A Recap of Our Tactical Trading Observations as Through the Waterfall Decline
The stock market indexes are in bear market territory, with the S&P 500 down ~18% and Nasdaq ~21% from their highs two months ago.
Heere we share a recap of our tactical trading observations since the market peak to get a sense of how we mitigated the carnage.
First, let's give some context of where I'm coming from for those who don't know. I'm actively monitoring thousands of market trends and other data every day. I use systems I started developing more than two decades ago, and those systems have evolved with the use of machine learning.
It's important to realize this market top and subsequent drawdown started well before any threats of tariffs, which are currently getting the headlines.
It's never as simple as an ON/OFF switch. Market trends unfold, and Bayesian probabilities change accordingly. What you'll read here are these trends unfolding over the last two months. This is how we mitigated the risks by derisking and hedging in a advance of the selloff.
I first saw the trend changing on February 12, 2025. You can click the titles to read the full observation.
The Trend Remains Up for the Stock Market, But Risk is Increasing as the Trend is Weakening
On February 21, 2025, we pointed out hedge funds wre getting selective.
Hedge Funds are Getting Selective: Insights from Hedge Fund Positioning in Early 2025
On February 22, 2025, we turned bearish at the top of the stock market.
On February 26, 2025, I questioned if the bond market was underpricing risk.
Are Credit Spreads Signaling Asymmetric Risk?
March 2, 2025 I shared my insights on a memo from a famous value investor who declared the stock market was very overvalued. It's important to note the recent price action isn't just about tariffs. The stock market was already very overvalued and has been.
On Bubble Watch: A Critical Look at Market Cycles for Asymmetric Investing and Trading
On March 9, 2025, we pointed out an inflection point.
The Stock Market Risk/Reward Asymmetry Has Shifted
March 31, 2025, we had avoided the downtrend, and I shared some insights on Institutional fund flows, futures positioning data, and ETF rotation trends I had been monitoring. The driver of market trends isn't just headlines and often it isn't news at all.
How Flow and Positioning Data Can Reveal Asymmetric Opportunities
April 2, 2025 I believed the market was underpricing risk of much more downside.
The Volatility Mullet: What the VIX Curve Is Quietly Telling Us Today
April 4, 2025 I pointed out the forced selling from systematic trading funds, which is much of the downside selling pressure we've seen the last week.
Forced Systematic Selling Eventually Drives Asymmetric Opportunities for Convexity
April 4, 2025 I wrote about the hardest-hit tech sector.
The Technology Sector Just Collapsed Internally: Breadth Breakdown and Convexity Potential
As of today, April 7, 2025, I shared in Market Breadth Collapse Intensifies: Monitoring for Countertrend Setups with Asymmetric Risk/Reward the stock market is washed out, so we should see some buying demand overtake the selling pressure. However, I also add the odds of recession have increased significantly, which also raised the odds of an eventual deeper, more prolonged bear market.