Bull Markets Do Eventually End

From 2009 through January 2018, stocks experienced an unprecedented bull run. Prices climbed relentlessly, and an entire generation of investors grew up knowing nothing but rising markets. Many had no idea markets could behave the way they have since early February 2018.

That’s why there is no substitute for experience. You can’t fully appreciate this type of volatility until you’ve lived through it.

I’ve seen it four times in my trading career:

• 1999–2001: The Nasdaq boom and bust
• 2004: War-driven instability
• 2008: The global financial meltdown
• 2018–present: A new variation of the same theme

The 2010 flash crash doesn’t really belong in that list. It was brief and largely the result of system failures and computer-driven feedback loops. Very different circumstances.

Experience Changes How You React

On February 2nd, I called friends and family members who had long-term stock exposure and suggested they consider exiting the following week. On Monday, I said wait for the bounce. On Tuesday, I said if it were my money, I’d be heading to cash and sitting still.

A few listened. They’re glad they did.

Others didn’t—and likely aren’t thrilled with that decision.

One friend told me he believed fundamentals were strong and that he was averaging in and buying more.

“I hope you’re not selling,” he said. “That’s how you take losses.”

That line of thinking is exactly how people watched Nasdaq stocks go from $100 to zero in 2000–2001 without ever exiting. You don’t take losses because you sell. You take losses because the value of your holdings declines. Selling simply acknowledges reality.

Fundamentals matter—but they don’t control extremes. When the Dow drops 1,000 points in a day, HFT programs, algorithms, hedge funds, and day traders don’t care about balance sheets. They care about liquidity, risk, and survival.

Volatility Breaks “Buy and Hold”

This isn’t rocket science.

Traders who don’t watch ladders or Level II don’t see what’s happening beneath the surface. When liquidity evaporates and ES futures get hit on thin volume, that’s a serious problem for buy-and-hold believers.

Likewise, when shorts all rush to cover and ES explodes 20 points higher in minutes, that’s a problem for sell-and-hold believers.

In environments like this, holding positions for hours or days is gambling. It’s roulette. Red or black. The market can move 10% in either direction depending on which side panics first and how long the feeding frenzy lasts.

This isn’t a dot-com bubble. It isn’t war-driven chaos. It isn’t a housing meltdown. But the behavioral characteristics are the same.

Opportunity and Danger Exist Together

If you’ve never seen this kind of market, it can be nearly impossible to trade.

If you have seen it and understand what’s happening, it can offer more opportunity in a few months than you’ll find in years.

For skilled stock traders, this environment is a gift.

As most of my students know, I primarily trade Treasury futures. I’m still trading them. They’ve been a bit thick and slower than expected given what equities are doing—but the reads are there.

That said, I’m also trading ES regularly right now, and I’ve even been trading stocks—something I haven’t done in years. I understand the risks, and I have experience navigating this type of volatility. For me, this isn’t something I can ignore.

This Is Not a Recommendation

I am not suggesting inexperienced traders jump into this environment. It’s incredibly easy to lose money right now.

But these types of sustained, high-volatility runs are rare. When they appear, experienced traders should take advantage of them. Fortunes have already been made—and lost—over the last two months, and that will continue.

I don’t expect a 2008-style crash. I also don’t expect new highs anytime soon.

More likely:

• large up days
• large down days
• occasional sideways chop

Could the S&P drop to 2350? Absolutely.

Could it trade back to 2800? Also possible.

That’s the nature of it.

Learn From It

Whatever your comfort level, don’t ignore this market—especially if you’re a younger trader. You only see conditions like this a few times per decade, and when they arrive, the educational value is enormous.

As I’ve said countless times in my material: context is everything.

To the untrained eye, this looks like chaos. And there is chaos. But with patience and an understanding of pressure points—where one side is clearly losing control or where a bounce begins turning into a true reversal—the chaos becomes opportunity.

The money comes faster than most traders have ever experienced.

Final Thoughts

Don’t start trading stocks just because you read this. Treasuries remain consistent and reliable. If it isn’t broken, don’t fix it. But every student of the markets should treat this as a teachable moment.

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Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

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Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight.

In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

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