I have made many mistakes in my trading life and I’m sure I’ll make many more. My most recent mistake is one that I thought I had rectified in the past. This particular mistake is, however, creeping back in. This particular error could be categorized under “throwing good money after bad”.
What I mean is, I have been bearish all year long. Overall, this was the right attitude. However, there was a noticeable change on October 13 kicking off this rally. After that, my executions were awful and my choice of targets was poor.
The first problem was partly due to restrictions on how I can trade. I had kind of managed this issue, but it is still an issue nonetheless. But the second point about choosing poor targets is my big mistake I am referring to. I have been so focused on the broad market that I failed to see better opportunities passing me by.
When I say better, I mean not only more profitable, but safer too. Fundamentally, this entire selloff this year really is mainly being led by technology stocks. From peak to trough this entire year, I think the only tech stock which has done a bit better is Apple (NASDAQ:AAPL) by a smidge. While I have been shorting SPX, I have been talking about tech stocks as well all year long, so it’s not like I didn’t realize they were shortable. I just ignored them while watching SPX go sideways since June.
We bottomed on October 13 and rallied hard off the lows in two weeks. We then took a brief 5 day pullback then rallied again to today’s high. During that time, tech was noticeably weaker (I won’t post them all here, but take a look for yourselves. Earnings season tech got hit hard). During that whole time, I was stuck focusing on my SPX short, but watching in envy as tech got killed (I did have an existing position in Tesla (NASDAQ:TSLA), but was not as large as my SPX trade).
TSLA jumped just under medium term resistance levels. While I let the SPX rally figure itself out, I think TSLA is going to have a tough time jumping back above some of these levels. If I am wrong then that is what stops are for. But overall, I think tech investors are finally coming to terms that their growth stories are put on hold and have been getting out. What gives me the most hope is the relative weakness of this stock after its most recent breakdown. Since October 13, SPX is up over 14% from the lows while TSLA is down 5% from the lows on October 13.
TSLA zoomed out to weekly shows this week has been a nice breakdown beneath the choppiness of the past few weeks. We generated a long wick here but still have not managed to recapture the breakdown zone beneath 208.
The monthly chart also doesn’t look bullish at all. We just started this month, but I’d expect that 208 level I mentioned to be defended should we trade back up there (i.e., should this get dragged up by the broad market). Closing this month beneath 208 would be the clincher for a continued fall.
So what could I have done better? Well, I had a winner going in my TSLA short. And each push higher in the broad market provided a significant shorting opportunity in TSLA. Instead of hoping my SPX would then follow TSLA, I should have been exiting my SPX trade as it wasn’t working out as I’d hoped and should have been piling into my TSLA short. The same could be said of Meta Platforms (NASDAQ:META), Alphabet (NASDAQ:GOOG), or Amazon (NASDAQ:AMZN). They all have also jumped just under their respective resistance levels. Regardless, I’ve gotten fully short. My timing is a bit off, but I have my spots picked out and am prepared for whatever the market has in store.
Whether you agree/disagree, that is certainly your opinion. As with all trades, perform your own due diligence, make the trade that makes sense for your risk tolerance level and time frames. I have a few months for this to work out while others may be looking at days/weeks.