Whether one is into short selling on a day trading basis or long-only swing trading, stop-loss and trailing stop-loss orders are essential for success. Ultimately, one must have a certain mindset and vision in the trading field to succeed, including a passion for the game. Additionally, one must be willing to admit when a trade has gone wrong and, more importantly, a desire to cut losses. As we have said in the past, some of the best trades we have experienced were losses we took; had we not, we would have been irrevocably wounded, and the account would have gone up in flames. Hope is a four-letter word in this business.

One of the most successful traders we know has all the above and a laser focus during market hours. Taking notes throughout the day, studying winners and losers, and writing a personal market recap helped him sharpen his trading skills and instincts.

Good personal habits and life balance are essential for good trading; top traders do not show up at the desk with their minds dulled and hungover, having spent the night before in a gin mill. They report for life every morning, do the work, study, review, and take notes. Systematically they develop a workflow and routine. They create checklists for entering, managing, and exiting the trade. It becomes rote and mechanical to the point of second nature. That is the ideal.

In last week’s Bear Growls, we posited the title: Solstice Bounce? Or the Start of a Summer Rally? The jury is still out, in our humble opinion. As we write this note after the market close on Tuesday the 28th, stocks fell convincingly to put the bulls back on their heels. The market opened higher but soon succumbed to an all-day persistent selling. After Conference Board released consumer confidence data for Jun (mid-afternoon), the market continued down into the close. The only bright spot was energy services reacting to positive news out of China and discussions that major oil-producing countries were at full capacity on production.

We focus on our Master Cycle of 60 years in our cycle work. In 1962 the market (S&P 500) bottomed on June 25 at 51.35, then had an initial move higher into July 5, which kicked off a rally into the late summer peak on August 23 at 60.33. From June 25 to August 23 (a 60-degree time period), the S&P showed a gain of 17.49%. But by October 24, the index had fallen to 52.55, testing the June 25 low ( another 60-degree period for a total of 120 degrees low to high to low). As we mentioned, that autumn sell-off coincided with the Cuban Missile Crisis.

The 40-year cycle (1982) bottomed August 9 at 102.2, but by November 10 advanced to 144.36, peaking for the year, a spectacular 41% gain (close to 90 degrees in time).

The 20-Year cycle (2002) bottomed on July 24 at 775.68, then ran up to the high for the year on August 23 at 962.7 ( a 30-degree time period from low to high), a gain of 24.1%.

Might we see something similar to any one of these three analogs? Sentiment has been negative for so long now that the buy-the-dip crowd has turned into a sell-the-rip crowd.

There is a saying on Wall Street that what everyone knows isn’t worth knowing. What do we all know? Ukraine, Fed tightening, oil production/refining at capacity, high inflation, and dismal petty politics going into the mid-terms. Any perceived improvement on any one of those fronts might spark rallies like 1962, 1982, and 2002. Trade well and stay safe. JHS

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