Is The Stock Market Crashing? (What To Do Right Now)
In a Nutshell
The market is down 2.4% on QQQ driven by geopolitical fears around Iran/Israel conflict and rising oil prices, plus concerns over massive AI spending commitments, not economic weakness. Technical support at 700 on QQQ is key to watch, with oversold conditions suggesting potential bounce but risk of further downside if geopolitical tensions escalate. The core takeaway is to maintain small position sizes during volatility, avoid leverage at overbought levels, and position for buying opportunities at oversold levels with favorable risk-reward.
These notes were generated by AI and may contain inaccuracies.
NASDAQ market is down 2.4% with Meta declining after reporting strong earnings. The fear driving the market is driven by three primary factors. Iran's Navy reports seven ships were hit near the Strait of Hormuz. Trump states the US is not negotiating with Iran, while the Times reports the US and Israel are planning strikes after the election. Vessant posted that Kharg Island has no crude tankers in sight and Iran has not loaded cargo since August 25th. Brent crude is trading around 111 to 112, with WTI near 99. This oil shock feeds directly into inflation fears.
The second factor involves AI spending doubt. Meta beat earnings expectations, but Bloomberg counts approximately 825 billion in future lease and contract commitments, and the cost of insuring Meta's debt reached a record high. The New Mexico 25 billion ruling landed around 610 and added pressure. This has dragged AMD down about 6.5%, Nvidia down 3%, and SMH down 4.5% with short bets near 5-year highs.
Economic data is not the primary concern. Claims were solid, with small misses representing noise. The 10-year yield is actually falling near 5.01. This indicates stock-specific fear rather than rate fear. The connective tissue is stagflation thinking - higher costs, weaker growth, and less patience for expensive AI investments. QQQ was at approximately 708 at 8:35, down roughly 2.4%.
Approximately 14% of QQQ's red days are worse than 2.4%, representing 449 out of 3,125 down days since March 1999. When excluding the dot-com crash in 2008, this falls to about 8% since 2010, and roughly 10% since 2016. Today's move represents around a 1 in 10 red day in the modern era. The five worst days include COVID in March 2020 with approximately 12% and 9.2%, October 2008 at 9%, April 2000 at 8.7%, and September 2001 at 8.5%. Big down days tend to cluster, making another 2%+ drop not unusual soon after one.
On the 4-hour timeframe for QQQ, there is strong support at 700, which represents a major previous support range that tends to be considered both strong support and technically oversold. Price sitting above a level that has held before with momentum stretch sets up an oversold bounce scenario. However, in fear-driven markets, support levels get sliced through more often than they hold, especially when the driver is geopolitical rather than mean-reverting. The 700 level should be watched for either a flush below that invalidates it or a sharp reclaim that confirms it.
Meta was shorted after becoming overbought following earnings, generating approximately $3,800 in profit. The short was not held overnight. Meta appears technically oversold, and a long position was taken on the dip, but profits were taken due to lack of progress and weak NASDAQ market conditions. Meta is currently in the middle ground where potential profit if it recovers is approximately 17% to previous highs, while potential loss based on recent lows is also 17%, creating a 1:1 risk-reward ratio.
Markets are attempting to overcome Middle East tensions, rising oil prices, and uncertainty about Iran, Israel, and US discussions about attacking Iran after midterms. If attacks occur shortly after midterms in a few weeks, markets could go lower. The current situation presents uncertainty with markets trying to overcome ongoing geopolitical developments that are not providing de-escalation certainty.
Position sizing is critical during volatile periods. It is better to buy one share than ten shares if it means maintaining sanity holding positions overnight and over weekends. At oversold levels, the potential for profit is significantly greater than potential for loss. Shorting at oversold levels presents greater risk, while shorting at overbought levels is preferred. Beginners should consider risk-to-reward ratios and be aware that markets tend to be more bullish than bearish overall.
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At overbought levels, excessive greed and overleveraging in preparation for pullbacks creates problems. Having cash available on the sidelines allows taking advantage of market drops. The current environment presents favorable risk-reward with greater upside potential than downside risk. The strategy involves being cautious and avoiding leverage at overbought levels, while positioning to capitalize on opportunities at oversold levels.
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