Big Picture - Stage 4 Breakdowns Everywhere

When you first joined Trading Experts, there might have been a conversation we had about your interest in quitting your day job and trading full-time. If you fall into that percentage of members where that conversation did occur, our reply was often, "your goal here is to learn how to add a source of income, not replace one for the other." Now when the market has been on fire for the better part of two years, it could have been a second thought - "just maybe, it's worth a shot."

Yet, when the market turns extremely cold, as we have seen recently, it can feel like an eternity. These are the times to be reminded why we want to focus on adding sources of income instead of replacing them. For a moment, just imagine that you were trading full-time. The market has been a dumpster fire for the past month, and all your normal bills were due last month and will start to come due in a day or two—mortgage, utilities, car payments, insurance, credit card bills, etc. Yet, this main source of income has not been doing much sourcing lately. That is the unnecessary pressure that forces traders who need income to battle it out in this market—more often than not, adding fuel to the pain as a result.

This was one of the main reasons most traders failed out in the first few months at the prop firm where Shake and I met. We were all forced to trade every day because it cost us money every time we stepped foot in the office. Shake survived because he's Shake—a phenomenal trader. I survived mainly because I had more than one leg to stand on. I had other sources of income to keep me afloat, whereas most of my peers didn’t.

Right now, we are getting that reminder. Yes, the market sucks temporarily, but we have other sources of income to focus on. With the tax deadline two weeks away, our goal right now is to get 90% of your tax returns filed before the April 15th deadline, as some—mostly businesses—always go on extension (the other 10%). As the market continues to form bear flag after bear flag, we are spending most of our day talking with tax clients about their returns and tax strategies for the year ahead, sidestepping any mental capital drained from failed breakouts inside a broader breakdown stage.

With the extremely obvious bear flag in the index (right), it looks almost exactly like the first bounce after the correction that kicked off the COVID crash. Now, the COVID bounce looks much smaller because the second leg makes the first leg down look like child's play.

After listening to this nearly two-hour podcast, it paves an extremely bullish outlook for the U.S. economy over the next few years—if even half of what is said is attempted. In the short term, the breakdown stages are extremely clear: avoid putting cash to work. The bear flag in the index is a very clear signal to avoid putting cash to work. And the almost identical price action in the index currently, compared to how the COVID crash played out, is another reminder to keep that cash on hand while focusing on your other sources of income. I still feel we will see new highs by the end of the year, but we may have to get this bear market out of the way before that can happen.

If you are feeling bored and want to hop on a call this week to go over some of the tax strategies for 2025 that we have been exploring with our Tax Experts clients—such as Trader Status, QBI deductions, and a handful of other very useful deductions—let me know.

                                                                                      

From Bennett

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