I’ve said it before and I’ll say it again — I think the overall market is headed lower this year.
Let’s quickly recap a few of my concerns about the current state of the stock market:
- Some of the world’s most well-known companies are dumping market cap value like penny stocks…
EXAMPLE #1: In early February, Meta Platforms Inc. (NASDAQ: META) lost $250 billion in market value — the biggest single-day wipeout in the history of the stock market.
EXAMPLE #2: At the end of April, Netflix Inc. (NASDAQ: NFLX) reported its first-ever quarter-over-quarter subscriber loss. The stock dumped as much as 35% intraday — the biggest single-day loss in the stock’s history.
EXAMPLE #3: Two weeks ago, in mid-September, FedEx Corporation (NYSE: FDX) reported a huge decline in package deliveries, tanking the stock 24% intraday in its biggest single-day rout since the 1980s.
Do you notice the trend?
These massively important, incredibly well-capitalized corporations are having some of their worst periods of all time, and the news doesn’t seem to be getting any better…
- Nearly every current headline is a negative for stocks — 40-year high inflation, potential escalation of the Russia-Ukraine conflict, the Fed hiking interest rates, bonds surging, etc
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Now that your news and charts are in order, you should look at the big picture, which doesn’t look great from a historical perspective…
- The bear markets we’ve seen in recent history (e.g. 2000 and 2008) dropped the major indexes much further than their current levels from peak to trough…
EXAMPLE #1: In 2000, following the blow-off top of the dot-com bubble, the Invesco QQQ Trust (NASDAQ: QQQ) dropped more than 80%.
EXAMPLE #2: In 2008, amid the financial crisis that led to the Great Recession, the QQQ dropped more than 50%.
If we’re in for a similar bear market this time around, history tells us that the QQQ is probably headed lower than the current drawdown (which stands at 32% at the time of writing).
So … why should you care?
Because sleeping on the obvious signals could cause you to trade in a way that blows your entire account up!
Or, you could ignore the history and miss a massive short opportunity on the overall market. It all depends on how you play it…
With that in mind, keep reading and I’ll show you how to prepare for a potential market meltdown…
Step #1: Adapt Your Trading to the Current Market
Adapting your strategy is crucial to market survival.
When your game plan stops working, you need to have another reliable strategy ready to go.
Think of a golfer’s bag. They carry many different clubs and pull out the best one for each stroke.
Traders should prepare in the same way by developing a multi-faceted bag of trading tricks. (Learn the details of my entire trading strategy in my brand-new ebook by clicking right here!)
Years ago, I adapted to a changing market by learning to trade options. And it turned out to be the single most important thing I did to evolve my trading strategy.
That’s just one example of adapting.
Are you familiar with this trading “loophole?”
Are you familiar with the “loophole” that helps small accounts grow exponentially?
No, it doesn’t have anything to do with penny stocks or crypto…
And this strategy works regardless of whether the markets are up OR down…
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I evolved my strategy because I wanted to expand the ways I could adapt to different market conditions.
Sound familiar? It should. Market conditions have been shifting rapidly over the past few months.
If you were successfully playing the markets by going long in July — and you’re still trading the same way — you’re probably not doing so well in September.
This week alone has forced me to adapt my game plan several times. In the middle of this week, I thought the market was going to rally into Friday.
But once Thursday’s brutal selling rolled around, I had to adjust my entire game plan at a moment’s notice.
Learn this lesson now — no strategy lasts forever. You’ve gotta be nimble, ready to adapt to anything the market throws at you.
Step #2: Be Cautious with Any Long Setups
Quite frankly, I wouldn’t recommend going long on anything in this bear market unless you’re a very experienced trader…
That said, I understand the mindset around buying calls during certain weeks this year…
After all, the ‘relief rallies’ we see in a downtrend can bring MASSIVE bounce play opportunities. (For example, swing calls would’ve worked beautifully throughout June and July.)
But you’ve gotta remember that timing is everything.
Buying calls in this market is a dangerous game. If you don’t perfectly nail the timing, you’ll likely get smoked.
In individual stocks, wait for the first green day and adjust your long strategy from there. Even then, the odds are stacked against you going long…
Take it from me … I tried to play a potential first green day bounce on FDX calls this week, but cut the position this morning as the market sold off.
My advice? Don’t go long on anything right now. But if you must, do it on (or near) the first green day and monitor that position with the utmost scrutiny.
Step #3: Get In and Out of Your Trades Quickly
With the market whipsawing as it has been, it can be difficult to make sense of the market direction and trade effectively.
My advice? Get in and out of your trades quickly.
This is even more true for options traders. Think about it…
Anyone who bought SPY or QQQ weekly calls yesterday — and didn’t sell them before the end of the day — got utterly destroyed this morning.
$127k in just 24 hours?! 😳
Did you catch the Shadow Trades Summit with Tim Sykes and Mark Croock?
Mark pulled back the curtain on his shadow trades strategy…
Detailing step by step how he was able to make $127,000 in just 24 hours, during the middle of a market crash!
I think there’s a ton of roller coaster price action left in this wild bear market — be prepared for anything.
If you’re setting up long-term positions in this market, long or short, you’re setting yourself up for disaster. The market is moving rapidly.
Keep your trades short and sweet until the overall volatility subsides. Be extra diligent about cutting losers immediately and taking quick profits on winners.
Bottom line: If you happen to bag a big win in a bear market, the best strategy is to take the money and run.
As every market-wide bounce attempt continues to fail, I’m readying myself for further downside.
In other words, I think the potential of a major market meltdown is looming large. Trade accordingly.
Be nimble, watch for bounces, and keep your trades short for the time being.