You can be a fundamentalist, a chartist, or both. In my case, I can now be both, as both perspectives point in the same direction.
Anyone who has been reading my pieces on Forbes for the past 20 years or so will know that I’m neither a perma-bull nor a perma-bear. I adapt to market conditions. After crashes, I’m a bull; when the market enters pre-crash mode, I turn bearish. I have a solid track record – feel free to check it. I mention this as a preamble because all I see ahead are market crashes.
Even the latest news of the Federal Reserve slowing its QT to a trickle is hardly good news, despite the market’s initial positive reaction as of March 19, 2025.
Late last year, I expected the Nasdaq to experience a final bubble rally before derailing. Initially, I thought that would happen a year or two from now, but I now believe the crash is imminent. It’s a bold call, and I hope I’m wrong, but to be clear – I’m entirely out of the U.S. market. Most of my positions are closed, with some pivoting toward defensive assets, special situations, and precious metals. I hate being in cash, but that’s where I primarily am.
We are now at a critical point for the Nasdaq.
To provide some context, we live in a chaotic world where the future is obscured by impenetrable fog. The stock market behaves similarly – there’s a 50/50 chance that you are halfway through your journey, whether moving up or down. If you doubt this, go argue with a math professor. If you accept this premise, then consider the following chart as a coin flip:
he Nasdaq chart: is it halfway to where it’s going?
The cause of this downturn is up for debate, but the driving force behind this correction is not disappearing. You don’t have to believe it now – you just have to observe what happens next. If the trajectory continues, you can make an educated guess about the destination.
I have found this simple analysis highly profitable in the past. If you examine previous market movements – indices or individual stocks – you’ll see this pattern repeatedly on both the way up and the way down. This phenomenon is driven by stochastic processes, which are ever-present in a highly random market.
For this downturn to reverse, something substantial must intervene. Without that, we are in a long-term bear market until further notice. That concerns me because I’m not a short-seller, and bear markets are notoriously difficult to profit from.
Like it or not, geopolitics is now driving the markets. Why else have U.S. military stocks been declining for months while European ones have been rising? Apparently, enough investors perceive a rift between U.S. and European defense interests. Who knew?
Defense stocks: U.S. decling, European rising
Maybe I need a tinfoil hat.
Nonetheless, this presents a slim yet noteworthy profit opportunity. Hedge funds are, unsurprisingly, going to hedge – at least many of them. If the market continues to decline, long positions will have to be closed, and consequently, so will short positions. This means that any stocks shorted against the Mag7 will likely rebound. The underdogs will rise, and the high-flyers will stumble.
In the U.S. this hedging is likely to concentrate on long term government bonds. For a private investor, trading that is not necessarily a fat opportunity to make money. However, there are bound to be stocks in the U.S. that will pop in a drop and they will be the short legs of hedges. Look out for them and if you fancy trading the storm without being short, that’s where to look.
In the U.K., this phenomenon applies to life insurers. In the U.S., it’s worth keeping an eye on stocks like Exxon – natural short targets for hedge funds that have been riding trillion-dollar tech stocks:
The Exxon chart – a natural target for shorters
Pay attention to big oil and other obvious long-term short candidates:
The BA chart is another short candidate
The Federal Reserve has now decided to dramatically slow its QT and is warning of a heightened risk of stagflation. This isn’t ‘bad news that’s good news’ – it’s simply bad news. At least for now, the liquidity drain dragging on the market has been significantly slowed, and the Fed is showing it cares. However, this merely reflects the mounting strain on the economy and markets due to rising geopolitical instability – an issue that isn’t going away. I wish it would, so I could return to my preferred strategy of investing in fundamentally strong companies with low valuations.
However, the Federal Reserve can only do so much. So, what could possibly go right?
Look out below.
This post was originally published on this site be sure to check out more of their content.
