One of the skills (besides patience) most important to traders is adaptability. And it’s a skill that has required an exponential learning curve in the last 5 years or so, as the character of markets continues to morph rapidly. No doubt program trading and the tremendous rise of the notional value of stock traded through options are two large factors. Without going into too much detail (I will another day), the options market has become a driver of the underlying, rather than just a derivative of it. Another way of saying it, is the tail (options) now often wags the dog (stocks). And that occurs with a sophistication that most traders can’t fathom. So adaptability is key.
One of the formerly common sense adages that we all intuitively believed in, was that the general economy and what was happening on Main Street would be generally reflected in what happens on Wall Street. It would be very hard to look at the last year and claim that was still true. So we adapt. Traders are often wrong, the market is never wrong. Price is absolute.
And this all accounts for my view that for right now at least, it is not the time to be bearish on the stock market. Price is telling us that. The chart of the SP 500 is still going from bottom left to top right. If we try to go short on charts that look like that, our successes will be infrequent. Additionally to that, I see many stocks that HAVE had significant corrections and are looking much more ready to go higher then collapse further. This is one of the reasons I like ARKK, the innovation ETF. As the attached chart shows, it has suffered substantially from the highs and has for the last few months been tracing out a pattern of higher highs, and higher lows. I am long this stock from about $1.50 higher then Monday’s close via December call options. So I am offside right now, but still like the stock.