The next 64 trading days will be even more dramatic than the past 64 — and that’s saying something.

Just three months ago, the world was a very different place.

Investors were expecting the worst as Trump shoved the country into a long and painful trade war. Stocks were reeling as the S&P 500 toppled from its all-time high, losing as much as 20% in a matter of weeks.

It was time to hoard foreign-made products before prices inevitably soared, hunker down, and wait out the storm. Economists were already jumping on the recession bandwagon. It wouldn’t be long before a prolonged bear market swallowed us whole.

And what about rampant speculation and those momentum darlings everyone was chasing right after the election? Dead and buried. Any excitement for these stocks expired on Liberation Day.

But the panic evaporated almost as quickly as it arrived.

Today’s market looks completely different.

Speculators have clawed out of their graves and flooded back into their favorite tech themes, chasing artificial intelligence, quantum, alt-energy, and small-cap stocks.

The bulls are back on CNBC, touting crypto and the refreshed and revitalized semiconductor giants. And those recession calls? Well, let’s just say they’ve gone radio silent.

It’s a bull market, baby! But it’s also a cautionary tale of two emotional extremes.

If you were selling every share you owned in early April and buying with both hands today as the averages march to new highs, it’s time to dump a cold bucket of water over your head and sober up.

Perfect Conditions, Perfectly Amazing Profits

Any way you slice it, this market is stretched.

The S&P 500 would have to fall nearly 7% just to get back to its 200-day moving average, which is about how extended it was when printing new highs way back in February. That was before the late-month stumble that led up to the Liberation Day shenanigans.

The most recent leg of this melt-up rally has been so damn persistent, you would think we cured every disease and achieved world peace. The rally has been so strong, in fact, that the S&P last recorded a 1% down day on June 12.

The last one before that? May 21. You have to go all the way back to April to find another. That’s a whopping 55 trading days with just two significant drops!

On top of this incredible performance at the index level, we’ve watched the most popular names soar. NVIDIA Corp. (NVDA) has leaped nearly 90% off its April 7 lows. Palantir Technologies Inc. (PLTR) has jumped triple-digits. And Robinhood Markets Inc. (HOOD) has posted a staggering 215% rally.

Don’t get me wrong, I’m not mad about this action. Over at The Trading Desk, we’ve taken advantage of several amazing opportunities to trade the strongest momentum names since April. It’s been the perfect environment for swing trading, with more opportunities to rake in huge gains that I can count.

But as any seasoned trader will tell you, perfect conditions like these don’t last forever. Markets move in cycles, big and small. And right now, it’s beginning to look like perfection is entering its final innings.

It’s easy to get caught up in the hype. Your trades are rolling, and it feels like you can’t lose. These are the exact times when you need to clear your head and start thinking about how to react when stocks slow down and conditions change.

Planning for a Drop

Let’s get a few things straight…

First, I’m not predicting a crash. Far from it. I’m simply noticing the traits of an overbought market so I’m not caught off guard by a sudden move lower that leads into a consolidation phase.

Markets correct in two ways: through price and through time. While it’s possible we could see a drop similar to what we experienced back in February, the averages could just as easily run out of steam and chop along for weeks (or longer!) until they catch down to longer-term moving averages.

The character of those leading stocks and hot trades will change in both scenarios. Speculators won’t have it as easy — their batting averages will drop as the hottest groups correct. This will lead to more eager profit-taking in these groups as more traders get stuck in losing positions. Even grinding drops can wear out the fast-money crowd. Recency bias is real! Everyone has adapted to a market that only goes up. It will be a gut punch when that action subsides.

Everything I’ve encountered lately is telling me the market probably needs a break. CNN’s Fear and Greed Index is dancing in extreme greed territory. Call buying is through the roof, and zero-day options just posted their highest volume month ever recorded heading into the dog days of summer.

Now, that doesn’t mean you should sell everything and hide. I’m not running for cover just yet. I’ll continue to hammer away at what’s working in this market. If quick-hit opportunities continue to appear, I will take advantage of them until they reverse.

But if you are feeling aggressive and want to protect against any incoming downside (whenever it decides to materialize), now is an excellent time to start looking at puts in some of those red-hot names I mentioned above.

Downside protection gets expensive as soon as the market starts to turn lower. If you want to hedge, now’s the time to start thinking about taking a small swing.

Most traders are drunk off their gains right now. But if you take a sober approach to the markets, you unlock the ability to quickly shift gears when the music stops.

That’s a trading superpower that will always keep you one step ahead of the herd.