Everybody’s wrong about tequila.
Drinking too much tequila around the Fourth of July in 2016 got me uber-bullish.
Let me take you back, to much simpler times, when I didn’t have any children and it was just me and my girlfriend exploring the world.
I had just come off an 11-year stint in New York City, or about 15 years total if you include the four years at Fairfield University in Connecticut, just a short train ride away from the city.
My girlfriend and I had been living in California for about a year at this point, in beautiful Sonoma – right in the heart of wine country.
Years later I married that girl, and we now have three beautiful children, a four-year-old daughter and twin boys, age two.
So, yeah, like I said, the summer of 2016 was a much simpler time.
We found ourselves at the Cape, a beautiful luxury hotel in Cabo San Lucas, Mexico.
If you ever get the chance to visit this place, make sure you do it. It’s one of the nicest hotels I’ve ever stayed at.
And that’s when the Tequila showed up….
The Prequel
Let’s rewind just a bit here.
Back in 2015, some of you might remember, I was end-of-the-world bearish.
I was that doom-and-gloomer guy: “Everything is going to crash!”
And I was sure Deutsche Bank (DB) was going to zero.
This was in the middle of one of the several European debt crises we’ve seen over the decades.
I had a good reason to be bearish equities. There was plenty of evidence suggesting stocks would be under pressure in 2015, and perhaps beyond.
And it worked.
Stocks struggled, prices fell, and my clients were thrilled.
I’m making a few bucks, had just moved to California, I was uber-bearish, and stocks were falling apart.
I had a beautiful young girlfriend. (I totally outkicked my coverage with this one, if you know what I mean.)
Life was good!
Fast-forward to January, February 2016, and the market put in a historic bottom, similar to what we saw in 2008, around the time of the Bear Stearns collapse.
I made the mistake back in March 2008 of not buying stocks for the bounce after covering my shorts the day Bear Stearns got bought by JPMorgan Chase (JPM) for $2 a share.
That stuck with me.
So, this time around, no matter how bearish I’d been going into early 2016, I’d learned my lesson.
Or so I thought.
We aggressively recommended buying stocks in the first quarter of 2016, even into early in the second quarter.
The entire time, even though I was on the right side of the trade, I was sure it was a dead-cat bounce.
I was sure stocks would roll over, like they did during the back half of 2008.
“I’ve seen how this plays out. I know what to do!”
Bring on the Tequila
So, there I was, a 34-year-old hot-shot trader, thinking I knew it all, with my hot young girlfriend heading down to Cabo San Lucas, a very California place to go.
Cabo is to the west coasters what the Caribbean is to east coasters.
I didn’t know this until I moved out there, but I like it.
We’d head straight to the pool bar and start slamming tequila with the Mexican dudes until the sun went down.
And then we’d get up and do it all again the next day.
This lasted for four or five days – and, boy, were we hurting afterwards.
Sunburns and hangovers.
No matter how young you are, that’s no way to go through life.
Lesson learned.
We use sunscreen now. And I don’t really drink tequila.
But, again, this was a much simpler time…
It was the end of June 2016, and I was sure when I got back we were going to short the heck out of everything in anticipation of the next leg lower, like we’d seen in 2015, and in the back half of 2008 before that.
It was a sure thing.
We left Cabo, returned to Sonoma, and celebrated the Fourth of July.
And the Fourth of July in Sonoma is one of the best Independence Day celebrations in the country.
It’s really cool.
I’d completely forgotten about the market. I wasn’t even thinking about DB or any other stocks.
I was too distracted with my hot blonde girlfriend, that tequila in Mexico, and fireworks in wine country.
Bring on the Charts
And then I got to my computer and started going through all my charts, one by one.
I couldn’t believe it.
Not only did I not want to be shorting stocks.
It hit me right away that we needed to be buying everything.
This wasn’t a bear market. It was a raging bull market!
It was the exact opposite of what I thought.
I wasn’t paying attention, and I assumed my prior impressions about the direction of the market were intact.
They were not.
The relative strength out of areas like Technology and Industrials at the time really stood out.
“These are bullish characteristics, not bearish ones,” I thought to myself.
And so we got long, and the market never looked back.
OK, let me level with you here…
To this day, I don’t know that I would’ve been able to flip like that had I not stepped away for a week.
It wasn’t necessarily the tequila, or the girlfriend, or the fireworks, or any one thing on its own.
It was more about a healthy – yes, tequila can be healthy in this kind of dose – distraction.
Getting away from the screen.
And that’s the lesson.
Step away.
Go for a hike.
Visit friends and/or family.
Anything, really.
Just step away.
“The mind is like a parachute,” I read recently, “it only works if it’s open.”
For me, it was Mexico. For you, it can be something else.
Step away… get out… clear your head… open your parachute…
Come back refreshed.
Stay sharp,
JC Parets, CMT
Founder, TrendLabs