Listen to the audio version of this article (generated by AI).
Editor’s Note: Something unusual is happening in the bond market. A disconnect between stocks and bonds could lead to a sharp Nasdaq pullback.
Now we’re seeing that volatility arrive.
I’m not here to tell you to run for cover. I’m looking for opportunities, and I’ve got an interesting way of deciding when to act. I recently explained that approach in my free $10K to $100K Challenge presentation, which is now available to watch on demand.
Today, I’m sharing my take on the selloff, three companies I’m watching, and what I’m waiting to see before making my next move.
Here’s that link to the replay again
About a week ago, I told my colleague Jeff Remsburg that this darn bond market is scaring me. Maybe you saw it in the Digest.
Stocks were near record highs, but bond prices were falling, yields were climbing, and the two markets were telling very different stories. I spent eight years trading bonds in the Chicago pits, and when I see that kind of disconnect, I pay attention.
I told Jeff I wouldn’t be surprised to see the Nasdaq drop 5%.
Well, here we are.
As I write this Friday afternoon, the Nasdaq Composite is already down about 4.5% for the week. Tech stocks are getting hammered. Investors are suddenly asking hard questions about the billions being borrowed to finance the AI boom.
Meanwhile, the Dow Jones Industrial Average is actually up a little for the week. That tells me money isn’t simply leaving the stock market. Some of it is moving elsewhere.
And here’s the part that might surprise you.
When Jeff asked what I’d do if the Nasdaq fell 5%, I didn’t hesitate. I said, “Back up the truck and let’s buy.”
I meant it.
But I didn’t mean buy everything. And I certainly didn’t mean chasing the first stock that looks cheap.
I’ve got a short shopping list (and I’ll share three of the stocks on it with you below). And I’ve got a particular way of deciding when it’s time to act.
Let me explain…
What the Bond Market Is Telling Me
First, a little background on why bonds have me so nervous.
When bond prices fall, their yields rise. That means investors are demanding more compensation for lending money. And higher borrowing costs can create problems for companies that depend on debt to finance their operations.
That’s especially true for smaller companies.
In my conversation with Jeff, I pointed out that the Russell 2000 small-cap index was looking particularly weak compared with the Nasdaq. A large percentage of those smaller companies have floating-rate debt, which means their borrowing costs can rise along with interest rates.
That’s not a great combination.
But something interesting happened this week.
As tech stocks began selling off, investors started buying U.S. Treasury bonds again. Treasury yields fell, even after another hot inflation report.
At the same time, the bonds of some heavily indebted AI companies continued getting crushed.
Take CoreWeave Inc. (CRWV). Yields on some of this data center operator’s bonds recently approached 15%. That’s the credit market sending a warning: Investors are demanding a whole lot more compensation for the risk of lending CoreWeave money.
So we’re seeing two things at once: Investors are seeking safety in government bonds while becoming increasingly nervous about companies borrowing enormous amounts to build AI infrastructure.
To me, that’s another reason to be selective.
I’d say I’m bullish going into the end of the year. But I expect volatility, and I don’t think every company is going to participate equally when the market recovers.
Which brings me to my shopping list.
Three Stocks I’m Watching
I’ve got three companies on my radar right now.
The first is Freeport-McMoRan Inc. (FCX). Freeport is one of the world’s major copper producers, and I’ve been talking about copper as an AI bottleneck for a while now.
Think about what goes into building all these data centers. You need chips, sure. But you also need enormous amounts of electrical infrastructure to power and connect everything.
And that requires copper. The world doesn’t have unlimited copper supplies, and bringing new mines online takes years.
When I spoke with Jeff, Freeport was trading roughly 10% below its highs, even though copper prices were near their highs. That’s an interesting disconnect.
Freeport has also been recovering from problems at one of its major mines. I think that gives us a company worth watching as copper demand continues to grow.
My next two names come from the space business.
AST SpaceMobile Inc. (ASTS) is developing a satellite network designed to connect directly with ordinary mobile phones.
And Rocket Lab Corp. (RKLB) builds and launches rockets while also supplying equipment and systems for space missions.
I like both companies because I think the space industry has a long runway ahead of it.
However, these space stocks can be incredibly volatile. During my interview with Jeff, I pointed out that AST SpaceMobile had recently gained about 9% one day and was down roughly 7% the next.
That’s not unusual for these names. And it’s why I don’t want to chase them when everybody’s excited.
If the Nasdaq gets hit and drags these companies down with it, I want to be ready.
But having a list of stocks I like is only half the job. The other half is figuring out when there’s actually a trade worth making.
And that’s where my years on the Chicago trading floor come in.
The Lesson I Learned From the Best Traders in Chicago
When I first started trading in Chicago, I came in cocky. Made a bunch of easy money.
But you know what came next: I pretty quickly figured out I had a lot to learn.
One of the most valuable lessons came from watching the traders who consistently made money.
You know what surprised me most? A lot of them spent most of their time doing absolutely nothing.
They weren’t jumping into every little move or trying to predict where every stock would go next. They waited.
Then, when a really big order came into the market, they’d pay attention. They knew somebody was putting serious money to work.
And when that kind of money starts flowing into a stock, it can move the market.
That’s something I’ve carried with me ever since. Today, I look for unusually large trades, especially in companies that aren’t already attracting enormous trading volume.
A million-dollar trade in Nvidia Corp. (NVDA) might be just another Tuesday. But a million-dollar order in a smaller company that doesn’t normally see that kind of activity gets my attention.
I don’t automatically make a trade, but I start investigating.
Maybe there’s an upcoming catalyst. Maybe institutions are starting to build positions. Maybe something is changing in the business that the broader market hasn’t fully appreciated.
That’s the advantage I’m looking for.
And it’s why my shopping list matters.
I already know I like copper and space. I already know which companies interest me.
Now I can watch them for unusual trading activity that might help me identify an attractive opportunity.
The Other Half of a Good Trade
Of course, spotting an opportunity doesn’t do you much good if you don’t know how much you’re willing to lose.
That’s another thing I learned on the trading floor. You can’t control what the market does after you enter a trade, but you can control how much money you put at risk.
Here’s a simple example.
Suppose I find a trade I like. Each contract costs $50. I could buy 10 contracts for $500.
But what if I’m only comfortable risking $200? Then I buy four contracts instead.
That’s it.
With a straightforward trade like that, my maximum loss is the premium I paid. In this example, $200, plus transaction costs.
I don’t need to hope I can get out before the market moves against me. I’ve established my maximum loss before entering the trade.
And if the stock makes a big move in my favor, the trade can potentially deliver a much larger percentage gain than owning the shares outright.
Of course, if the trade doesn’t work, you lose the whole premium. That’s it. That’s your max loss.
That’s why position sizing matters so much. I’ve seen plenty of traders make a correct prediction and still lose money because they picked the wrong trade or took too much risk.
And I’ve seen traders turn a relatively small investment into a substantial gain because they waited for the right opportunity.
Being right about a stock is only part of the job. Getting the trade right matters just as much.
What I’ll Do if the Nasdaq Keeps Falling
So let’s return to that conversation with Jeff.
The bond market was scaring me. I thought the Nasdaq could fall 5%. And when Jeff asked whether I’d buy that decline, I told him to back up the truck.
I wasn’t kidding.
But that doesn’t mean I’m putting all my money into the market the moment the Nasdaq hits some arbitrary number. I’m watching how money moves between stocks and bonds. I’m watching which sectors hold up when the market gets ugly.
And I’m watching the market for the big, unusual trades that tell me somebody is putting serious money behind an idea.
Freeport-McMoRan, AST SpaceMobile, and Rocket Lab are three of the names on my list. But they’re not automatic buys. When I see an opportunity, I’ll decide how much I’m willing to risk before putting a dollar to work.
That’s the approach behind my $10K to $100K Challenge.
In the free presentation, I explain how I identify unusual trading activity, how I evaluate potential trades, and how I structure positions to pursue large gains while keeping my maximum risk defined.
The goal is ambitious: exploring whether it’s possible to turn $10,000 into $100,000 in 12 months. There’s no guarantee of reaching it.
But you can learn the process I use to look for opportunities, and you don’t need to wait for the Nasdaq to fall another 5% to start learning.
Watch my free $10K to $100K Challenge presentation here.
The bond market still has my attention.
And if this selloff gives me a chance to buy companies I like at better prices, I’ll help my members put together some low-risk, high-reward trades.
I’ve already got my shopping list. Now I’m waiting for the right moment.
The creative trader wins,
Jonathan Rose
Founder, Masters in Trading
