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  • Sean Hyman
    Keymaster
    Post count: 6974

    Traders have gone out to the end of the limb (on margin) and its about to snap and break-off. No one knows the day or hour that it breaks…but it will, as it has always done, historically. And when it does, it will be ugly. https://www.zerohedge.com/markets/index-volume-speculation-blows

    MICHAEL HIRSCH
    Participant
    Post count: 69

    Sean, WOW! Do I understand this to mean that traders are doing their speculative euphoric trades on margin? When I applied for options with Schwab I confirmed that I would never use margin. If traders are speculating with borrowed money, there will be a lot of bankrupted broke folks! If so, WOW! Peace, Pastor MichaEl

    Sean Hyman
    Keymaster
    Post count: 6974

    Of course. That always happens toward the end of bull markets, but particularly when they’re bubbles. Investors do it too.

    They think, “Man, I made X last year in stocks. I’m being too conservative. Imagine if I’d used margin, I’d have been up twice that much”.

    So, they get sucked into margin trading.

    If one were ever going to apply margin (which I don’t suggest), it would be toward the beginning of a bull market (like the bottom of wave 3 or early on in wave 3). Instead, when do they do it the most? Wave 5 (end of the bull market) or wave B (the first bear market bounce in a bear market, which they believe to still be a bull market).

    Yep, there will be a lot of people that blow up their accounts.

    1 Timothy 6:10, the part of the verse that many don’t read (which I know you know)…

    Some people, eager for money, have wandered from the faith and pierced themselves with many griefs.

    Unfortunately for them, they’ll see this part of the scripture come true for them in their lives because of their greed.

    Sean Hyman
    Keymaster
    Post count: 6974

    If you want a little quick history on the dotcom bubble of 2000 (which is the most similar to the one we’re in today), check out this short video: https://www.youtube.com/watch?v=MvwhS39de1o

    Sean Hyman
    Keymaster
    Post count: 6974

    The market surged higher and then quickly backed off. That’s potentially a negative sign.

    Sean Hyman
    Keymaster
    Post count: 6974

    If this doesn’t show “maximum optimism” in the market, I’m not sure what does. ha-ha.

    Check out the number of calls bought at the peak of the market in 2000 and in 2008. Now look at it in 2020 and 2021.

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    Sean Hyman
    Keymaster
    Post count: 6974

    3 standard deviation moves are dangerous, especially when the market is fundamentally overvalued. It tends to market a toppy period at “peak euphoria”.

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    Shane Callahan
    Participant
    Post count: 15

    found a good quote this morning, many attribute it to warren buffet but apparently it was this dude

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    Sean Hyman
    Keymaster
    Post count: 6974

    It probably goes back even further. Human nature has always been that way.

    I like the way Buffett says it better: To be fearful when everyone else is greedy….(think the NASDQ now, GME recently, etc.)

    …and to be greedy when others are fearful (be willing to enter value positions when it seems like “the sky is falling” yet the assets are solid and cheap).

    Lee Saunders
    Participant
    Post count: 49

    Hello,

    Just wondering, as there is solid potential for a sell-off, would it be better not to invest if not already invested, and wait for the sale to commence and get some bargains instead? It seems a bit like shopping, knowing that there’ll be a sale on soon but being impatient and buying things now.

    Could a US market crash ripple into other countries’ markets as well?

    Evan Haymes
    Participant
    Post count: 16

    Sean with endless stimulus in the future and democratic view of free money for all it does seem like there will be more upside volatility with a huge swing back down. It is hard not to buy things in the euphoria of an up market especially after past 10 years worth of gains. Lived through 2000 and 2008 crashes, it does feel like the economy and environment is different now due to pandemic and endless spending. But that being said 100% agree with ur position and your sentiment. I have a hard time owning anything with a profit and feel like I should just wait out the correction and buy slowly. 52 now with sizable retirement portfolio, really just don’t want to loose anything. Thanks for all ur advice, on board for the big win. Evan

    Sean Hyman
    Keymaster
    Post count: 6974

    Lee, you want one tranche in because there’s no guarantee that 100% of our stocks go down. However, if they did, that’s what 2nd and 3rd tranches are for. One never gets fully invested without downtrends from their original entries to a 2nd or 3rd tranche.

    When we enter a stock, it’s already at a fundamental bargain. The 2nd and 3rd tranche just make them, more so.

    Sean Hyman
    Keymaster
    Post count: 6974

    Evan, any sizable gains you have, you can take.

    Stimulus doesn’t mean “the market can’t go down”. They stimulated at ever market crash in my lifetime some way or another (lowering rates, money printing, etc.). Did it make a bear market not possible? No. Did it stop a bear market from happening? No.

    If the Fed could prevent bear markets, then we’d never have them. Yet, history has proven…we have bear markets in stocks.

    And as far as where the top will be, no one knows. All one can know is when there are insane risks, which is where the market is now. Whether you choose to play in insane risks is up to you. But I’d not dangle my hard-earned funds over the fire.

    Evan Haymes
    Participant
    Post count: 16

    100% Agree

    Sean Hyman
    Keymaster
    Post count: 6974

    So, at the end of the day…no one knows what exactly the future holds. SO how does one profit from unknowns? Do they just get lucky? Nope. They have a system. They buy/hold/average down when they know a stock is undervalued (not knowing exactly when the market will revalue it) and they sell when they know risks are high, when the stock is overvalued. And it’s the same concept with indexes too.

    What I love about having a measurable system is that, while NO system will call tops or bottoms, we can enter in periods of low valuations and exit at higher valuations and ensure we don’t enter at high valuations.

    Now, in this coming sell-off, it will temporarily weigh many of our positions down during it, but they stand the shot of running like race horses after it, unlike stocks that were overvalued in it. Plus, since we’re invested, we earn very high yields while we wait it out. Earning 3-8% in an almost no-yield world, is a great thing. Meanwhile, there will likely be an asset or two that could go up during the bear market. Last week’s weekly video tells it best though.

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