Hey trader,
Thursday was one of those days that makes you want to sell everything and hide under the covers.
The Nasdaq fell 5.5% in a single session.
By Friday, it sat more than 10% below its October highs, and nearly everyone in the room expected more downside on Monday.
I get it.
But when I looked across the markets on Friday, I still didn’t call this a risk-off market.
You see, a risk-off market is one where money runs from growth and speculation toward safety.
That only applied to the Nasdaq.
Bonds were holding, and gold was still sitting above 4,000. Even the broader stock market was starting to stabilize.
If you judged everything by one ugly chart, you’d have missed all of that. You might have dumped your good positions right along with the bad ones.
So, how do you figure out where the fear really lives?
You check each market on its own before you decide you’re in a risk-off market.
Let me walk you through how I did it on Friday.
What Knocked the Nasdaq Into Risk-Off
Before I look at anything else, I want to know why the selling happened.
Thursday had a couple of big reasons behind it.
The first one is the AI trade. Investors have been asking for a while whether all that money pouring into AI infrastructure will ever pay for itself.
Then the election poured fuel on the fire. Democrats took control of Congress and won in big data center markets like Texas and Georgia.
That raised the odds of tighter scrutiny and regulation on data center build-outs. The market doesn’t like uncertainty, and it suddenly has plenty of it.
Friday’s jobs report didn’t help. The October numbers came in much stronger than expected.
The odds of a December rate hike jumped to about 77%. Higher rates weigh on growth stocks, so nearly every punch this week landed on technology.
How I Check for a Risk-Off Market
Once I know the story, I go market by market. It only takes a few minutes, and it tells me whether I’m looking at a risk-off market or one bad chart.
Here’s what I saw on Friday:
- Bonds held up nicely and played the safe haven on Thursday.
- The dollar was firm and getting stronger.
- Gold barely flinched and stayed above 4,000.
- Crypto was holding, though it’s still in a corrective phase.
- Volatility jumped on Thursday and hasn’t calmed down yet.
Look at that list again. None of it looks like a risk-off market.
Stocks outside the Nasdaq felt some pressure, though it hit selectively. By Friday, they were stabilizing.
Oil is my wild card. WTI got as high as $103, and Brent hit $118. Then both reversed hard.
The election raised hopes for progress toward ending the Iran conflict. That took some of the geopolitical risk premium out of oil.
I don’t think the market is ready to call that risk gone. The potential for supply disruption is still there.
There’s a silver lining if oil stays lower. It could take some pressure off inflation, which matters for the Fed.
Where the Money Actually Went
I really like this next check, because it tests whether you’re really in a risk-off market. I compare the last five days with the year to date to see where the strength is going forward.
Over five days, technology fell almost 14%. Energy wasn’t far behind with a 10% drop.
Staples, communication services and real estate all finished green. That’s where buyers showed up this week.
Now look at the year-to-date numbers, because this is really quite something.
Not long ago, energy and tech were almost head-to-head at around 30% each. Energy is now up 37.84%. Technology is up only 12.79%.
Health care is up about 19%. Consumer staples, a defensive trade, are up almost 17.5%.
How to Spot a Risk-Off Market Yourself
Start with the chart that scared you, then put it next to its neighbors. When I drew the same support zone on the Nasdaq and the S&P 500, the difference was obvious.
The Nasdaq crashed right into that zone. The S&P 500 never even got there, and that’s not how a risk-off market behaves.
Zoom out to the weekly, and the S&P 500 is still in a strong uptrend. Its pullback is a minor correction inside that trend.
The Nasdaq needs more care right now. After a drop that severe, any bounce is going to look like a correction first.
My Structure Channel tracks the bigger-picture trend. After a move this bearish, I treat it as major resistance, and there’s no way I’m buying into it.
Here’s what I want you to do the next time a chart makes you worry about a risk-off market:
- Figure out what’s driving the selling and which markets it actually touches.
- Check bonds, the dollar, gold, oil, crypto and volatility one at a time.
- Compare the five-day and year-to-date sector numbers to see who’s leading.
- Mark your key levels, including the one that proves you wrong.
Please don’t skip that last one. We always need that invalidation point.
I honestly don’t know whether the Nasdaq’s correction is over or whether it spreads into a broader risk-off market. None of us do, and I’m not going to pretend otherwise.
I’ll keep protecting my capital, following the leaders and watching my levels. Structure beats prediction, always.
Jody Samuels
Queen of Quid
