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Trading Lessons

Is The Market Setting Up For A Crash?

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Written by Timothy Sykes
Updated 8/8/2023 6 min read

Plays…plays…plays

Everyone wants them, but sometimes the best play is to sit on your hands.

And right now I’m starting to get worried about the market.

In fact, there are 3 main reasons why I believe we could see a sell-off very soon.

It could blind side a lot of traders and cause some massive losses.

But I got your back, I’ll show you what I’m looking at, and I plan to play it.

 

Stocks Are Priced To Perfection Right Now

I have traded for over two decades and experienced enough bull and bear markets to tell when things are getting out of control.

In November 2021, I warned people that the market was going to crash…and I was dead on.

Source: StocksToTrade

Take a look at AAPL, the stock has been gliding higher all year. But it’s now cracking after it released its latest earnings report.

Tesla, another favorite among investors, is trading well off its highs as well…

Source: StocksToTrade

And while stocks like AMZN, and NVDA are still in a strong uptrend, they can’t afford any hiccups…

NVDA is trading at 233x multiple…and AMZN is trading at 340x.

Now, I’m not an investor, I trade price action, but I know enough that the fundamentals eventually catch up in the long-term.

And with earnings mostly out of the way…what else is going to keep stocks pushing higher?

The Overall Market Is Extremely Extended

Source: StocksToTrade

The Nasdaq is up a whopping 40.1% this year…at some point it needs to take a breather right?

Stocks don’t go up in a straight line, let alone an entire basket like the Nasdaq.

Not only that, but sentiment has gotten SUPER bullish lately.

Source: Bloomberg

If the same analysts who predicted a recession and missed this entire rally are now saying the coast is clear…that worries me.

And it should worry you.

Historically, September and October Are Awful Months For Stocks

Traditionally, the worst month for stocks is September.

And while that doesn’t mean there has to be a sell-off in September, it can often lead to a self-fulfilling prophecy.

And let’s not forget the Bank Panic of 1907, The Stock Market Crash of 1929, and Black Monday 1987 all were in October.

While September is statistically the worst month for returns, it’s easy to see why October is the most feared.

How I Plan To Play It

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First, I will be extra careful taking new positions, and will likely take less overnight trades.

Second, I will be hyper-focused on risk management, and cut losses quickly.

Third, I’m going to avoid “market stocks.”

I often say 3 out of 4 stocks follow the overall trend of the market.

However, there are always outliers.

Take for example VTGN yesterday.

Stubborn shorts really made a meal out of this one.

Source: StocksToTrade Breaking News

The stock re-opened at $2.50 after the halt and climbed as high as $60!

Many of my Challenge students caught this on the long side and crushed it.

And as long as there are plays like this, then I’m not too worried about a market sell-off.

Just be ready for a shift…because I believe it’s coming soon.

Taking The Next Step

© Millionaire Media, LLC

My very best students are committed to learning and getting better each day. They know that results won’t occur instantly…but they trust the process.

Dozens of my students started off with just a few thousand bucks and turned into millions.

It’s possible.

But nothing is guaranteed.

Each day my team and I are offering live training classes. We talk about what’s happening in the current market and what we’re doing to take advantage of it.

If you want to join one of these live classes it’s simple.

CLICK HERE TO REGISTER

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Timothy Sykes

Tim Sykes is a penny stock trader and teacher who became a self-made millionaire by the age of 22 by trading $12,415 of bar mitzvah money. After becoming disenchanted with the hedge fund world, he established the Tim Sykes Trading Challenge to teach aspiring traders how to follow his trading strategies. He’s been featured in a variety of media outlets including CNN, Larry King, Steve Harvey, Forbes, Men’s Journal, and more. He’s also an active philanthropist and environmental activist, a co-founder of Karmagawa, and has donated millions of dollars to charity. Read More

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* Results are not typical and will vary from person to person. Making money trading stocks takes time, dedication, and hard work. There are inherent risks involved with investing in the stock market, including the loss of your investment. Past performance in the market is not indicative of future results. Any investment is at your own risk. See Terms of Service here

The available research on day trading suggests that most active traders lose money. Fees and overtrading are major contributors to these losses.

A 2000 study called “Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors” evaluated 66,465 U.S. households that held stocks from 1991 to 1996. The households that traded most averaged an 11.4% annual return during a period where the overall market gained 17.9%. These lower returns were attributed to overconfidence.

A 2014 paper (revised 2019) titled “Learning Fast or Slow?” analyzed the complete transaction history of the Taiwan Stock Exchange between 1992 and 2006. It looked at the ongoing performance of day traders in this sample, and found that 97% of day traders can expect to lose money from trading, and more than 90% of all day trading volume can be traced to investors who predictably lose money. Additionally, it tied the behavior of gamblers and drivers who get more speeding tickets to overtrading, and cited studies showing that legalized gambling has an inverse effect on trading volume.

A 2019 research study (revised 2020) called “Day Trading for a Living?” observed 19,646 Brazilian futures contract traders who started day trading from 2013 to 2015, and recorded two years of their trading activity. The study authors found that 97% of traders with more than 300 days actively trading lost money, and only 1.1% earned more than the Brazilian minimum wage ($16 USD per day). They hypothesized that the greater returns shown in previous studies did not differentiate between frequent day traders and those who traded rarely, and that more frequent trading activity decreases the chance of profitability.

These studies show the wide variance of the available data on day trading profitability. One thing that seems clear from the research is that most day traders lose money .

Millionaire Media 66 W Flagler St. Ste. 900 Miami, FL 33130 United States (205) 851-0506 This is for information purposes only as Millionaire Media LLC nor Timothy Sykes is registered as a securities broker-dealer or an investment adviser. No information herein is intended as securities brokerage, investment, tax, accounting or legal advice, as an offer or solicitation of an offer to sell or buy, or as an endorsement, recommendation or sponsorship of any company, security or fund. Millionaire Media LLC and Timothy Sykes cannot and does not assess, verify or guarantee the adequacy, accuracy or completeness of any information, the suitability or profitability of any particular investment, or the potential value of any investment or informational source. The reader bears responsibility for his/her own investment research and decisions, should seek the advice of a qualified securities professional before making any investment, and investigate and fully understand any and all risks before investing. Millionaire Media LLC and Timothy Sykes in no way warrants the solvency, financial condition, or investment advisability of any of the securities mentioned in communications or websites. In addition, Millionaire Media LLC and Timothy Sykes accepts no liability whatsoever for any direct or consequential loss arising from any use of this information. This information is not intended to be used as the sole basis of any investment decision, nor should it be construed as advice designed to meet the investment needs of any particular investor. Past performance is not necessarily indicative of future returns.

Citations for Disclaimer

Barber, Brad M. and Odean, Terrance, Trading is Hazardous to Your Wealth: The Common Stock Investment Performance of Individual Investors. Available at SSRN: “Day Trading for a Living?”

Barber, Brad M. and Lee, Yi-Tsung and Liu, Yu-Jane and Odean, Terrance and Zhang, Ke, Learning Fast or Slow? (May 28, 2019). Forthcoming: Review of Asset Pricing Studies, Available at SSRN: “https://ssrn.com/abstract=2535636”

Chague, Fernando and De-Losso, Rodrigo and Giovannetti, Bruno, Day Trading for a Living? (June 11, 2020). Available at SSRN: “https://ssrn.com/abstract=3423101”