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Risk on

When reading financial headlines one could easily think the markets are selling off, we’re in a in severe downtrend where panic is just about to hit the main street. It’s really hard to find anything positive, and even if we get to read something that could sound a bit optimistic it’s accompanied by a word of caution, caution ahead of the next recession. Everyone’s obsessed about it.

I don’t know about you guys, but I like to stay open minded and being optimistic is a viable option too. It helps spending some time with family and friends during the Summer, and having the Adriatic sea at our fingertips is just a bonus.

Since the beginning of the year we’ve been bullish the stocks (Is it over?), bitcoin (Are cryptos trying to bottom?) as well as gold (Will gold bugs finally have their day?). It’s a ‘risk on’ environment, you know. However, is that about to change?

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How will the dollar affect stocks?

I guess everyone knows the saying ‘fool me once…’. The market tries to fool us not once or twice, but much more often. If it was straight forward, risk management wouldn’t be as important as it is. In fact, it’s the most important aspect of trading in my opinion. I believe finding the best opportunities and making the most money out of them starts with great risk management and not other way around.

In a recent post Dollar about to rally? I was exploring the dollar bull thesis. Frequent readers know that I’ve been a dollar bear for a long time now, and exploring the opposite side of an investment thesis is a must if you want to manage risk effectively. While the dollar is still in a sideways trend, last week turned the table in favor of dollar bears once again, which is my preferred stance. But why is this important and how could this affect the stock market and economy?

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Will gold bugs finally have their day?

Last October I’ve started noticing some positive developments in gold just when stocks started to correct into Christmas eve’s bottom, see Rotation to gold and miners?. Since then it’s been firming up for possibly something bigger.

I’m not one of those gold bugs who’ve been advising to hold gold in the past almost 10 year long bear market. I don’t believe in some idealistic ideas with potentially huge opportunity costs. But when I see a good opportunity I try to grab it with both hands.

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Dollar about to rally?

The other day a guy tweeted to me that I couldn’t have been more wrong about one call. Yes, I do get them wrong, as much as 50% of them. If not more.

I often write about that, as I also say that for your (financial) well being is probably much more important to be able to manage risk effectively than to be able to make a higher number of calls right. But I get where the guy was coming from. In the world of instant gratification people feel the need to be right all the time and demand instant results. Go figure, ha? Is this also be a reason why so many traders converge to short term trading? I guess.

Anyways, let’s get to today’s topic. I was a dollar bear not so long ago, but the recent developments were making me change my stance to more and more neutral lately when I was becoming also more open to bullish scenarios. It’s ok if traders live in their idealistic world where they constantly feed their own biases, but this might not so profitable. To me it’s not hard to change my mind and admit my initial analysis was negated.

We saw a breakout attempt in the dollar a few weeks ago and it initially seemed it will be rejected. We can see this from the $DXY dollar index chart below, see circled candles.

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Don’t get caught up!

I don’t mean by the markets, but by yourself. Regardless of your system, you will have losing trades. Some of the best traders have a win ratio of only about 50%, so their predictive system is not much better than a coin toss. However they have great risk management in place and they know when to back off. Everybody experiences a series of bad trades, but only the best know when it’s time for them to stop to minimize the damage that would have been incurred otherwise.

If I could count how many times I was stopped out and how many times I experienced one of those series… numerous. But what prevented me from going bust was exactly that, knowing when to stop.

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New all time highs is not a downtrend

The S&P 500 index is back at new and fresh all time highs. Maybe this is not the best time to be writing a bullish post, it could backfire and we could see a 2015-16 bottom style retest. We have just seen an incredible 25% bounce in about 4 months, volatility is depressed and just about to burst. However let me remind you, I wrote a series of posts in October, starting with Winter coming?, warning you we could see a market crash, and then in Jan I flipped the side asking myself and my readers if Is it over?.

I was cautious along the way. The bounce could easily have been a bear market rally, but getting to fresh all time highs should reduce that likelihood, right? We were getting constructive signs along the way, let me just mention recent The most important market in the world right now post.

And while we’re back where we left it a good half a year ago, let’s discuss the current environment and why the party might not be over just yet.

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Tesla or TeslaQ?

Probably the most controversial company in the stock market is Tesla. People either love it to such extent they almost worship it or they dislike it so much they think it will be de-listed from the Nasdaq exchange. It seems there’s no middle ground. It also seems no other stock divides people that much.

If I said I care it would be a huge overstatement. I don’t. Why would I have to? And as much I’d want to dive straight into your favorite ideological debates, that’s not the intention of this post. I want to warn you of a potential deeper correction that might happen in Tesla’s stock.

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Workshop feedback [video]

Here is the feedback with a few opinions about the workshop I held last week. The video is recorded in Slovene language, but it’s subtitled in English.

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The most important market in the world right now

Back in October last year the German stock index DAX was flashing warning signs for the stock market as a whole (see Winter coming?). We paid attention and whoever was alongside, was able to protect the damage that could have occurred otherwise. However in the beginning of this year we flipped the table and started (cautiously) accumulating stocks again (see Is it over?).

In this post I’d like to present why I think the DAX is again one of the most important markets in the world to watch right now.

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Biotech stocks poised for a breakout higher

After the best first quarter of a year after quite some time, the rally from the low keeps on going. In March I was advising to get cautious if the market decides to start turning lower. Some might have taken that as too cautionary, however I must remind you we’re still in a cyclical correction and approaching upper trading range. To me playing defense is more important than playing offense. Don’t forget, in October last year we got out of longs and how important that was for preserving our emotional health and keeping an open mind in Q1 this year.

A good thing to see is that under the surface some nice bases are being built. This could provide the necessary fuel to extend this rally towards previous all time highs and later even beyond. This has been my thesis since beginning of the year (see Is it over?). One of the nicest bases being built is in biotech stocks. After a magnificent run between 2011 and 2015 when they more than quadrupled, they’ve been consolidating ever since.

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