It's important to recognize when the boat has left the harbor without you. It's equally important to recognize when you're aboard the Titanic and headed for an iceberg.
This is the difference between chasing when it's already too late and going with a sinking ship. If anything, this epitomizes 2020 in a nutshell. There's probably been no better group than the SPACs, but we've seen that in individual names like JinkoSolar Holding (JKS) as well. Once shares broke above $50, it was a dice roll as to what would happen next. In that case, they rose to $90 over two weeks but fell from $90 to below $70 in a single day. A day later, today, in fact, they touched $61.58.
The challenge for traders sits with the fact that the 25% pullback could have come from $50. And if you're short, you had another 80% higher before the stock reversed.
For SPACs, everyone was playing for the "next Nikola" (NKLA) , the squeeze from $40 to $90. A very similar squeeze to that which we just saw in JKS. This one went from $40 to $90 in less than two trading sessions before closing under $60 two trading sessions later. It gained cult status as it hung between $55 and $75 for the month of June. When the stock started taking on water in July, many did not want to believe there were troubles. Some still don't even with serious questions brewing.
I'm seeing the same thing with Spartan Acquisition (SPAQ) , soon to be Fisker. After the run up in September, many were expecting a similar squeeze, but the mid-month reversal was the first iceberg siren. The break below $14 in mid-October was the iceberg in plain sight, but I know there are still many holding on white-knuckled with expectations of $60. And it may get there one day, but there is no shame in seeing the iceberg and abandoning ship. One could have sold in the $13's and bought back today some 15% to 20% lower.
The simple fact is you'll rarely call tops or bottoms but recognizing trends and changes in trends is a key to survival. There are rarely bonus points for being the captain that goes down with the ship. If you do manage to catch a huge mover, then understand how to set trailing stops or scale out of a position. Calling a top is as hard if not harder than calling a bottom. And when we have names running 100%, 200%, or 300%+, you can bet the turn is going to be sharp in most cases. While one can say, the stock only dropped 25% from the top, remember that 25% is coming from a much larger number. The opposite is also true. A 20% single-day bounce after a stock has fallen 50% will still leave you down 40%.
Trends have changed, even on the overall market, and it is time to recognize that. The "easy" period for equities is on the shelf for now, so adjust accordingly. As I've said, that means more cash for me, a focus on intraday scalps, and maintaining positions with defined risk.
