Traders don’t want to believe the market’s changed, but it has.

After being at the TradersExpo in Vegas last week, I came back to Austin with some questions I was asked floating around in my mind — one being, with a volatile market like this, do you wake up every day loving your job or hating it?

That’s a double-edged sword you see. There are days where I wake up and I love my job, and there are days where I wake up and things are a little bit hairy.

Today the market took another step lower with AAPL leading the way. Surprising? No. The Nasdaq along with the whole tech sector are hanging on by a thread.

What does that mean?

Well, in trading, you always have to have a plan. Following your plan without emotional attachment or allowing outside influences to get to you is critical. However, we’re all human. Myself included.

I‘ve been calling the short side for the better part of two weeks. Most of my trades have been bearish, and I’ve been buying puts in stocks like FB, GOOGL, AAPL, BABA along with the SPY and the QQQ’s. There’s been a strange phenomenon going on, where traders don’t want to believe the market has changed.

They don’t want to believe that yes, tech is going down. It was overvalued, too many people were long, and the Q3 earnings season we just had proved that investors sentiment was just too high to hold up the high prices of the stock.

So what happened?

Well, last week while I was in Vegas, I was heavily short. Then, on Thursday, I started to see the beginnings of a short squeeze.

What is that?

It’s when too many people are short in the market, so you get a quick rally higher that typically rips shorts heads off. Not wanting MY head to be ripped off, I took half-sized profits on all of my shorts.

Why do I say half-sized? 

Well, because they were about halfway to my targets. Normally, I always stick with my plan, and that plan is to target the extension. Well, in this whippy market, I decided to take half-sized profits. They were good. I mean, I can’t complain about a profit, right? However, in this game, you have to learn to maximize your gains.

The FB short I took off last week at $142 traded to $131 today. It was a KILLER trade… that I took off early. FB and NFLX quite frankly shouldn’t be considered part of FANG any longer (yes, I said it). They’ve been unable to return to an upside trend after their last quarter earnings. Additionally, FB is hounded by data scandals. Thanks Mark.

So, why am I telling you this, and what is the lesson here?

FB was a killer Five Star to the downside. My favorite.

Out of caution, I took it off before my stop was hit, because I saw the short squeeze coming. What happened after the short squeeze ran out of gas? It turned around immediately and went to my perfect target. Lesson here? Patience. Know your plan. Stick to it. And scale in and out.

Few quick reminders: remember that intraday moves are different than a long-term, swing idea. FB short is a long-term swing idea. A short squeeze? That’s typically an intraday move.

Now what you’re waiting for, so what about tomorrow?

I’m going into tomorrow bearish the market on a swing basis with the possibility for intraday rallies as short covering moves. IF this short covering can overtake key overhead resistance in the S&P futures at 2750, then 2800, then 2815, that’s the only way that the market will correct the downtrend. However, today we broke key support, and each rally into resistance has failed so far.

The critical factor was the behavior of key tech stocks, which as I’ve said tech is going down, so that’s the way I want to go.

Down.

To wrap up — if you’re looking at something to buy… healthcare and utilities. Play safe haven stocks in an environment like this. Other than that, look for weak stocks that are retracing to the mean to short them.

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