All right everyone. So in today's episode, we're going to talk about the collapse of Silicon Valley Bank and I'm going to talk about it through the lens of being a day trader I'm a day trader I've turned less than 600 into over 10 million dollars in profit and that's audited. These are my actual audit um my actual audit here of my broker statements that I do each year. So I think I qualified uh to share with you at least my opinion of what I think this means for the market and I'll talk a little bit about uh what I've seen in the last week.

It's been just over a week since the collapse and we're going to begin with the day of the collapse. this was last Friday and let's go ahead and jump in. and then I'm going to give you some of my commentary and a little bit of the back. Uh, back story here.

So this was on, um Friday morning. the stock was down 63 percent that last was at 63 on that last quote. So big drop. The stock had been trading at over 250 a share and then in one day drops after they gave some news which I'll talk about in a moment and then the second day it's continuing lower.

So people were saying Russ uh it's moving. Should we be trading, this should we be You know, buying, selling, what's what's the trade, what's the trade And my answer was uh, this is not something I can touch So let's listen here. So this is a very uh it's a it's a hot potato And these are the type of stocks that I think uh while you can look at it and say look man that just bounced from 34 to 39. could have gotten a good piece of that and I'm sure some did.

I this is a marathon. It's not a spring I'm not willing to, you know, juggle knives for some quick little trade and risk a massive blowout. So sometimes there'll be something like this that is volatile. maybe is interesting, but is just not going to be something that I can have the risk tolerance to trade.

So I leave it alone and I move on to something that actually fits within my wheelhouse that's within the right price that's trading in a predictable way Etc et cetera. So you know again: I I Have to check my bias. My gut is this is too risky. Don't trade it Now That could be a bias that I formed and if it is a bias, it is important to check that because maybe that bias is keeping me out of what could be a good opportunity.

But on the other hand, they also say trust your gut. So what if my gut is, you know, a little bit, uh, a little bit. uh I don't know bias a little bit racist against the Silicon Valley Bank I Didn't mean to be, but it was just my gut. It's just the way it is.

Well do I trust it or do I Uh, you know, do I do I try to fight it and I'm not really. um I I Think that I at this point have watched enough. Oh, it's halted. So right there the stock got halted.

Uh, it hasn't resumed. It's been over a week and it's probably not going to resume because the company has gone out of business. they were taken over by Regulators they've collapsed. So if I was holding, if I had taken and my average share size is 10 000 shares, but this is a more expensive stock.

I usually trade stocks under 20. So a 10 000 share position at 20 is 200. Grand A 10 000 share position at this at 40 would be almost four hundred thousand dollars. Um, probably on something like this.

I would have been trading more like four or five thousand shares. So two hundred thousand dollars on the line. Uh, and if I had taken that trade, that money would be gone. Shareholders are the last people in line to get bailed out or reimbursed in this type of situation.

The first people that are going to get bailed out uh will be the depositors. the people that actually had money at the bank. So uh, so the reason that I said I was not interested in trading this uh was because I knew that this had the risk of being halted. And this is where educated intuition it takes years of experience to develop and to refine.

So this was why I was able to say yes, it's my gut feeling that I shouldn't trade this. Uh, and I think it's more than it's more than just a gut feeling. it's based on some some actual Uh data, right? So what I knew with this type of stock was we sort of had a couple of scenarios. Um, it was.

It was down a lot and there was a possibility that it would be subject to some type of bailout and I wasn't sure if it would be a bailout on a um, you know, federal government level. or maybe a bailout by the stock getting acquired by another bank because that can happen too. So you know you could have a big investor, a big bank that comes in and Scoops them right up if the stock gets halted. and then news comes out that they've been bought out by, you know, whatever bank.

And let's just say it could be for fifty dollars a share. fifty dollars a share is still a massive discount over the 300 it was trading at just like a week and a half ago. So if you were long, yeah, there you go. Maybe you're up 10 points a share.

If you're short, maybe just like that, you're down 10 points a share. Or what could also happen is it could get halted. and then news comes out that they've gone bankrupt or that they are getting a bailout or their the bank is officially collapsed and that was the case. Uh, in this example.

So the problem here is that when I'm trading as a day trader naturally I'm thinking about risk and reward and I'm willing to take a 5 000 share position and risk. let's say a thousand bucks. That's 20 cents a share. So if I got in at 39.40 my stop is 39.20 But there's that only works when I believe that I can actually stop out at that price if it starts to go down.

If the stock has a risk of getting halted pending news, then suddenly that theory that I could manage my risk and stop out minus 20 cents is gone. I could end up losing 100 of what I put into the trade and that there's no profit. I mean well. I Guess if I had the potential to get a 200 return from my entry and sell it at 120 a share, maybe you could say I could justify it.

but but that's not day trading and there's no way that I could. So for me, my gut told me to stay away from it and I won't tell you that I didn't have some fomo I did I was a little tempted I saw some people who made money on it short I saw some people who made money on it long. And in fact, in the last week the traders who have made the most have been trading Bank stocks. You know what? The traders who have lost the most I've also been trading Bank stocks.

These have been very volatile. There have been some big wins and there have been some really big losses. This isn't the type of stock that I would typically day trade. Now, as a day trader, we're a hunter of volatility and we're a manager of risk.

This does present volatility. volatility equals opportunity, but it did not allow me to manage risk. Now let's think back not quite a year ago when we had this massive rally in the price of oil. So um, we'll look here just briefly at: Uso United States Oil Fund.

So United States Oil Fund. About a year ago, this thing goes. Um, you know, sort of just like straight up. you could see this was 2022 and we just went up, up, up, up, up up and we peaked right here in March About a year ago and there were a number of small energy stocks that went crazy on sympathy.

Okay, this was an energy stock that went from about four dollars a share to ninety dollars a share. That was one of them. And there were. There were dozens of them that made these kind of moves.

Um, I don't have to go through all them. It doesn't really matter. but this was. this was what was happening in the market.

So the thing there was that I was able to manage risk in a much different way. First of all, uh, we were dealing with a commodity that was going up, not down. So I am biased to the long side. Uh, things going up are not subject to being halted and uh, going bankrupt or being subject to a bailout regulatory bailout.

So it's just not a concern. The market doesn't stop things going up, but it does stop things going down right? That's just kind of. That's it's just the way the market is. So with oil prices going up, we had a lot of opportunities on these other energy stocks, similar sector that were just going crazy.

Not because they actually had any other reason, but they were sympathy momentum to a frothy Hot Market Uh, so that was a market where I was comfortable trading a lot of these stocks. They and we I actually did very well. This is different what we've got here with Silicon Valley Bank Sivb um s-i Sivb collapsing. This is something going to the downside, but this has brought a lot of other banks with it.

Uh so this week, uh, we saw Silicon Valley Bank drop halted down Signature Bank um collapsed as well. got bought out but we also saw FRC a First Republic Bank This one dropped from 120 a share down to like 23 dollars a share This one actually received from 11 of the big Banks uh, a bailout of I think 30 billion dollars. Oh, it's a cash infusion I guess a loan of 30 billion Western Alliance This one got a five percent stake by Citadel which uh, gave me some confidence that this was one that was maybe safer to trade. and I did get a bounce on this I thought all right, if Citadel is stepping up to the plate and buying like 5 million shares or whatever it was this, this is.

They've obviously done their due diligence. They're probably not concerned about this one collapsing. So this one is probably the safest of of the regional banks that we're dropping. So I did trade that one and I made some money on it.

Um Pac W This was one that was also extremely volatile from 28 down to low of like five bucks and then back up to 10. Didn't feel very comfortable with this one either. The problem here is that for all of these stocks, uh, maybe perhaps. um, oops, sorry I had my wrong chart up.

Um, so this was um pack W this was uh Western Alliance wal and this was FRC So aside from uh Western Alliance uh wal the other ones I just was too concerned about the possibility that they would be next. This is the contagion effect. So what ended up happening over the last week was we were hearing um all of these, uh, small Regional Banks were just seeing a run on the on depositors saying I want my money back and I'm moving it to the big bag the Chase Bank of America you know we're out to the big Banks essentially and so with all of these um Regional Banks they had that same issue where there's a run in the bank and what happened in the case of well, so so I'll get into that in a second. We'll talk about Sivb's specific case in a moment and why maybe that um, you know there's you've got politicians who are saying and economists.

this is isolated. These are isolated events. What happened on Sibb Silicon Valley Bank They expose themselves themselves to, um, a lot of risk. They made some really bad decisions and that is their own fault.

That's an isolated issue, but it also is showing one of the first consequences in a big way of um, monetary policy from the Federal Reserve So we'll talk about how it ties back to that. but this week from the perspective of day trading, I didn't do well I was read this last week and this is what I noticed while I felt that uh, so I mentioned how I saw some traders who had some huge wins when some traders who had some huge losses on these Bank stocks I realized pretty quickly that I didn't feel that I was able to read the tape on these Bank stocks. these are mid caps, some of them even more like large cap, not quite large cap, but they're definitely mid-cap stocks. uh, smaller.

Regional Banks but they're thickly traded, a lot of institutional Traders a lot of high frequency trading and a lot of big money moving in and moving out. And the problem with big money moving in and moving out is that they send an order for a hundred thousand shares or 50 000 shares or five blocks of 50 000 shares to move in and out of a quarter million shares. That creates these short-term drops and pops. and we were seeing these flushes into halts down and it would resume higher and halt up and just not predictable price action.

And so for me I felt that even when I started to get comfortable, that a stock was probably not going to be the next one to collapse and I could maybe trade it I couldn't read the tape. you know I'm a I'm a tape reader and so if we look at um, you know this. uh right here this as you as you see the orders flowing through, this would be tape reading so let's see foreign I'll just mute this for a second. So the reading the tape here is reading the order flow and I found that it was very difficult to read the order flow on this.

you've got Adfn orders going through out of sequence and then you just had these Big Blocks going through. so I didn't feel like my technical analysis was really working very well on a stock that was being uh, sort of this. um I don't know, just volatile and in um, more of a fear-based way. So for me, the problem was I thought okay well if I'm not comfortable trading these Bank stocks then what should I trade? And so on this particular day on Friday I think it was I traded uncy Maybe a couple other stocks that were on the Gap scanner but the Gap scanner didn't have much that was that was hot there.

There really wasn't much that was moving on Friday other than the bank stocks Monday I was green but only small gains. It felt like the bank stocks were still all in Focus. same with Tuesday same with Wednesday Thursday Friday it's been the same. So this whole week has been so much of the bank drama.

What's happened is it's kind of siphoned volume away from the small cap stocks I would typically be trading as Traders have just been focused on these big um, you know these big big Bank stocks and I feel like trading these big Bank stocks has been a little bit of a trap because while they have liquidity and you could get in and out with a hundred thousand shares, they haven't felt predictable. So some of the people who have had some big wins on them you know had a little bit of they bought and all of a sudden you know they held and it just worked. And then some of the people that had some really big losses were the traders who were getting super frustrated. like I'm getting in for this breakout This is a pattern, why is it not resolving And it's because there were forces in play that were much stronger than the technical analysis that we were that we rely on.

so the result was dispersed detention. There were a lot of traders that were trading these Bank stocks I didn't like them so I chose not to trade them I trade stocks that fit more within my strategy, but those didn't perform as well because they were sort of in the shadow of something bigger that was happening I think I should have observed sooner that this might have been the type of week to sit on the sidelines until something really became obvious. There were a couple of good opportunities this week, but uh, but for the most part it really wasn't a very good week for uh, for most small cap day Traders and again, for those that were comfortable trading the banks they I think they were maybe without realizing that some of them taking a tremendous amount of risk because or certainly on Friday Monday and Tuesday we didn't know which one was going to be potentially next. And like I said, 10 000 shares of a stock like this is a lot of money, even if you're only trading a thousand shares, that'd still be forty thousand dollars on Sivb losing that amount.

It's just unless you're hitting forty thousand dollar winners regularly, you shouldn't be taking that kind of risk. It just doesn't add up. It doesn't make sense. So this was a very difficult week.

so what do we? What should we plan for? What should we expect for the week ahead? Well, um, we had the FRC bailout. Uh, here, the 30 billion that went into that stock, but it hasn't really bounced that much. We have, um, the economic policy with the Federal Reserve uh, which this kind of ties back into the whole cause of this crisis here with Silicon Valley Bank This was a niche bank that catered to venture capitalists and startups. So one of the things that's kind of, um, interesting here is that a lot of a lot of startups ha will have a hard time opening bank accounts with big Banks like your Bank of America or chase because the big Banks they might not really understand the company.

They're like, wait, you're you are involved with like a crypto ex, you know, something or other like no, we want nothing to do with that and so what ends up happening is, uh, there's this sort of whole side business of banks that cater to, um, the type of people that Big Banks disregard. They say, no, it's not gonna work for them and there's a lot of industries that are like that. So Silicon Valley Bank had been catering to startups and Venture capitalists and startups specifically in the tech space. Now they were catering to smaller startups.

Look a big a big startup like a Airbnb or something like that. It would be crazy if they only had one. Bank Most of those companies at that scale have many banks and most of them probably wouldn't use a bank like Silicon Valley Bank because they would get to a point where they really needed maybe some of the tools that a larger bank would have for you know that would support their their business. So Silicon Valley Bank therefore was catering to a segment of the market.

Tech startups that got hit hard in 2022. 2022 bear Market Tech stocks got hit hard. People were very interested in investing in Tech space in 2020 and 2021 and Silicon Valley grew their their deposits grew in those two years I Want to say by like four times four hundred percent they went way way up to over 200 billion dollars and with all that money they came in in the form of deposits. One of the things that they did which was a mistake as it turns out they invested in what they thought were low-risk treasury bonds.

So they bought these treasury bonds and the problem there is, you know if you buy a treasury and it's a thousand dollar Bond and whatever, Let's just say it pays two percent. Like three three percent. Doesn't matter if it pays three percent interest. Uh, and then a year later the interest rate goes up because the Federal Reserve increases interest rate.

Now it's four percent or five percent. You could buy a thousand dollar Bond today for that rate. So if you wanted to sell the thousand dollar bond that you bought at a two or three percent interest rate, it's not worth a thousand bucks anymore because someone could buy a bond with a higher rate for the same price. So your bond value decreases and that's the face value.

Which isn't a problem if you don't need to sell it because when your bond matures, you'll still get your thousand dollars back. But if you need to sell it before the maturity date, you're going to sell it at a loss and so it creates a in a way. Then this was the tough thing in 2022 because the Federal Reserve jacked up the interest rates. The bond markets went down and the stock market also went down.

So traders who were diversifying their portfolio you know, 60, 40, 70, 30 between equities and bonds For instance, both sides went down and that's really only a problem on the bond side. If you have to sell if you don't have to sell, then when the money when they mature, the full amount comes back. So Silicon Valley Bank What they also didn't expect was the um, all the depositors. So many of them withdrawing funds because of the difficult Market So now they were forced to start uh, liquidating some of these positions.

And so there was news on Thursday I believe it was last Thursday that they had sold um, Sivb a portfolio of bonds and taken almost a two billion dollar loss on it. It's a pretty big loss. Uh, so what they were doing uh to mitigate that loss was they were doing a second a type of offering trying to raise money on secondary offering to raise 2.5 billion dollars. But that's a big offering right? I Mean that's a huge offering.

We watched small cap stocks that do offerings sometimes and they're like you know, a five million dollar offering and the stock will drop like 40. So a 2 billion 2.5 billion dollar offering, that's a lot of money and they tried to do it. but they weren't able to find the investors to do it. and so then that's what created the panic.

and even the fact that they were trying to do it create panic and so on. I Guess Thursday Uh, people depositors were trying to get their money out of the bank, get their money out of the bank, and then that's when all of a sudden they were. um, they they ran into a crunch. uh, credit they had, They had no liquidity and so they were taken over by regulators.

So the fact is, um, we're now we're in this environment where the monetary policy, uh, of trying to slow down inflation. you know, slow down inflation, slow down the job market. It's like the policy is now creating some of these some of these ripples. So this is the you know this is some collateral damage and you know, up to two two million people losing their jobs in um, a labor slowdown would also be collateral damage.

And it's the you know what they've said is there will be paying ahead. but um, it needs to happen and the pain of not doing this would be even greater. You know, So they say uh, but you know of course they also said that uh, inflation was going to be transitory. so it's really it's I Think it's hard for a lot of, um, a lot of kind of regular Americans to feel like really confident.

But also it's worth noting that uh, inflation here is a lot lower than it is in other countries. Other countries is a lot worse. Um, so you know maybe you know what they're doing is somewhat working. In any case, um, this drop has not presented opportunities that I felt were safe.

Uh, very different from the spike that we had in oil last year. We may see at some point a sector of the market that starts to go up. Um, you know, in response to What's Happening Here There there usually are some kind of, you know, balances, but I'm not sure what what it's going to be just yet. Um, it hasn't been super clear.

So the the short term for me as far as I'm concerned with Trading is that as long as we've got this drama going on with the banks, it's going to siphon off volume and liquidity into that part of the market. and it's probably going to make small caps more difficult to trade for a little while. I don't know how long that'll be. it might be another couple days, it might be another week, might be a couple weeks.

It has felt in the last even Thursday and Friday that the attention was less focused on the bank stocks than it was earlier in the week. Like it's already kind of like I think Traders are losing interest and realizing that they are very difficult to trade and that the opportunities, while there may be some, certainly aren't without risk. So I think that Traders will be eager to get back into the mode of trading volatile small caps, but we are certainly faced with at least a little bit of a, um, a headwind while this banking distraction is going on. I would say this is a distraction in a way.

I mean it's It's easy for me to say that because it's distracting from the type of stocks that normally trade, right, it's certainly not a distraction for the market at large. I Mean maybe it is, but the Market at Large is definitely a serious event. But when we have these types of serious events, I Usually find that it does make it more difficult to day trade and this was, um, the same if we look back at 2020. So in 2020, we had this, uh, you know, as you probably recall this, you know, massive sell-off in the market Market drops 30 percent in like a week and two weeks.

whatever. it was very quickly the month of February to March and during this period, right here I didn't trade very well because everything was going down. and you know, yeah, you you could say well, if you short everything that's going down, but you just never know when things are going to bounce and you do have these big bounces and we certainly did and we certainly had them in the bank stocks as well. I mean I Saw traders who lost a lot of money trading them to the short side.

you know, stocks down 75 percent and you short it and then you still lose money. It's like it's a weak stock on the verge of collapse, but it's no guarantee it's going to be a winner, long or short. So anyways, I Naturally, find um, that I trade momentum better when the market is, uh, in a rally mode versus a strong pullback. Now, just ordinary stuff like this, these kind of dips that's that, doesn't.

That's of no consequence that doesn't do anything, but it's these big events like right in here. and there are some bigger events in 2018. Uh, December Right here. this is when the I think the Bitcoin bubble was bursting.

Um, you know there was another one there in January or February so there's you know there's been a few others you know over the years that I can recall, but um, we're kind of in one right now because the overall Market has broken down a little bit. We're obviously over a year into a bear market, and now as we're starting to see some of the um, some of the impacts, some more impacts of the monetary policy, there's definitely concern about. you know, how how far is this contagion spread? And so I think you know I have the sort of experience of coming out of college in 2008 2009 during the first, during during that first recession of my working life. I Suppose you could say um, you know, the the.com bubble bursting I don't really remember all that much, but uh, my experience of coming into the workforce uh, during a recession definitely is probably one of the reasons that I became a Trader because I wanted to be independent I wanted to be responsible for my own income and not be dependent on someone else.

And so that's something that I really do like a lot about the market and about trading. And I think that while there are certainly going to be weeks and months and years that are better than others, and 2023 may not go down as being, who knows, I mean it. The thing is, at this point, it's like way too early to tell I Had no idea in March of 2020 that I was going to finish 2020 with like five million dollars of profit I had no idea. So I have no idea what this year is going to hold for us and the fact is, I've seen how in one month I can you know make over a million dollars? So like I it's kind of like, well, whatever happens happens, we could have a really slow year and then in November I could have you know from November to December two amazing months.

And this does kind of tie back to the 25 rule of trading that I talked about. If you haven't checked that out, I'll put a link um, right down below. it's it's a rule of thumb that I've discovered in my own. Trading Uh, so I'll pin that to the comments I'll put it in the description.

but the long and short of it is that I want to show up every day I want to be present and when there are opportunities I'm going to try to capitalize on them. Right now, we're in a little bit of a distraction with what's going on with the bank stocks, so we're in a little bit of a a period where I might have to be patient, but there will no doubt be a lot of opportunities this year. The question is can I be patient in between opportunities and then when those opportunities strike, Can I be a sniper? Can I get in? Can I be aggressive and trade them? That is going to be the goal for the coming weeks and months. So I don't want to run this episode too long I Think this gives you a good perspective of uh what? I sort of saw in the last week.

Definitely a lot of choppiness in the small cap Market as Banks were in focus, a bit of a distraction. a lot of drama. Gonna wait for that to subside and wait for Traders to come back in the small cap Market In a more meaningful way and that'll be obvious when we start seeing stocks going up 75, 80, 100 and more. It'll be obvious when it's happening.

So when it's obvious, I'm gonna step up to the plate and swing hard. That's it for me. Reminder: As always, trading is risky. My results aren't typical, so make sure you trade cautiously and I'll see you for the next episode real soon.