Amidst the dismal projections for a disastrous January there lies an unwavering faith that all is well in financial markets. Optimism is conducive to a healthy mind and body, and I encourage everybody to remain optimistic irrespective of their current circumstances. However, when optimism is grounded in denial, delusion, or complacency, the result is regrettably detrimental to whoever exhibits it.
Conviction
If it was easy to maintain conviction in your beliefs despite several pundits claiming that they are poorly constructed and consequently false, everybody would do it. One can believe that they are a handsome man or a beautiful woman quite effortlessly, especially if they receive an abundance of compliments throughout their lives. But what happens when money is involved? What happens when your hard-earned money that is used to provide for your family is involved? It becomes exceedingly difficult to maintain conviction.
In this bear market, your conviction will be tested repeatedly. There is already evidence of this given the few lengthy countertrend rallies we’ve experienced.
“Ultimately, I see the continuation of this nonsensical rally as an early Christmas present and will look to add shorts around 4040,4100, and 4150.” —11/11/22. ES touches 4140 in premarket on a cool CPI report on 12/13/22 and SPX drops to a short-term low of 3764 on 12/22/22.
I don’t believe that this rally is over, and I know that it can be difficult to maintain conviction here given the exceptional strength recently seen in the Dow. “What if the Dow enters a new bull market?” “Pundits are saying that the U.S. will probably stick a soft landing this year, what should I do?” These are both genuinely acceptable questions. There is a wonderful quote that stays on my mind throughout this bear market, and I believe it should stay on the mind of anybody else who wishes to succeed in this market.
‘‘To cure the exaggerations and extravagances of the preceding period of speculation is the function of a bear market. The difference between a technical reaction and a bear market is that the first is a purging of the market’s internal position, while the second is a thoroughgoing rectification of all excesses that have crept into the ensemble economic structure. When contraction has proceeded far enough to remove the distortion and restore the balance, the bear market, from a fundamental standpoint, has ended.’’
The factors contributing to the bull market we left in the past have not only stopped but reversed. QE infinity became QT and ZIRP became “higher for longer.” Ask yourself if what the quote above contains has transpired anytime you see a false prophet claim that a soft landing is all but inevitable or that the bear market is over. And remember this as well:
“It’s always bullish just before the dawn—of a new downswing.”1
The Narrow Road
You will surely feel alone at some point when deciding to go against the consensus view. This is one aspect of logical, nonconformist, contrary thinking that can make execution a bit difficult when the time comes for it. Remember the two quotes above and maintain a dynamic mindset and it will be much easier to execute.
Prophets of Doom
A prophet of doom is simply someone who says bad things will happen. They normally fail to mention that “this too shall pass.”
If the S&P crashes 50% from ATH’s, oil touches $200 a barrel, wars and rumors of war permeate the earth, or a new & improved variant torches us, life will still go on. It will undoubtedly be more difficult, but humanity will prove to be resilient once again. Also, beware of people who claim that the end of the world is at hand because none of us know when this will be.
“But of that day and hour no one knows, not even the angels of heaven, but My Father only.”— Matthew 24:36
Friendly reminder that you don’t have to take a trade at all times. Do not get FOMO. Humility & patience will take you much farther than any 0DTE can.