The stock market began to rally the other week, but yesterday it got completely slammed with a 3% Tuesday decline for the Nasdaq. The rally lost momentum just as all the rest of the ones before it this year have done. Hopefully, the market doesn’t just go straight down to its lows. It probably won’t, but even if the market hangs in there for awhile there are a lot of stocks and sectors that are likely to just dump regardless and are best to be sold now.
Now I know I got the phrase “junk funds” in the title of this post, but I’m not talking about junk bonds or the JNK ETF, even though it fell hard yesterday, as one smart trader I know took notice of.
$JNK High Yield Bonds had a big down day. A break down of $90 would be historic & negative for the market. Only happened during the 2008 GFC & briefly during the covid crash. A big tell that liquidity is drying up. pic.twitter.com/BKVRe9nSRA
— Victor Riesco, CMT (@Global_Trader) June 28, 2022
A lot of people just threw money into various dubious stocks they saw on their Robinhood app last year and are still holding them even though they are in bear markets.
That’s not the way to win.
The smart people I know adapt to what is going on and pay attention to what is happening so that they can do that.
Market is still way too weak to warrant any kind of aggressive long exposure. When price behavior is not confirming bullish scenarios / assumptions, I change my mind.
— Olivier Tischendorf (@Tischendorf) June 28, 2022
In bear markets stocks that lag the S&P 500 tend to collapse when the market has a pullback.
These stocks become millstones in people’s accounts and so do the funds that are heavily invested in them.
With all of this in mind, I believe now is a good time to raise some cash by selling such millstone stocks and situations, after the market has rallied a bit.
Look to see if a stock is outperforming or lagging the S&P 500 by using the relative strength ratio.
For instance, here it is for fad stock SQ on the bottom of this chart.
The relative strength SQ:$SPX ratio on the bottom of this chart shows that SQ is lagging the S&P 500.
So, when the S&P500 drops SQ crashes and then when the market rallies it fails to go up enough to make back its losses.
It’s acting as a millstone for people who own it and and is a disaster.
I believe the thing to do is to use market rallies like we just had to get out of situations like this.
And yes that means NOW is the time to sell the ARKK ETF.
I don’t care if there are lots of people on Youtube doing videos praising Cathie Wood or trying to talk like her with technobabble to relate to her followers, the reality is her fund is crushing those that hold it.
The time to sell ARKK isn’t tomorrow it is NOW!
I admit that I cannot predict if ARKK will go up today or down today, but what I can predict is those that continue to hold this fund will continue to have a millstone in their portfolio damaging it more and more the longer they hold it.
Those invested heavily in ARKK have put themselves in a hopeless situation in a sinking ship.
The way to get out of that is to just sell.
Raising some cash in order to buy later (or just realize tax losses to reduce future IRS bills) by selling laggards is something to do regularly, but the time to do it in bear markets is after market rallies and bounces. You can’t expect to get out at the top of them, you just have to take advantage of them when you can, because the weakest stocks and ETF’s are prone to collapse at any moment.
And all of this applies especially to crypto.
Bitcoin and crypto gurus will never tell you to sell.
-Mike
