Rebel Traders 080 : The Year Ahead

Recharged and 080: behind us, it’s time to look ahead into 2019 and see what’s on the horizon...

Well, it’s the start of a brand New Year and there are a myriad of opportunities ahead for your portfolio.

Even though for the last week I have had my feet up in front of the fire with a fine single malt in one hand and a nice cigar in the other, I have been keeping an eye on the markets and there’s a LOT going on.

With the markets tickling the edge of Bear territory, deceased cats made of rubber bouncing everywhere and tentative start to 2019, there’s a lot to talk about in this week’s Podcast.

So, back in the saddle and once more into the breach, Phil and I are pulling apart what is going on and what to look out for this coming year.

We’ll be discussing the Fed, China, Bear Markets, Bull Optimism, Unicorns, Pot and everything in between.

Time Stamped Show Notes

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Sean Donahoe: Recharged and revelry behind us, it's time to look ahead to 2019 and see what's on the horizon. Let's do it.
Automated: Rebel Traders takes you inside the world of two underground master traders, who take an entertaining and contrarian look at the markets to cut through the noise of Wall Street and help you navigate the trading minefield. Together, Sean Donahoe and Phil Newton are on a mission to give you the unfair advantage of a Rebel Trader. Now, here are your hosts, Sean Donahoe and Mr. Phil Newton.
Sean Donahoe: Hey, hey, hey, and happy new year. Hope everyone is rocking and rolling, and not so hung over. It's been an absolutely joyous time here at Trade Canyon HQ with our feet up. I am joined as always, and I think slightly more sober than he was in the last few days, Mr. Phil Newton. How are you doing, sir?
Phil Newton: Doing very well. Me and Jack have been enjoying an absolute Christmas party to remember. Or maybe not remember, depending on your perspective.
Sean Donahoe: There you go. I actually had a relatively dry holiday season myself, but I did enjoy a few nips of some very fine scotch here and there where needed.
Phil Newton: I'm a teetotaller for most of the rest of the year, so I make up for it once or twice during the year.
Sean Donahoe: That can't be helped, and that's the cool thing. So yes, after a peaceful week off with our feet up, whiskey in hand, and a fine cigar or two, we have still been keeping an eye on the markets during this lull in market volume. However, some interesting things have been going on, and it's setting up to be an interesting time ahead for the start of the year. We're going to see what's on the horizon, and what's going on for the year, and how we've barely missed bearish territory for now, I'll put that in quotes, and leaped back a little bit. I know there are theories involved in this, but we're going to have a look at what is going in, what's coming up over the next 12 months that we think really should be ... They will be either key moves or things to keep an eye on, and we'll take it from there.
Phil Newton: Of course, we've got the usual. When does it stop being the new section, Sean? That's what I keep wanting to know.
Sean Donahoe: It doesn't. It's not new anymore. It's now the old favorite.
Phil Newton: It's the old favorite, is it now? Turn of the new year, let's start calling it the old favorite. We've got our old favorite section of trade, fade, or evade. Basically, it's a little slice of looking over our shoulder where we look at the production line process of that we should trade, fade, or evade, bull, bearish, or neutral. That's what we'll do. We'll take a little look at the charts, and see what we can find to trade.
Sean Donahoe: Okay. Let's rock on and jump right into what the hell is going on and has been going on. Obviously, we've had a very broken couple of weeks due to, again, the holiday season, short weeks, and people having time off, and everything else. Always a lag in volume.
Phil Newton: Those pesky holidays getting in the way of trading again.
Sean Donahoe: I know. These bloody things. These bloody holidays stopping the money flowing, but we have had what both Phil and I would call, and I think we have to define it ourselves if no one else is saying it, a dead cat bounce. It looks like it's on its descending path one more time, and it's slowed down the last few days, but we did have a serious rally that did-
Phil Newton: Which people are calling a Santa rally. Foolishly enough, they were calling it a Santa rally.
Sean Donahoe: Yes. I had to laugh at that. We were laughing at that. .
Phil Newton: Exactly. You've got to put it into context, haven't you? Rather than the Christmas rally, which don't get me wrong. What was the one-day percentage, 5%?
Sean Donahoe: 5%, yeah.
Phil Newton: Ridiculous one-day movements, and they were calling that the Santa rally.
Sean Donahoe: In all day history. Yes, the biggest move in history, boom, boom, boom. In context, you've got to take these things with a grain of salt.
Phil Newton: Prior to that, we saw ... What is it? I'm just looking at the charts now. One, two, three, four, five, six, seven eight consecutive down days, followed by one day, which probably recovered, I'm just eyeballing it, maybe about a third of the previous down move.
Sean Donahoe: Yeah, about that.
Phil Newton: So yes, 5% was a big move. It recovered a little bit of it. In context, a dead cat bounce.
Sean Donahoe: Exactly.
Phil Newton: Santa rally. There's no presents coming along with this.
Sean Donahoe: Yeah. We were half a percent or so away from official bearish territory. It hit that limit, and we were calling bear markets here. Let's just face it. We were calling bear markets, and boom.
Phil Newton: Surprise, surprise. We've been calling bear markets. For months, we've been doing it.
Sean Donahoe: Yeah, and it just skimmed it.
Phil Newton: Phil the permabear was trying to be optimistically bullish during that time, but it was just hard not to say, "It's going down." It's going lower.
Sean Donahoe: When it breached those recent marks around, I've been looking at the Dow Jones here-
Phil Newton: 24.
Sean Donahoe: Yeah, about 24-
Phil Newton: didn't we.
Sean Donahoe: Yeah. It was like, "Okay, circuit breaker's gone," and boom, and that was the decline. It bounced right around that 20%. I think people just got a little excited, and again, if you look over the subsequent days, slowed down, slowed down again during the Christmas period. Today, the first big trading day of the year, and again, we're looking at negative territory. They're talking about 400 Dow points, possibly, already on bell open. That's kind of looking like, as we said, sell the rally.
Phil Newton: It's not a rally. In context, you hit the nail there, Sean. In context, what's happened over the last 12 months is we've been in a consolidation. Fact. That's not going to change. Even in the short term prior, the last three or four months, we were in consolidation for most of the last three or four months. No matter whether it's the short-term perspective or the longer-term perspective that both of us look at, because we've got slightly different perspectives, our default perspective for want of a better description. Yours is a little bit shorter. Mine's a little bit longer. That's our default view. No matter which way you look at it, it's a breakdown, it's a rally, which is a pullback, it's sell the rally after a breakout, or breakdown to be more technically correct.
It's really difficult being bullish. Again, the optimistic bull that I was, it's sell the rally territory. There might be a little bit more wiggle room to the upside looking at S&P futures. Dow futures, again, might be a little bit more upside of wiggle room, but I don't think it's there on the NASDAQ. Russell, again, we've not seen the same magnitude of rally on the Russell futures. No matter which way you look at it, it's sell the rally or trade the pullback after the breakout. There's lots of different ways of describing this.
For me, I am officially bearish. We are in bear territory, as far as I'm concerned. We've got a technical pattern that supports that. Confirmation is going to be if we break a new low after that move down. If we go past that low point that we've just made, then that's going to be, for me, confirmed, and we will officially be in a bear market from the correction point of view. That will be the tipping point for everyone else to go, "Okay, let's do it. Let's pile in. Jeeves, fetch me my spade. We're going to start digging the shorts." That's what we're going to be seeing now. For me, it's sell the rally in what is looking like a very newly established down trend.
Sean Donahoe: Yeah. The point here is, and this is where again a little longer time frame really makes a difference. I'm looking at the Dow futures. Phil, pull up your Dow futures for a second.
Phil Newton: Sure.
Sean Donahoe: please. Thank God this is a podcast.
Phil Newton: Please avert your eyes. Pull up your shorts.
Sean Donahoe: Yeah. If you look back at ... The point we're at right now, which is rollover, this is why I'm actually shorting the Dow ETF for the Dow right now, but look at the Dow Jones DJI futures. .
Phil Newton: It's retesting that break point.
Sean Donahoe: Exactly. It's hit that level of interest right at 2,300 from back in November, but also the extreme lows around February, end of March. That is the level of interest we're looking at. It's not broken that, which tells me that this is, again, definitely a sell the rally situation.
Phil Newton: Yeah. let's put the counterpoint in there. This is what we're seeing right this moment. For me, and we put this as a comment in the Facebook group, you'll never see this written in any textbooks. I've been speaking about this since around 2005-ish, when it was explained to me on the back of an envelope with an old ... Well, she wasn't that old then, but by today's standards, maybe a little bit older than she was. An old hedge fund manager, and it's called a break-in something. Basically, when you've got an established range like you have now, right now prices have moved away from that established consolidation, my viewpoint will change. I will reevaluate should price move back into the previously established consolidation, because it might be that that could be ... We could be looking at a false breakout. I've got to put the counterpoint. We don't know until we know, until after the event, so as we're looking at things right now, it's a breakout, all that classic sort of setup. I'm bearish, but I will reevaluate should we go back into or above what was the low for most of last year.
Sean Donahoe: Yeah, exactly.
Phil Newton: Just to put the counterpoint in there, because we've got to take our own advice here. If it's bearish, what's the scenario? The primary scenario is bearish. I think we're both in agreement there, but the question mark is, what if it goes up? What if your viewpoint doesn't unfold the way you think it's going to unfold? So the reevaluation point is if it goes back into the consolidation and it breaks back into that consolidation.
This was a pattern that was explained to me many, many years ago, literally on the back of an envelope, and no one really talks about it. The only time it's kind of mentioned is institutional trades, managers of funds, because that's how they trade. They're looking for the opportunity. While most retail traders are looking for the breakout, most institutional traders are looking for the failure of that breakout or the break back into the consolidation. That's why it's an interesting pattern. That's what I'll be looking for to reevaluate my bearish stance.
Sean Donahoe: No, absolutely. I agree with you 100%. That's kind of where I've been looking at, as well. I'm actually just going to post this real quick in the Facebook group as well, because I think it's an interesting observation point that needs to be hammered at. Guys, if you're not in the Facebook group, it's, and we put regular stuff in there, insights, even as we're doing it.
Again, we're looking at this, and I was speaking to, funnily enough, a guy that is very much involved in long-term trading, long-term investments, and everything else. His point was exactly the same, that we've been waiting for this point for a long time. We're seeing all of the pressure mounting. We're seeing all of the red flags that we've been raising over the last year, everything from fundamental to trading patterns themselves. Again, it's what we have been waiting for. I really do believe we're just on the edge of this. There's still a lot of optimistic bears out there saying, "Hey, this could be just temporary." As we've been saying, the fundamentals of the economy are strong.
Phil Newton: Nothing's . We've not seen a fundamental bear market. We're going to need two back-to-back contractions, is broadly speaking what most people are looking for. I can't remember the exact statistic, but it's usually two back-to-back contractions in the economic growth. Fundamentally, we're not there, but technically, bear market from a price action perspective.
Sean Donahoe: There has been a tectonic shift in sentiment. That's one of the big things, is when the market gets a little scared, even if the fundamentals are good, the expectation becomes a self-fulfilling prophecy. Because with a sentiment shift, again .
Phil Newton: Which is kind of interesting, I think, because the sell-off, the bear thing that we were talking about, it could be very short-lived because of that. We might see a very short, very cyclical bear movement as opposed to a bear market. That could be quite interesting to see, which is what we saw a few years ago, where prices were essentially just meandering sideways. They didn't really sell off. We've seen that meandering sideways, and maybe this is just, like you said, a temporary thing. Maybe we're just seeing cyclical downward movements, and that's the opportunity from the fundamental trader's point of view. That's the time where they're going to fill their boots.
Maybe that's what's causing this dead cat bounce. We didn't quite see that 20% move that you keep talking about. Just a hair's breath away from it, and maybe that was their trigger to fill their boots, because fundamentally, we're not there yet. Technically, everything is pointing towards a bear movement. Maybe that's their opportunity. I suppose it's the difference between charting patterns and fundamentals. There is going to be that disparity, that divergence between philosophies. Again, I think this is just the nature of whatever school of thought that you follow, whether it's charting, or fundamental, or any of the subcategories in that. There's always going to be some conflicts, some divergence between schools of thought.
Sean Donahoe: Yeah, absolutely. Absolutely. This is where everyone's eyes really are at right now. They're looking at these levels of interest and trying to predict what's going on. Here's the thing. No one freaking really knows.
Phil Newton: No. What are the possibilities? Come up with scenarios, which is what we're talking about. If it goes up, what are you going to do? If it goes down, what are you going to do? I think the primary scenario is bearish, but don't discount the possibility that prices could spring back and move higher. Let's not be surprised. Let's plan for the possibility. There's only three things the market can do. If you plan for each of them, there's only three scenarios, again broadly speaking, that you've got to consider. It goes up, down, or sideways. If you've got a robust strategy, it won't really matter what's going on. Just follow the plan. Follow the strategy. Put trades on. Trade goes on. That's as simplistic as you want to ...
Here's the thing, Sean. We were joking about this. We've spoken a lot over the past 12 months that it's been a horrible trading year, but then suddenly we get this nice little, "Holy smokes, this is a brilliant year," because this is what we were talking about the first two weeks of December. This movement just created ... Everything just came home to root. It was absolutely phenomenal. While everyone's crying about, "Oh, it's a bear market," yeah, we're focusing on it's a bear market, but if you've got a strategy, a robust strategy that sets trades up, and you put those trades on, then when the market moves, that's the time that these things cash in.
In our portfolio for the alerts that we send out, we just hit new equity highs. It's just phenomenal to see. In a time where the market has essentially been flatlining, and it has been struggling to keep your head above water for most of the year, the whole ... This just reinforces the philosophy that we keep talking about. We trade small. We trade frequently. You put the next trade on. It doesn't matter how bad the market conditions are, or perceivably good or perceivably bad they are, you put the next trade on according to your strategy, because you don't know when the good times will happen. Then suddenly, bang, it came out of nowhere, a big move that was favorable to the portfolio of setups that developed, and shazam, new equity highs.
You can't predict that. We're not cleverer than the strategy, the numbers, the statistical backtesting that we've done to get here in the first place. I'm not smarter than that research. Just put the next trade on. Don't worry about opinions. Yeah, sure, we've got opinions, and we throw them out there like there's no tomorrow, and they're just that. They're opinions. I'm not going to change the way that I trade, that I've spent a long time researching and developing a style of trading, just because I don't like the fact that it's a Wednesday and that the market's a little bit funky and a little bit weird. Trades, I'm not going to question that, because statistically, I'm right 65% of the time. You can't argue with that. You really can't argue with it. Opinions aside, it's all opinions, all for fun.
Sean Donahoe: Yeah, exactly.
Phil Newton: Sorry. I didn't realize there, Sean. I've just found a soapbox that I'd stood on.
Sean Donahoe: And it's got 2019 right on the side of it. It's the first soapbox.
Phil Newton: It has. It's the first soapbox, but to be fair, everything that we've experienced this last 12 months, and then you get December, typically a historically poor trading time, because it's one of two extremes. Usually because of low volume, it's a partial trading month because of the holidays and all the rest of it, but yet those first two weeks of December were probably the best two weeks of the year for me personally. You can't predict that. You literally can't predict it. You do not know when the good times will come, but you'll trade on. There we go.
I think that's the relearned lesson for 2019, consistency. You have a strategy. Follow it to the letter. When the trade sets up, you put the trade on. That's it. That's all you've got to do. Everything else is opinions. I think our job is done here, Sean. I think our job is done here. I think we can hang up the spurs early today. I think for the year, that's it. Game over, everyone. Just put the trade on.
Sean Donahoe: Well, that's exactly it. That's the whole point of having these consistent strategies. Like you said, it was kind of an interesting year. Again, I capped off a lot of my long-term investments, put more into cash, and then into more short-term positions, and the end of the year just took off like a freaking rocket.
Phil Newton: .
Sean Donahoe: With percentages that would make hedge funds blush.
Phil Newton: I saw an article about the hedge funds, the number of hedge funds that have closed down this year.
Sean Donahoe: And why? Because they've been riding a nine-year bull run, and they've been hitting all these wonderful figures. They've got all these numbers, hit a sideways market, and it's like everyone got smacked in the face with a baseball bat. They're like, "Okay, we have to close the doors, because we've lost all our money on these long positions." I just kind of expected that coming. If you were a financial expert, and you were looking at the signs on the wall, reading the actual charts, not just trading what they were saying on CNBC, you might have seen that there was a few interesting things happening in the markets. You should have been listening to the Rebel Traders podcast. You might have got a few fucking clues. Excuse my language before I get on my soapbox.
Phil Newton: I think if there's ever a time that a soapbox is deserved, it's over this. I think we can randomly high-five people walking down the street. It just proves everything that we've been talking about. You just put the trade on. Trade small. Trade frequently. Follow your strategy. They are the foundation stones, the pillars that you and I talk about very frequently, that hold up everything else that we do.
It sounds easy, but for the most part, it's not easy to put the trade on, because we all want to swing for the fence. We all want to have that one trade that just ... Like in Lord of the ... You know, one ring to rule them all type of thing, one trade to rule them all. Everyone wants that, because it's an ego thing, but if you can put that aside, and you realize that it's just like every other business, and it's the first and second base type of trades, to use the sports analogy that we like, that neither of us follow, it's just about first and second base-type trades. They happen more frequently than the swing for the fence opportunities, which happen maybe once a quarter. It's maybe once a year. Maybe it's once every five or 10 years, depending on your strategy and your time horizon.
We've seen two monumentally big movements, directional movements, last year I suppose we've got to say now. If you take those, last February and basically the two weeks of December, you take those two things out of the equation, everyone's had a really shit year. Everyone's had a shit year. If you didn't put the trade on because of poor performance, and you're reducing position size, and all the traditional things that people suggest, you would have had a bad year. This is why we keep saying trade small. You do not want to reduce your position size when the times are right, or when the times are not great rather, because you don't know what's around the corner. If you're trading your smallest position size when the biggest move of the year comes along, what was the point? Really, what was the ... You want at least your normal, regular position size when the move happens, and you don't know when that's going to be.
This is why we keep saying trade small, trade frequently, put the next trade on, because when it happens, we're going to be very jubilantly high-fiving people, random people as you walk down the street, because you've just suddenly had an absolutely fantastic trading year. Whoa, sorry. Hop back on the soapbox, Sean. I hope you can get the point we're trying to emphasize. Coming into the next 12 month, the single biggest thing that you can do to improve your trading is to trade consistently. That is the only thing that matters, and the numbers, no matter whether it's our strategy or someone else's strategy, whatever your strategy is, the only thing that everyone agrees on, the whole world, is consistency.
That is the only thing that you've got to do, and we've just proven that in the last 12 months, a mediocre year where heads are just above water. Sure, we're making money, but it's been tough love, as it were. Suddenly, December, it becomes a monumentally great year because of consistency. That's the single biggest thing that you can do coming into this year, 2019. That's it. That's all I've got to say on that subject. I think I'll put the soapbox away now. That's it for the year.
Sean Donahoe: Okay. I know it's not the soapbox's end for the year, but hey, what the hell? It is for maybe at least the next 10 minutes.
Phil Newton: No, but that's the biggest lesson. That's the biggest lesson that we learned in the last year, or relearned that we can take coming into 2019, that everyone can apply, I think everyone can easily do. Trade small. Trade frequently. Follow the plan. Put the next trade on.
Sean Donahoe: Absolutely. Again, it really does come down to if you want to ... Again, if you've got a positive expectancy strategy, be consistent. If you're consistently losing, and your strategy is consistently -
Phil Newton: expectancy.
Sean Donahoe: But yeah. Let's move on, then, look at other things that are coming up over the next year. One of the big things that was an impact on 2019, or I think used a lot as an excuse, was the China trade dispute and tensions. There's a lot of positive signs that could be ended by March. That's a number or a date that is being put on the table. I think there's a lot of heavy negotiations going on, a lot of concerns going back and forth, but I really think again, if you want to, look at China's economy and you'll see that they have been taking a serious hammering again, and again, and again. It's really put a lot of pressure on China's business outlook.
It's put a lot of pressure on the currency and the general economic outlook, so it has done a lot of damage, but it's also been a great ... I think, obviously, there's some genuine concerns here and everywhere else with parts manufacturing, industry, and the finance side, but I think just from sentiment, and people I've talked to, and going through finance reports, and what have you, which I kind of nerd out with, a lot of this seems to be an excuse as well. I think a lot of people are pointing to this .
Phil Newton: You stole my line, Sean. You stole mine. You knew what I was going to say, and you went there first.
Sean Donahoe: Well, again, I think a lot of people are using it as an excuse to readjust books, and outlooks, and everything else while other pressures are coming on. It gives a little leeway when you're speaking to your shareholders. Again, I think a lot of that is going to be reevaluated over the next few months and couple of quarters. I think looking into Q3, we're going to be looking at a completely different environment in terms of that, as I think more reality is shaken out from a lot of these businesses that have been using this as an excuse, but that being said, obviously we just want this to be done, dusted. Even back with Andrew in the futures report, we were saying the same damn thing. We've got to just get this-
Phil Newton: We want it to be over, yeah.
Sean Donahoe: Get it done. Get it settled. Let's move on from there. It's taken a while, but I think .
Phil Newton: It's the same with Brexit in Europe, as well. We're seeing some of the things, almost exactly the same thing with Brexit. Just in, out, don't do this hokey-pokey thing. Just do something, anything. Anything is better than a stalemate, because this is what the killer is, months, and months, and months of stalemate. That's bad. It really is. Make a decision. Get it over with.
Sean Donahoe: The game of chicken, when you're dealing with countries' economies at the same time, is who is going to blink first. I definitely, love him or hate him, I really think that Trump is going to stick to his guns on this one regardless. He's going to be the immovable object. Now most, I think, government administrations would have faded by now. They would have moved away and wishy-washed it out. It might still happen here. I don't know, but I think that the pressure is mounting so much, there's got to be something happen, because it's putting a severe crimp in China's infrastructure plans.
I was reading a report over the weekend, because again, that's what you do on the holidays. You sit back with your scotch and your cigar, and you start reading industry reports and global economic reports, because I'm completely boring. At the end of the day, they were talking about how this trade dispute has put a massive crimp in China's expansion plans, infrastructure into for example Sri Lanka, Malaysia, and everything else, because they were really trying to build on strengthening their trade infrastructure and finance infrastructure in many of these locations. It's all come to a grinding halt because a lot of the negotiations, they don't have as much leverage, because the economy is weakened.
Again, it's just causing all sorts of kind of domino effects across China's economy, and it's really putting the kibosh on a lot of stuff, so I really think China is going to want to come to the table here. I think quite likely, all the signs are there, that by March, end of Q1, we are going to see something happen there, which I think is going to be a positive thing for the economy. We'll see where we are at that stage, because it might either underpin ... If we tip into bear territory, then that's going to give China a little more leverage, which could stretch things out, or is there going to be something else that tips that over. Again, I'm very cautiously looking at circuit breaker situations, but I think that will sort out, because it's in everyone's interest.
On top of that, the other thing is more Fed hikes. The Fed has said it might reevaluate and slow down, but they are looking at at least two more rate hikes this year, but also, after every FOMC and Fed meeting, Jay Powell is going to do these press conferences, and be a little more transparent about what they're seeing and why. I think that's a good thing, but also-
Phil Newton: I was just going to say, that's a good thing. Phil has spoken at length on a similar soapbox about this previously, where it's good to telegraph these things in these markets, in these climates. Post-2008, you don't want a shock to the markets. You really don't want that, so I think just have it, everyone well prepared, planned. People can think about the possibilities. When I talk about people, people who can move and influence the markets, so that nothing's a surprise, because what you don't want is a shock to the markets, and a couple hundred billion gets whipped out of the markets and put somewhere else or held long cash. That's going to create ripples across the economy, which would be potentially negative for the situation.
So, I think it's a really good thing that they're not just telegraphing what they're doing, as you like to say, but going to extra lengths to be that transparent, so that we don't have those little mini-heart attacks in the markets. That's what we saw at the beginning of December. A little mini-panic is what everyone was going on. Phil was in panic mode, but a little mini-panic is what we want to avoid, which is something we've been talking about. A bear market would be healthy, but a slow, lazy bear market is what we want, not a flash crash where it all happens in one or two days. That's what we don't want to happen, so I think it's really good to help prevent those major catastrophe selloffs. We'll just get those slow, lazy movements by comparison to what could be a disaster. So a really good, really smart move in my opinion.
Sean Donahoe: Absolutely. It's a good thing so we can get the stuff baked in. Again, right now, anything big could tip a lot of scary things over the limit. We don't want that. It's one of those things where everyone's got itchy trigger finger, and who wants to shoot first? You don't want to do that in a Mexican standoff with multiple things that can affect the economy, so again, transparency in this instance is pretty good.
Now, also, we've got a unicorn stampede happening this year.
Phil Newton: Phil's eyes are rolling. Phil's eyes are rolling already.
Sean Donahoe: Well, check this out before I use expletives. There's a few IPOs that are big IPOs. I think they're ones that are going to be interesting. Again, we don't trade IPOs unless I'm in before everyone else from the investment standpoint, but the one ... One of the ones that is on the cards, there's no date set yet, is Uber. Uber had a private valuation of $120 billion, according to a recent report.
Phil Newton: .
Sean Donahoe: Indeed.
Phil Newton: Billion.
Sean Donahoe: Now, an Uber IPO at that level would be the biggest public offering ever. That one is going to be .
Phil Newton: Any substance to that yet?
Sean Donahoe: Well, I think it's all the pre-IPO hype, because obviously the market want the hype they got early, so when they announce it, everyone's onboard. Again, this is like a blockbuster movie. You get all the teaser trailers out there. You get all the PR co out hyping the movie.
Phil Newton: The marketing machine is definitely out, yeah.
Sean Donahoe: Yeah. It's like the showrunners for a movie or for a TV show. They're out there hyping it up, pumping it up.
Phil Newton: The greatest show on Earth.
Sean Donahoe: Absolutely. Again, I think , but Uber is definitely one of the big ones to look out for this year. I want to see how it rolls out of the gate and settles down. I think this one, again, it's a very aggressive company that has certainly nipped its market share, but on the back of that as well, Lyft, their largest competitor, is also going IPO this year. Because of the market space and everything else, it was in Lyft's interest to file their IPO intent and documentation right upfront and before Uber, which they did. They got in before Uber, but still, it's going to be an interesting unicorn.
Phil Newton: It will be interesting to see who races to the IPO first, because I think for the sector, it could be whoever ... Will it be whoever is first in gets the bad deal, or whoever's first in gets the better deal, if you see where I'm going with this? It will be interesting to see from that point of view as to who gets the lion's share, who's going to come out on top.
Sean Donahoe: I think Uber's going to get the market share. I guarantee it.
Phil Newton: Uber's certainly got the household brand name.
Sean Donahoe: Exactly. They've got .
Phil Newton: Have they got the ... Because there's very mixed reputations with Uber, isn't it? There's certainly a divide between the people who love them and hate them.
Sean Donahoe: Absolutely, yeah. Uber has been super aggressive in certain cities and countries around the world.
Phil Newton: Interesting to see whether they want to lead the way, and jump in, and be the first to IPO compared to, say, Lyft.
Sean Donahoe: I think they've got the balls to do it. I think they've got the momentum and I think they've got the backing. There's a lot of venture capital companies and capital management companies who have money in Uber that want to see a return on that investment, so I think it's going to be in their interest to get that out there as quickly as possible. The other ones on the chart-
Phil Newton: And then we can all short Uber, because that's what happens on every IPO.
Sean Donahoe: Yeah, ride the high and the low. The vast majority of them, yes, indeed. Other ones that are on the grid, we have again more unicorns. We have Pinterest. Out of the social networks, it's interesting that this one has not been IPOed yet, but again, that's looking to go public this year. Then on top of that, we also have a couple of systems that I use and services that I use. We also have Slack, which is a communications tool for, well, inter-company and intra-
Phil Newton: It's a communications tool.
Sean Donahoe: Exactly. How could we describe it any other way? It's a communications tool and a collaboration tool. We have Cloudflare, which is a CDN and security tool that is used on websites to protect them and act like a shield. I won't go into the geeky details, but I love that company. We also have the investment platform Robinhood. They are going IPO this year, and then we have the giant hosting company Rackspace, which is located here in Texas, actually just up the road. They are planning on going IPO as well, which is interesting. There's a lot of big IPOs.
Phil Newton: Interesting.
Sean Donahoe: Again, 2019, if we are tipping over into bearish territory, it's an interesting time.
Phil Newton: It will be a good time for them to IPO.
Sean Donahoe: It could be.
Phil Newton: From the investor's point of view of getting their money out as they IPO, good timing, but for the company, it will probably be bad timing, because they'll then go into bear market territory. It will be interesting to see how they fare.
Sean Donahoe: Yeah. I think there's a lot of pressure to ... This is where I'm looking at this as well from an investment standpoint, is to get my money back and get the hell out as we roll-
Phil Newton: Good timing.
Sean Donahoe: . The companies themselves, I really do think this is going to be challenging, so I'm raising a little cautionary flag here for anyone hyping up about IPOs and buying into the hype. Consider the market this is going into, considering timing, and considering the intent, why go IPO right now rather than be privately held? Again, the reason that I'm bringing these up is to be concerned.
To highlight the point, Phil, do this for me, just so you can have your unbiased view, because I know you haven't done this yet. Go and look at the stock symbol IPO, which is an ETF of recent IPOs. What do you see there?
Phil Newton: IPO? Well, I've got to admit, this is ... IPO, India Papa Oscar, yeah?
Sean Donahoe: Renaissance IPO ETF.
Phil Newton: Bear market, sell the rally.
Sean Donahoe: I think so. Now, this has dropped about 20% over recent months, kind of in line with what everything else has done in the last few months, but even still, as an ETF and everything else, this is a measurement of .
Phil Newton: It doesn't look healthy, yeah. It's not looking healthy.
Sean Donahoe: Exactly. Now, it's just a quick ETF. You can see it's dropped from around about 31 to currently trading about 23. Again, it's just an indicator, so to speak, of how recent IPOs and popular IPOs have actually done in this particular market. If you're thinking about IPOs as a whole, they take a lot of correlation with .
Phil Newton: It proves our negative bias towards them.
Sean Donahoe: does. So now, the other thing I got asked about, and this is from an email from one of our adoring fans, as we like to call them-
Phil Newton: Hi, mom.
Sean Donahoe: Pot stocks. What do I think about pot stocks this year? Well, up in smoke.
Phil Newton: Up in smoke. You can't not say that.
Sean Donahoe: Okay, okay. We've got to do it. We've got to do it. Okay, there we go. I'll give him that one. I'll give him that one, but okay. Let's have a look at Tilray, TLRY. This is an example of a recent one that is profitable, that is a pot stock. Now again, I still think this is going to be a big growth industry for investors. However, the market has yet to mature, and there's really only a few out there that are, I would say, per se, tradable. If you look at this one, what is the first thing that springs to mind here? Yeah, that's exactly the one. Okay, he didn't need prompting. I didn't need to get the dish soap out there and a bit of water. Yes, it's looking very much like the spike of a bubble. Now, we had the big hype.
Phil Newton: If you didn't know any different, if you didn't know any difference, it looks like bitcoin about six months ago.
Sean Donahoe: Exactly. Exactly what I was thinking as well. Again, now, this is .
Phil Newton: I'm not saying that the industry is necessarily bad, but it's just one of those things. It's speculative. It's very hype-driven. There's lots of regulations that are coming in and out, and changing the sector, which is what we're seeing with bitcoin. What do we do with it? It's a new sector. It's a new industry. It's new, new, new. No one knows. There's no precedents, so everything is hypersensitive in this. That's what we saw in bitcoin, and hence why we saw the bubble. That's why we're seeing in the pot stocks, as well. That's why people like them. They're also quite controversial, which is another reason why maybe some people like them and other people don't.
Sean Donahoe: Exactly. There's been a lot of hype around Tilray specifically, which is why I had a portion here looking at the market volume, and looking at the interest, and looking at how that's settled down. We're seeing .
Phil Newton: To be fair, trading aside, I think long-term, because regulation is relaxing and becoming more accepting of this as an industry, so I think it can only ... If you'll pardon the pun, I think it can only grow.
Sean Donahoe: There you go. I think there's going to be a lot more consolidation within the industry as market leaders emerge. There's a lot of independent growers. There's a lot of dispensaries. Again, they're all becoming-
Phil Newton: Again, regulations are changing all the time with this, not just in the U.S. but globally. Opinions and medical advances, at the very least, for the derivatives of the product, they're changing all the time and becoming more accepting.
Sean Donahoe: Absolutely. That is, again, where the states that have legalized consumption and the sale of marijuana-based products, they've certainly seen a boom in their economy. Which again makes it more appealing to everyone else, because Vegas, Colorado, they've become even greater tourist spots because of this. People go just to have pot rather than gamble or stuff like that, and Vegas loves the idea. Casinos love people who are completely stoned who want to gamble. That's perfect. As far as they're concerned, bring it in.
Phil Newton: To be fair, look at mainstream acceptance. We saw literally Elon Musk-
Sean Donahoe: Toking up, yeah.
Phil Newton: An industry icon and leader having a quick smoke on corporate radio.
Sean Donahoe: Was it Joe Rogan? Yeah.
Phil Newton: Yeah, with Joe Rogan. It's becoming mainstream acceptable. Yeah, he took a lot of shit, but it was just in the news cycle. He's not continually getting a lot of shit for it, if that makes sense.
Sean Donahoe: Yeah.
Phil Newton: That's what I mean by it's becoming more accepting as an environment and economy, and I think that's a good thing for the sector, personally.
Sean Donahoe: Yeah, exactly. Again, we're not commenting either way on consumption.
Phil Newton: We're not saying whether you should or you shouldn't from a personal viewpoint, but just from a trading and investing viewpoint, it's becoming more viable.
Sean Donahoe: Absolutely. So yeah, I think there's a lot of things going on, a lot of things that we've talked about here in this show today that's going to affect 2019. Me right now, I'm a cautious bear. I'm looking for ... I would say I've officially got my bear pants on, and I'm looking at this as rollover. Just to take it back a step as well, Phil, go back to the Dow. Look at this on a weekly for the last few years. It is-
Phil Newton: This is the Dow futures for reference.
Sean Donahoe: Yeah, and I'm looking even back as far as 2014, but let's go back even further. I'm looking at this right now. We saw a similar kind of thing in 2015.
Phil Newton: Yeah, like 2015. We've commented on this before. We've seen it in 2011 as well, for reference, where you see that consolidation, a little bit of a selloff.
Sean Donahoe: Yeah. Now, are we going to tip over? I think it needs, again like we said, that lower low, but looking at a wider picture, taking that 30,000-foot view of the forest, we have a repeated pattern. Again, it could go sideways and back into the range, so to speak, a break-in as we're calling it, but are we also ... If we get that lower low, then I really think this is a much sharper rollover than we've seen in 2015, when it had a couple of really big holy crap moments, and testing correction territory into bear territory. Right now, I'm a cautious bear. If we break in, I'm still going to be cautious, because we need that correction.
Phil Newton: We've seen lots of false signals and directional movements, for want of a better description, most of the last year. Yeah, I think a cautious bear might be the best way of describing the situation at the moment.
Sean Donahoe: Absolutely. So, with that being said, portfolio is positioned accordingly.
Phil Newton: Fill your boots.
Sean Donahoe: Yeah. Again, just raising that awareness of things that could happen, that we're looking at, for the year ahead. Again, the watchword is consistency. With that being said, let's go over to trade, fade, evade, and do some quick hits, and see what we would or would not be jumping into. I'm going to start with the first one here, Netflix, NFLX. Trade, fade, or evade here? Me, I'm selling the rally.
Phil Newton: Well, to be fair, it's going to have to be evade, because it's done a little bit of everything in the last 12 months. If I was going to do something, I would probably be tempted to trade it in the short term, but the last 12 month, first half of the 12 months going up, second half of the 12 months going down. It's going to have to be evade. I'll take my own advice on this one.
Sean Donahoe: I'm selling. Well, I'm actually in this one right now. Full confession, I am selling the rally right now. I'm seeing a down trend, and I think they're going to have ... Actually, funnily enough, it was reported today that they had lower subscriber growth numbers, even though they had that whole Bird Box movie going around, whatever the hell that was. I haven't watched it yet. It looked like crap, no offense to Sandra Bullock, who is one of my favorite actresses. But yeah, apparently they ... Again, they've just reported this morning lower growth, so we'll see how it goes. Right now, I'm shorting this one. I'm not liking the way it's going for them, and see that as a wee bit of opportunity. So interesting little, again, comparison of time horizons, like Phil says, looking over the last 12 months.
Phil Newton: 12 months and mixed direction. I'm not seeing one hell yes, it's bullish, hell yes, it's bearish. That's the main reason why I'm going to have to just step on the sidelines, but yeah, if you look at the last six months, it looks like it's going down. Sell the rally.
Sean Donahoe: Yeah. One of my other strategies flagged this one up for me, and I was like, "Yeah, okay, I'll take a nibble of that." Okay, next one. AMD.
Phil Newton: ?
Sean Donahoe: Yeah.
Phil Newton: I think it's avoid, yeah. Evade.
Sean Donahoe: Evade this one as well. Yeah, I'd agree with that. Okay, so BBY, Best Buy. .
Phil Newton: That was quick. It's evade. What have we got. BBY? Sell the rally. I'm getting out. I've had little nibbles on this. Sell the rallies. Lovely.
Sean Donahoe: This one has been .
Phil Newton: That's what was traded. We had to put this out in the alerts last year, a consolidation, break, standard breakout, pull back. This was one of the ones that put the cherry on top of the 2018 cake, as it were. It's just a big selloff from 65 down to 50. Brilliant selloff.
Sean Donahoe: Yeah. Now this, again, one of the leading retailers or high street retailers, certainly coming into Christmas, and they were saying, "Hey, this is a bumper year for us. It's been bumper this, that, and the other." Not enough to .
Phil Newton: The charts don't lie.
Sean Donahoe: Absolutely, so interesting.
Phil Newton: I think it's funny, just calling back to the end of November, when we were talking about going into the Christmas season, and retail, and everyone was ramping up. Phil had his naysayer hat on. "No, bearish. It's going down." A month later, what happened? The charts don't lie. Sell the rallies. Buy the dips. It's all in price. You don't need to look at the news, certainly not for what we're doing, anyway.
Sean Donahoe: No, absolutely not. Here's another retailer, but not one that would be really affected by Christmas, Dollar Tree, DLTR.
Phil Newton: Looking back, I had a little news trade on this. I thought, "What would you do?" I think I'm going to have to avoid it. It's not quite doing all the right things. I've got range for most of the last 12 months, kind of a downward-sloping channel. It's not as defined into that as I would like. I think I'm going to have to wait for more information. It's not at a great location.
Sean Donahoe: Yeah. I would avoid this, but a couple of observations on this chart. Obviously, we've had some big drops around earnings, which is obviously concerning. In fact, one, two, three ... Yeah, end of Q-
Phil Newton: yeah.
Sean Donahoe: Yeah, March, June, and September, big gaps down, but if you're looking at the most recent, what's interesting is it's starting into a slight and pretty defined ascending channel. Again, too short a time frame because of those big drops to be reliable. I would like to see what's happening at the end when Q4 is reported, but I would be evading this one, but an interesting thing to watch to see if it ends up after earning with a similar drop, because that has had interesting little recovery spurts. Not one that I would be trading right now, nothing clearly defined, but just a couple of wee observations there.
Next one, CELG. I can never say this. Celgene.
Phil Newton: Sell the rally. It's, again, down trend. I'm looking at the chart sideways. Yeah, down trend-ish. I'd sell the rally in a down trend. I could probably draw some trend lines on here. I've not looked at this for a while, this chart, to be fair, but you could probably connect the highs, maybe connect the lows. It probably looks like you could get a downward-sloping range out of it. Again, I'm just eyeballing this at the moment, but for the moment, it's still a down trend. Sell the rally on the down trend.
Sean Donahoe: Yeah. Pretty much exactly the same, but not a hell yes.
Phil Newton: Fade. No, it's not hell yes. It's kind of there. Again, the location is not great. If it got back up to about $70, and it showed some signs of , it would probably be a hell yes, let's get on this and look for a retest of the lows. It could be a retest of recent lows in that regard, so maybe $10-$12 down. If we get an entry around $70, I wouldn't be surprised if it re-saw $60 again.
Sean Donahoe: Agreed on that. Okay, so next one. Goldman Sachs.
Phil Newton: I'm looking at the chart, just because again, it's going to be sell the rally, isn't it? That's a yes. What a surprise. Yeah, not surprising. It looks like the index, which is why I made that quick guess before we flip over to the charts. Range-bound for most of last year, which is what we saw with the main index, big selloff, and saw a rally on the down trend. Most of the banking sector is going to be pretty similar.
Sean Donahoe: Pretty much. Again, all of these are ... Most of the banking stocks have been, and that is more indicative of the stress on the economy, the money underpinnings. I'm looking on that a lot, but yeah, I'd sell the rally on this one. Again, not one I would actually think about now. It's not one of those hell yeah moments.
Let's have a look at Disney. The massacrists of Star Wars.
Phil Newton: Happiest place on Earth.
Sean Donahoe: Yeah. I'm not sure but there you go. I'm going to be biased on that one.
Phil Newton: I think it's evade. I think it's evade. It's in a range, but it's a messy range. It's somewhere in the middle of the range right now, so it's evade for me.
Sean Donahoe: Yeah. I would evade this one, too.
Phil Newton: Thinking of your perspective, I can see if you just look at the last three months, you can kind of see it break down, pull back. You can argue bearish right now, as it happens, but looking back over 12 months, I've got to avoid it.
Sean Donahoe: Yeah, I would avoid this one, too. That's a fair assessment. Let's have a look at BA.
Phil Newton: Not the British Airways chart.
Sean Donahoe: I was going to make that joke. America, but there you go.
Phil Newton: It's in a range. It's at the lower end of the range. I probably have to be bullish on this actually.
Sean Donahoe: Now, the interesting thing is, we've had a break back in of a range. Just barely, no pun intended, but it's broken back in. It has had the same rollover. I'm going to evade this one just because of what's happened.
Phil Newton: I think if it stays above 320, I'll probably be bullish.
Sean Donahoe: Yeah, and I don't think it's going to.
Phil Newton: I've got to follow up. Let's try English. It's in a range. It's at the lower end of the range. It's not quite broken out in a confident way. It's moving back into the range, is what we were talking about earlier. Again, I've got to follow my own philosophy. I would have to be bullish. If I was forced to put a trade on, I would have to do the trade. I would put a condition on that. As long as it goes above, again eyeballing, around 320-325, I would probably be bullish on this.
Sean Donahoe: Yeah, that's about right. Okay, and last one of the day, VZ.
Phil Newton: VZ or Z.
Sean Donahoe: I'm going to have to go with Z because I'm in Texas and I've been over here too damn long. I just don't say Z anymore. I'm not Canadian.
Phil Newton: I use them interchangeably, to be honest. I would have said Z. It looks like it's a mess, to be honest. Again, taking my own advice, I'm struggling to determine the overall theme of the charts, so yeah, it's going to be evade. I can't really, with crystal-clear clarity, say that it's going up, down, or sideways. You could argue it's in a range. You could argue it's in a slight upward movement. Evade it. It looks a mess.
Sean Donahoe: It is a little bit of a mess. The one thing that I am liking, though, if you flick back over to the weeklies, I'm actually in this trade right now. This just came up-
Phil Newton: Weeklies is so much clearer. Weeklies is so much clearer, yeah. Breakout, pull back, setup. No hesitation there.
Sean Donahoe: Yeah, and that's why I'm currently bullish on this. I just wanted to flick that over there. It's interesting.
Phil Newton: Yeah. It's interesting when you look at a different perspective how much clarity. The dailies is an absolute mess I wouldn't touch with a barge pole. You put the weeklies on it, and it's, "Oh, there's the trade right there." It is very clearly ranged since about 2013 through most of this year, rally, breakout, pull back, buy about $55. It's a very clear setup by comparison.
It's what we keep talking about, a different perspective. It depends on what your regular perspective is. You will see the trade or not see the trade, and I think if you have that knee-jerk reaction, you want that ... When you've got that production line ... This is a really good example of what we keep talking about. When you've got that production line experience, when there's a setup there, oh, there's the setup. Put the trade on. It's not on the dailies. You go over to the weeklies. It's absolutely crystal-clear. It's a really good example of a breakout pullback setup on the weekly chart there. VZ or VZ, Verizon. Yeah, go and take a look at it. It's a really good example of what a classic range breakout setup looks like.
Sean Donahoe: Yeah, there you go. So, a little-
Phil Newton: Not on the dailies.
Sean Donahoe: No, not on the dailies. It's interesting. Again, I had this set up because of what I saw in the weeklies. It just popped up on my radar for trade, fade, or evade just because I pulled a random list from my watchlist. I had to randomize it to create something interesting, but yeah, it's a very good example of what we're talking about.
One thing I do do, ladies and gents, which might help you, is I actually have my main chart on daily, and then I have two subcharts to the right, which are weeklies and hourlies. Again, I don't do much with the hourlies. It just lets me do a little confirmation as I go into those situations and possible trades, but I also do like the look of the weeklies because again, longer-term views. Sometimes what's a mess on the dailies is crystal clear on the weeklies, like Phil just mentioned. That's exactly why I'm in this one right now.
But yeah, trade, fade, and evade. Rock and roll. That's it for this week's show. I hope you enjoyed it. First show of 2019, first show with Phil on his soapbox, which is pretty much a regular occurrence. Do remember not free. It will cost you a five-star review, so just make sure you hit that subscribe button, however you are listening to this show right now. That helps us reach more traders and investors just like you.
Phil Newton: You can also reach us on the social medias, the Facebooks or the Twitters. As you probably gather, we prefer Facebook. You can get to us there. We've got a very active group. The links are all up, the same, or you can get us through a more conventional means these days. You can get to us via email, [email protected] Sean, what's your email?
Sean Donahoe: [email protected] Keep it simple.
Phil Newton: Perfect. We're typically quite responsive if you do send us an email.
Sean Donahoe: Absolutely.
Phil Newton: We're hankering for some fan mail. Phil wants his ego stroked this week again.
Sean Donahoe: I'm not going to make the obvious joke about Phil and shorts. We're just going to leave that one the hell alone.
Phil Newton: In that case, what have we got coming up in next week's show, Sean?
Sean Donahoe: We're going to be talking about hitting the hard reset. Again, in these situations where the bovine organic waste hits the round, rotating mechanical object, what happens when you just have to hit the hard reset, when you just have to wipe everything out and start afresh? We're going to be talking about considerations, situations, and how to actually have the gumption and the courage to hit that big red button when you need to. So again, interesting scenarios that I've been talking about with students recently, I thought would make a damn good show to go on. With that being said-
Phil Newton: .
Sean Donahoe: Absolutely. Rock and roll. We'll do it again, same bad time, same bad channel. Take care for now.
Phil Newton: Bye for now.
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3 Key Takeaways From This Show

  • Be prepared for anything, there's a lot of itchy trigger fingers
  • Be consistent with your application of a positive expectation strategy
  • Look at multiple timeframes, sometimes the opportunity can be revealed clearer

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