carry only longs right now (the longs are currently losing). This is contrarian: we're expecting a reversal.
Another very important thing is the way of the week. Military action takes place on weekends: see recent invasions of Venezuela and Iran for examples. So the market is likely to tank on a Monday, if military action took place on a Sunday.
Also, remember that war is good for business, good for stocks? I remember in recent years, when a military conflict would start, stocks would all go up. This is no longer the case: increased hostilities in the Strait of Hormuz make stocks go down. This means that, even if our policy was to treat military action as bullish in 2024, 2025, we tend to treat military action as bearish in 2026.
tl;dr markets are down today due to geopolitics, but we expect it to reverse next week and shoot sharply up (short-term).