Today, I woke up more bullish than I was on March 17. A short-term pop felt like it was inevitable. I was ready to load up on a day-trade and bet big on the QQQ. And I was especially bullish on a consumer discretionary stock that had a big insider buy. My plan was in place at 9:23 am.
But then I received a phone call. My project over in Europe is surprisingly doing well thanks to the shift in the winds on alternative energy. I was surprised… and happy.
So, I talked to my project leader… for an hour. As a result, I’d miss a trade that would have paid off big. I was mad for five minutes. But I quickly got over it. I’ll explain why. And one of the most important lessons of this market.
Don’t Chase… Ever
I was bullish today for several reasons. First, the VIX hasn’t elevated as high as most investors thought it would. Most people think that the VIX must move higher when stocks are moving lower. But that’s not how it works.
The reality is that most traders are already hedged, and without more hedging entering the fold, the VIX doesn’t start to go bonkers.
Next, the VIX is historically low when you consider the severity of the downside move. There is short-term bias in this market, and people think that the VIX will just run to 40, 60, or 80. That’s not how it works.
I was also bullish today because I’ve seen this hyper-bearish pattern three times in 2022 and in late March 2022. Sometimes things get so bearish that you have to become bullish.
One of the finest rules is that when everyone agrees something is about to happen, another event happens. That’s why you have to be a contrarian sometimes.
The Trade I Missed
There were other factors at play. Insider buying is picking up. I saw a lot of purchases at companies like General Motors (GM), General Electric (GE), and Aon (AON). But a new one really stood out, especially in an environment dominated by inflationary concerns.
Howard Schultz, the interim CEO at Starbucks (SBUX), bought more than $9 million in company shares. It hit the headlines last night. The stock moved higher in premarket hours.
I was bullish. Momentum was strong across the board for intraday trading. I planned to make a trade right when the market opened. By the end of the day, shares had rallied more than 8% on the news… and I missed the chance to buy cheap in-the-money calls that expired today.
I should have… my gosh… I should have bought the $72.50 call when the market opened on SBUX. That call opened at $0.45. It closed at nearly $3.00.
But I was on the phone. I missed the trade. By the time I looked at the option again, it had jumped to $1.05. Should I have chased the trade at that point? No. No, I should not.
It’s Okay to Miss a Trade
This market has been full of intraday moves that rocked up and down for several weeks. Chasing a trade is not a good idea. Based on previous patterns and uncertainties, we’ve seen selloffs that come midday.
They didn’t come today. We saw a steady grind higher. But I had a full schedule today. I couldn’t be at my screens all day. I couldn’t and wouldn’t chase SBUX all day.
Yes, there was opportunity cost – but when life comes at you, there’s no reason to be bitter if you miss a trade. There will be more opportunities in this market, full of wild intraday and multi-day swings. Getting too caught up on one trade – and yes, even if it would have returned nearly 900% – is never a good idea. It is what it is.
Right now, we’re entering a very interesting period for the market. I’m becoming more bullish about a short-term bounce. However, I believe that a short-term bounce will shake out the shorts, lead to covering, and then fuel another move down with far less resistance.
Cash remains your best friend. Momentum is red…
