Arete Tuesday Newsletter

Stop Catching falling knives 🔪🗡️📉

Apr 20, 2021

Stop catching falling knives. We have all heard the expression but what does it mean. It means to when something is dropping that can hurt us do not catch it. Very simple. We can get cut. It can lead to several cuts that simply keep happening. I think it is important to look at the entire quote:

“Never try and catch a falling knife. Wait for it to hit the ground then pick it up.”

See the distinction? They think the only way to reclaim the knife or stock is to buy on the way down. That is not the case. You can simply pick up the knife when it hits the floor. In our case, this means support levels. This has been a tumultuous couple of weeks even though the Nasdaq and SPY500 are only off a couple of percentage points from their highs. Mainly because of people trying to catch stocks that very simply may have had no business being where they were in the first place. One point I have been hammering home so that you avoid some of the pitfalls I made over the past twenty years of professional trading is this. Sometimes they do not come back. Ever. Once again stop trying to buy companies solely on the premise they are going back to where they once were. It does not work that way. A great example is Cisco Systems, symbol $CSCO In 2000 the stock traded at $83 a share $600 billion dollar market cap. on revenues of $18 billion dollars. Today the company has $49 billion in revenue and it is trading at $51 dollars a share. Four times the revenue twenty years later and it's at 60% of the stock price! Let the stock price tell you what to do. Set a process and follow it. The goal is to be in the next $AMZN, not $CSCO.

The $SPY and $QQQ came in a bit which we talked about could happen. I still think we can see the $380 level on the $QQQ .Nothing is broken at all on the indexes. We are simply backfilled and testing support. We could see more sideways action. $IWM looks to be bottoming and we may see an opportunity in the $TNA trade shortly. Consider looking at ETFs and Indexes as well as large-cap stocks to this sorts itself out. If you are looking at investing in small-cap names you need to be nimble. In this market, there are two kinds of traders. The quick and the dead.

Let’s look at our Indexes!

Let’s look at our Stocks

Subscribe to YouTube! 👈Subscribe and turn on notifications. Below is a video of Tuesday’s stock market movers and a game plan for the next couple of days. Consider making these videos part of your routine. I go over the lessons from the trading of the pro series during them and point them out in real-time situations.

As always all investment decisions need to be made by the individual. We all have different risk profiles.No two people trade the same. Understand the buy points, stop losses, trims are suggestions. For example on stops. I want to see it close there at the end of the day.

You need to develop your own process. I am willing to help and offer feedback.

Please make sure you Subscribe to Twitter! 👈and turn on notifications. There are times my updates are timely in regard to the Newsletter. I called sell levels on $UPST and a buy level on $SOXL today. ($38.25)

Any questions please message me.

Thank you again for all the messages telling me how this Newsletter improved your performance and made you a better trader!

The Chasing Alpha Newsletter

Discussion about this post