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A Complacent Market Is A Dangerous Market

Writer: T. LivingstonT. Livingston

Complacent- (adjective)

  • pleased, especially with oneself or one's merits, advantages, situation, etc., often without awareness of some potential danger or defect;



When I look at the current market environment, the word that keeps coming to my mind is complacent. I talk to a lot of traders and have noticed quite a dichotomy over the past month. The more serious, professional traders I speak to are holding large amounts of cash and are very concerned about the market. The casual traders I speak to don’t seem to be concerned at all. In fact, they don't even bring up the market when I speak to them. They are up to business as usual.

While there is an air of complacency around the market currently, beneath the surface there has been a plethora of signs that trouble may be looming ahead. The early leaders of the 2020 bull market have been in their own bear market with stocks such as PTON, ZM, DOCU, TDOC, all off over 50% from their highs. Former leaders UPST and NET have also fallen drastically over the past month. Tesla and NVDA are now both below their 50-day moving averages. Remember, in a deep correction, all the favorites get taken out.









New leadership has been slow to emerge in the growth space, with the majority of breakouts coming from energy related stocks. In addition, the overall market has also been starting to crack as we started to see distribution hit the market in December and again in early January.



The internals of the Nasdaq have been just terrible as can be clearly seen through the advance-decline line.


The Russell 2000 looks the worst of the major moving averages. It might turn over in the coming weeks and may also be forming a head and shoulders pattern. IWO looks even worse and looks like it is about to enter a Stage 4 decline with its' 50-day moving average now below its' 200-day moving average. FFTY likewise looks to be in dire straits.






When looking at all of this, you would think their would be some fear in the market. However, the VIX is showing a complete absence of any sort of fear. In fact, the CNN Fear Greed Index is actually registering greed! This shows the absolute disconnect between the average investor and the damage being done to growth stocks beneath the surface.




Since April 2020, the average trader has been conditioned to blindly buy the dips. This is a strategy that works amazingly until it stops working. Then, it has devastating consequences. From a fundamental perspective, the FED has enormous power and rising interest rates can be kryptonite to growth stock traders, particularly if done too aggressively.


I’m normally a raging bull who loves to trade. However, this clearly is not a time to be aggressive. Let me be clear: the sun will rise tomorrow, and there will be strong uptrends again. That I can guarantee you. It's just not now. For me, cash is the greatest positions available at this point. That along with a little patience and discipline can really go a long way. And one last thing: be prepared for volatility. Remember, the largest up days usually come during deep corrections or severe bear markets. We could very well be in for a volatile market over the coming weeks. It's not necessary to panic, but just don’t be complacent.


Risk right. Sit tight.


Disclaimer: This information is issued solely for informational and educational purposes and does not constitute an offer to sell or a solicitation of an offer to buy securities. None of the information contained in this post constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person. From time to time, the content creator or its affiliates may hold positions or other interests in securities mentioned in this blog or the associated Twitter and Instagram feeds. The stock or stocks presented are not to be considered a recommendation to buy any stock or stocks. This material does not take into account your particular investment objectives. Investors should consult their own financial or investment adviser before trading or acting upon any information provided. Past performance is not indicative of future results.

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Hypothetical Performance Disclosure: 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.

Risk Disclosure: 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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