dani face dani quote

Inflation Not To Blame For Market Pullback…

Hey 5-Star Trader,

May is seasonally a weak month for the market and the media likes to blame different things for its poor performance. Lately, they’ve named the fear of inflation as the latest culprit.

Yes, there are some legitimate fears of inflation, especially with the excess money printing thanks to several stimulus checks, but there are more factors in play.

Seasonality explained…

Earlier this month we saw the market rally so high into earnings that it became overextended. Whenever this happens, the market always corrects itself by trading lower. In fact, this boom-then-bust behavior is typical to see around this time during earnings season.

The indexes, particularly the Nasdaq, tend to rally into major tech earnings. Which we saw happen this quarter. But, because it was up on new highs going into earnings, it simply had to come back down and find support. This move to the downside is what I refer to as the “FAANGover.” This, coinciding with historical May weakness has created a lethal combination to where the move downward was exacerbated. Wall Street axioms are saying “sell in May and go away” and this is continually repeated because it works to change the market.

It partly works because it’s a self-fulfilling prophecy. When traders think it’ll come through, they stop buying (or start selling) in anticipation of a weak month. Right now, I would say it’s coming through right on schedule.

May means discounts… 

While I’m not convinced this pullback started because of inflationary fears, of course there are inflationary fears! The government has been printing money hand-over-fist and has significant plans to print even more. The cost of services and goods has gone up and money has poured into cryptocurrency. Everyone knows inflation is here and the Federal Reserve Board (Fed) keeps trying to prove to us they are managing it. But regardless of what the Fed does, it’s going to be hard to stop this train that is already barrelling out of the station — at least through this weak month.

Smart money knows inflation is here, and yes, the market will get scared about it. We know this, and we’ve known it for a while, so there is no reason to sell stocks because of “inflationary fears.” Let’s see how May shakes out, and most importantly, look for solid stocks to buy at a discount. May is a great month to add long stock positions.

Up Next...

Assigned… What Now?

Hey 5-Star Trader, One of the reasons I fell in love with options was because, unlike stocks, you can use leverage and risk less money for a larger payout. However, when buying options there is always a chance you will be assigned. While this rarely happens to me, I was recently assigned Campbell’s Soup (CPB) … Read more

Read More

Stock Split For NVDA

Hey 5-Star Trader, “Tuesday Trade” Journal: One of the most important concepts in trading is to review your work, and learn from the good and the bad. Identifying what is working is critical — to do more of it. So, to lead by example, each Tuesday, you’ll get a trade from my trading journal, in … Read more

Read More

Why You Should Target This ‘Danger’ Sector…

Hey 5-Star Trader, Technology is a huge part of our everyday lives and has perhaps become even more important to us this last year when many people had to make changes due to Covid-19. More people are working from home, playing video games, and shopping online than perhaps ever before. But how are these exchanges … Read more

Read More

Subscribe Today!

Want to walk the path to trading success together? Join Danielle’s “Five Star Trader” E-Letter for market insights, tips, tricks, and special bonuses.

Sign Up Now

Free Downloads

Squeeze Checklist

When you find a squeeze, check these boxes to see if you’re looking at a higher probability bet.

Risk Checklist

Before we can make money we must define the rules that define our risk parameters.

High Probability Plays in a Directional Market

Download Danielle's free eBook

10 Steps to Becoming a Successful Trader

Commit to becoming a successful Trader

Strategy Selection Risk Gauge

Danielle focuses on creating a constant stream of income through the selection of trend-following, directional plays.

Upcoming Appearances

Check Back for Upcoming Dates

all-as-seen-on-logos