The Tech Stock Surge: Is It Sustainable?
We witnessed some incredible trading today in the chatroom, which is always a source of joy for me. Three traders, Thor, Paras, and Jarad, each approached TSLA differently at the Open, and remarkably, they all ended up making profits.
At times, their strategies were completely opposite of each other, but at the end of the day, they all were smiling. Paras even exclaimed, “I am so back,” jokingly and saying “I love you TSLA” that left traders wondering if his wife knows about this “affair” or not.
Personally, I had an amazing trade on PDD. This Chinese company rebounded strongly after its earnings report, gapping up by 15%. I initially shorted it for a 1-minute ORB but got stopped out without even looking at my PnL.
Quickly, I switched to a long position and capitalized on a fantastic breakout, resulting in a more than 5% gain. This situation resembled what happened yesterday when I was stopped out on TSLA but then switched positions and made substantial profits.
The key lesson here is to trust your stop loss and strategy, which leads to consistency. You may lose 1R but gain 5R, resulting in a profitable day with a 4R net profit.
I encourage you to watch my recap to learn more, where I also discussed Thor and Paras’ trades on TSLA.
Afterward, I decided not to trade anymore. Some might wonder why I don’t trade more often.
The answer is simple: good traders know when to stop. It’s similar to being a social drinker at a party. You have a glass of wine and enjoy your time, possibly having a second drink to maintain the charm. However, you decline the third glass and opt for water instead.
On the other hand, alcoholics don’t know when to stop; they keep drinking until they become socially awkward or feel sick. In trading, good traders know when to accept a loss or gain for the day and stop, whereas overtraders and gamblers do not.
While the market remains relatively flat, familiar names continue to exhibit intraday volatility.
The S&P 7, comprising the seven largest tech stocks in the S&P 500, has surged by a staggering 80% in 2023. In contrast, the S&P 493, encompassing the remaining 493 companies in the S&P 500, has only risen by 4%. This means that the S&P 7 has outperformed the S&P 493 by a factor of 20. A handful of stocks have essentially become the entire market, and the stock market’s destiny appears intertwined with tech companies and AI enthusiasm.
How did we arrive at this point?
These seven stocks have contributed to 70% of the Nasdaq’s rally this year. They have been on a relentless upward trajectory. The question arises: what happens when these tech stocks pull back, considering they are holding up the entire market?
On a price-to-earnings basis, the S&P 7 is now as overvalued as tech stocks were in 2000 and the Nifty Fifty in 1972. Some components of the S&P 7 have P/E ratios more than double those seen in previous bubbles. For instance, Nvidia ($NVDA) now boasts a P/E ratio of 115x. Without these seven companies, the S&P 500 has only gained 4% this year.
The question remains: can these stocks continue to prop up the entire market?
We will find out. Personally, I hold positions in TNA and VOO.
Bear Bull Traders is, in my opinion, the best trading community globally. While I may be biased, we offer a wide range of features and resources, including daily webinars, in-person events, live trading, a proprietary trading firm arm, research papers, and free tools for traders.
We provide real-time and replay market data, scanners, and much more. I challenge anyone to find a community that offers all of this, and if you do, I’ll stop climbing for life!
In all seriousness, we have an exciting webinar tonight hosted by our very own Paras. He will delve into his master class on reading the tape, which I believe is the best course in the industry. It includes over 15 hours of content, live examples, mentorship, and he even trades based on it live in the chatroom. His course is so effective that I can predict his entries and exits without seeing his trades, and he has actually executed those trades! That’s consistency.
If you’re interested in learning from him, join his webinar, which is free for all Elite members. This is part of a three-webinar series, with the other two available for viewing in the Education Center.
This is professional trading: serious, committed, without flashy displays or Lamborghinis.
I hope you’re with us on this journey.
To your success,