The stock market is in disarray right now, to put it mildly.
This week, the S&P 500 and Nasdaq both temporarily lost their 200-day moving averages – a potential signal of a major market trend reversal.
Driving this negative price action are fears that the current administration’s policy changes – including federal spending cuts, tariffs, deportations, and more – could plunge the U.S. economy into a recession.
We understand and share those concerns. The odds of a recession and bear market are rising rapidly. Caution is warranted given these risks.
But at the same time, we think the odds of an economic recovery and stock market rebound are far higher. And stocks could be preparing to bounce right now.
These Stock Market Wounds Are Self-Inflicted
Just a few months ago, the economy was in great shape.
Unemployment was low. Job growth was high. Consumer spending was resilient. Real wage growth was positive and strong. Inflation was turning lower. Interest rates were dropping. Consumer and business sentiment were improving, and corporate earnings were running higher.
While most of those things remain true today, investors fear that President Trump’s policy changes will reverse a lot of those positive economic trends.
But such reversals would be the result of self-inflicted wounds. And the thing about self-inflicted wounds is that usually, you can stop imposing them at any point.
We can stop issuing tariffs and widespread federal spending cuts at any point. And it seems like the current administration is moving to gradually stop – or at least stall – some of these things.
Trump has now twice delayed some tariffs on Mexico and Canada and granted exemptions to a variety of sectors, like the auto industry. He also said that future job cuts in the government will be done with a “scalpel” and not a “hatchet,” implying more strategic, smaller cuts.
It seems the tide is turning at the White House. Radical change will become less radical. If that continues, it should ease Wall Street fears about a potential recession in the coming months.
That’s why we believe the odds of an economic recovery here are far greater than the odds of a meltdown.
But we also aren’t smarter than the market… so we will listen to its cues about where the economy and stocks could go. And based on our technical analysis, the market will offer a lot of information over the next two weeks…
What to Watch: the Nasdaq 100
The bellwether index we’re watching closely right now is the Nasdaq 100.
We view it as even more important than the S&P 500. That’s because it includes the world’s largest 100 tech companies. And since we live in a tech economy, those are the most important, most powerful companies in the world.
This week, as we mentioned, the Nasdaq 100 closed below its 200-day moving average – for the first time in over a year, signaling a potential major market trend reversal.
It has done the exact same thing precisely 11 times before since 1990.
All 11 times, the stock market was either on the cusp of a big rebound or a big breakdown – and which way it went depended on how stocks acted in the subsequent two weeks.
If the Nasdaq 100 played strong defense and stayed within 4% of its 200-day moving average over the subsequent two weeks, stocks always rebounded over the next 12 months, with average gains of over 25%.
This happened in early 1992, early ‘96, late ‘97, early 2004, mid-2010, late 2014, and late 2018.
But the outcome isn’t always so bullish…
A Make-or-Break Point for the Stock Market
Historically, if the Nasdaq 100 didn’t play strong defense and fell more than 4% below its 200-day moving average over the subsequent two weeks, stocks always slumped into a bear market.
This happened in early 1990 (right before the ‘90s recession), mid-2000 (right before the dot-com crash), early 2008 (right before the 2008 financial crisis), and early 2022 (right before the inflation crash).
In other words… according to the technicals… the stock market is at a make-or-break point right now. And how it acts over the next two weeks will tell us whether stocks soar or crash over the coming year.
If the NDX plays strong defense here and stays within 4% of its 200-day moving average over the next two weeks, stocks should soar.
If the NDX fails here, stocks will likely crash.
We are currently about 2% below the 200-day moving average.
Given this data, I think it’s time to buy stocks.
The Final Word
We view the odds of an economic recovery as being significantly greater than the odds of a recession.
We also think the odds of the Nasdaq 100 staying within 4% of its 200-day moving average as being significantly greater than the odds of it breaking down.
Therefore, we believe it’s more likely that stocks soar over the next year – making this being a great buying opportunity.
So… why not buy?
If we’re wrong about this bull thesis, we’ll know within two weeks and adjust accordingly. Unwind positions. Grab some hedges. Look for protection. Play defense.
But for now, we think it is time to be aggressive.
It is time to buy the dip.
What does that mean?
Buy AI stocks. More specifically, buy the AI stocks that could reshape the economy.
Especially since all this new AI technology will inevitably lead to widespread job loss. Indeed, this is already happening.
Meta, Amazon, Salesforce, Microsoft, Intuit, Duolingo, Workday, Intel, Dell, Best Buy, Chevron, AMD, Klarna, Cisco, Activision Blizzard… All have either recently executed or are currently executing layoffs due at least in part to AI.
Make no mistake: This tech is a job-killer. And as AI becomes increasingly capable, the threat to human workers and their livelihood will only rise…
Which means that you need to invest in AI stocks – not just to make money in the stock market, but to safeguard your wealth against the looming AI Jobs Apocalypse.
That’s why I’ve put together a brand-new presentation on the subject, detailing what it means for the economy, the markets, and maybe even your money.
In some ways, it’s like a survival guide for a new AI-powered world – a Ted Talk of sorts – jam-packed with a ton of information that I think you’ll find very valuable in this new “Age of AI.”
Check out that new video right now.
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.
P.S. You can stay up to speed with Luke’s latest market analysis by reading our Daily Notes! Check out the latest issue on your Innovation Investor or Early Stage Investor subscriber site.