Daniel X. Bustamante, Co-Founder and Lead Coach

Well….where do we start. I am not sure what to make of 2020 for the financial markets and the world as a whole. It’s been a rough year for almost everyone with the virus and we’ve learned a new way of living, for better, or worse. I’ll spare you my opinions on it all but I will say that seeing small business struggle does bother me. I want to discuss this year’s events in this post and jump into a little bit of what I think we can all expect in 2021 in the markets.

Quarter one: An optimistic start to a new decade

The start of 2020 was off to a smooth beginning, at least in January. The markets were at all-time highs and I remembered I wanted to short the markets as a whole. During that time I was spending my time in Los Angeles with friends (I remember because the 6am wake up for markets is brutal) and all I could think of is when is this going to crash?

Timing in markets is important and I am going to talk about that a few times in this post. I recall being short the QQQ through dated put options taking some short-term heat (loss) on the trade. I also put on what are called ‘tail-risk’ trades in big tech names mainly because, at that time, I believed the rally we experienced at the start of the year was just so far overdone.

Now the hard part is to stay convicted. A theme that is constant in trading and investing. So came February and I recall seeing some items out of China about the virus and I figured it would be bad. So, I shorted BABA and Apple stock as well. My timing was off so there was red in my book.

Then I recall it being a Friday and the first news headlines picked up in the US about the virus and we began to sell hard. Monday came, more selling. My short book that was red was now green. Not as green as it should have been because of the short-term red I was in. So, I decided to cover (meaning I took profits) on my shorts.

Well, that was a mistake. The financial markets began there unprecedented decent lower and I missed out on some SERIOUS dollars. But, I’ve been here before (2014 Q3 Netflix earnings I left a lot on the table short) so I moved on.

This brought us to Q2 and the mass panic.

Quarter two: The virus is here; panic ensues

I will say out of all of the craziness that we saw in 2020, the run on toilet paper was by far the strangest, at least to me. Now of course the virus spread far and fast really quick so there was room to panic. I had never seen the type of selling (at least since 09) on the futures than I did during this.

But, now was not a time to panic, it was a time to search for deals. Let me say this, and maybe it helps in your future trading; in times of panic it’s best to step away and devise a plan in a clear and cool mind-state. When you act off of fear or panic it never leads to anything good. Now, sure, it’s hard to do, but if you can do it, it will pay dividends.

One of the biggest (among many) trades I saw occur was on Wayfair this year. The stock hit high $20’s only to rally to mid $200s: I mean, what a trade. This proved to be true for many equities and the dip buyers were paid off (at least into December here.)

Quarter three: Did we miss the rally?

So Q3 came along and it almost felt like ‘the’ rally was missed. We saw massive moves in tech stocks throughout August and September and I remember being in a Guided Trade Session (our trade room) with Sam Evans and neither of us could bring ourselves to buy the highs. We just kept waiting…and I know some of our students were growing impatient but something felt off in the tape.

Well, that turned out to be the billion-dollar OTM (out of the money) call buying from SoftBank. You can read about it here.

It’s funny to have saw that come out. Here you have a tech/venture fund playing in out of the money options forcing market makers to hedge therefore driving the markets higher.

Now when I look back at most names I feel like I missed the rally. Sure, I focused on other sectors and asset classes but most names moved off the lows so well. Which, brings us to current times.

Quarter four and beyond: A new hope

Q4 has been fairly docile. The financial markets are resting on the vaccine as well as stimulus and most things make zero sense in equity markets based on valuations. The 2020 Presidential election produced less volatility than expected, but again, I think most were ‘pre-hedged’.

As we head into 2021 with a new President as well as hopes for the vaccine working, we could have an explosion of asset prices higher.

Yes, I said it. I think there may be longs across the board. For those that know me then you know I love to short markets; equities, commodities, bonds, you name it.

However, and I would think many share this sentiment, many are ready to get out and get back to some sense of normal. Small businesses need to re-open and many, at least in our community, are ready to support them. Whether you believe in the vaccine or not, I do think that there will be optimism coming in late Q2 of 2021. That optimism could lead to another large bull-run in equities.

Heading into January I want to see a pullback in the financial markets a bit. I want to see these highs flushed out and let some of these high-beta names sell off a little. Then, when and if that happens, I want to start building long DITM (deep in the money) call positions on a few names that I have on my list.

2020: In conclusion

2020 has been nothing short of crazy. Whether it leads to a new way of life or not we’ll see. However, it certainly has led to a new way of looking at markets and hopefully allows us to look at some potentially great long trades for 2021.

Happy New Year.

Daniel X. Bustamante

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