Episode Overview

As market volatility remains a recurring theme in the stock market, the ability to anticipate stock market crashes becomes invaluable for swing traders, even if you can’t predict exactly when (as if anyone actually could). In this episode, I dive deep into historical patterns, warning signs, and the subtle indicators that might hint at a looming stock market downturn. From economic cues to technical analysis, learn the art of reading between the lines and making informed decisions in an unpredictable market landscape.

🎧 Listen Now:

Available on: Apple Podcasts | Spotify | Amazon | YouTube


Episode Highlights & Timestamps

  • [0:07] Introduction
    Ryan sets the stage for today’s episode by discussing swing trading strategies amid a potential market recession.
  • [0:45] Listener Question from “Susie Q”
    A loyal listener writes in with thoughtful questions on how to navigate a possible stock market crash.
  • [2:51] Valuations and Interest Rate Pressures
    Ryan explains how inflated P/E ratios and rising interest rates signal market risks traders shouldn’t ignore.
  • [8:28] Protecting Your Portfolio
    Tips on using stop-losses, managing exposure, and taking profits during frothy markets.
  • [12:38] Swing Trading During a Downturn
    Strategies for swing trading recessions, sectors to avoid, and how to use inverse ETFs effectively.

Key Takeaways from This Episode:

  • Recession Risk Is Real: Be cautious when valuations are inflated and rates are rising; prepare defensively.
  • Use Stop-Losses and Take Profits: Don’t let emotions override risk management. Define exits before entering trades.
  • Avoid Overexposure: Spread investments across sectors and avoid putting too much into a single stock.
  • Inverse ETFs Offer Opportunity: Products like PSQ and SH can help traders capitalize on downturns without needing to short individual stocks.
  • Cash Is Strategic: Don’t fear cash. It offers flexibility and removes emotional pressure during uncertain markets.
Free Swing Trading Resources

Take the Next Step:

Stay Connected: Subscribe to Ryan’s newsletter to get free access to Ryan’s Swing Trading Resource Library, along with receiving actionable swing trading strategies and risk management tips delivered straight to your inbox.

📈 Level Up Your Trading: Ready for structured training? Enroll in Ryan’s Swing Trading Mastery Course, The Self-Made Trader, and get the complete trading course, from the foundational elements of trading to advanced setups and profitable strategies.

📲 Join the Trading Community: Sign up for SharePlanner’s Trading Block to become part of Ryan’s swing-trading community, which includes all of Ryan’s real-time swing trades and live market analysis.


Full Episode Transcript

Click here to read the full transcript

0:07
Hey, I’m Ryan Mallory and this is my Swing Trading the Stock Market podcast. I’m here to teach you how to trade in a complex, ever changing world of finance. Learn what it means to trade profitably and consistently, managing risk, avoiding the pitfalls of trading, and most importantly, to let those winners run wild.

0:25
You can succeed at the stock market and I’m ready to show you how. Hey everybody, this is Ryan Mallory. What’s Swing Trading the Stock Market? In today’s episode, we are going to talk about a potential recession in the stock market. What should we do to prepare for it and what are some of the strategies with existing positions and future positions from a swing trading standpoint that we can take advantage of?

0:47
So for today’s e-mail, we’re going to call this person Susie Q, give him a good Florida redneck name, Susie Q writes, Dear Ryan. First and foremost, I want to extend my sincere appreciation for the invaluable insights that you provide through your podcast and swingtradingthestockmarket.com.

1:03
I’ve listened to every single episode and I have learned a ton about the financial markets from your podcast episodes. Your content has been both educational and thought provoking. Recently, there has been a lot of chatter about the possibility of a significant downturn or even a stock market crash.

1:18
As a regular listener and someone who values your perspective, I’d love to hear your thoughts on a few related topics, #1 From your vantage point, and they actually put them in nice bullet points, which is good. From your vantage point, how eminent or likely is a stock market crash in the near future?

1:34
What indications or signs should we be particularly vigilant about noticing #2, the preparation for such? If there’s a legitimate cause for concern, what measures can an investor or an average investor take to safeguard their portfolio? Are there any specific strategies or diversification ideas that you would recommend #3?

1:55
Assuming one wants to capitalize on the market’s volatility and possible downturn, how might one approach swing trading during such tumultuous times? Are there particular sectors or stocks that tend to perform better, or ones that you would avoid? Or is there certain technical indicators that might be especially relevant?

2:12
I know you can’t predict the future with certainty, but I do appreciate your insights and expertise on the matter. Knowing how to navigate these difficult times both defensively and offensively can be very helpful for listeners like me.

2:33
I eagerly await what your thoughts might be on this topic in a future podcast. Warm regards, Susie Q. Thank you, Susie Q. So good questions. There’s a lot to talk about here. There’s a lot of things that we’ve seen in the market, especially with the pullback we’ve seen of late, that would give us cause for concern.

2:51
One of the things that would probably be the biggest is how overvalued a lot of these stocks have become. You look at the P/E ratios, you look at something like NVIDIA, which just reported earnings this afternoon and now you’re probably looking at APE of over 200, which is just absolutely asinine, especially in the kind of economic conditions we’re in.

3:09
Why have we seen such a huge run up in tech over the past eight months? It’s largely being because of the AI narrative. Everybody keeps talking about the AI. Wall Street has firmly gotten behind it, believing that this is the next big wave, like the essentially the biggest thing since the Internet, which was the biggest thing since the automobile.

3:28
So you can see where people are hyping this up beyond imagination, but even when something’s has a huge lasting impact on society as a whole doesn’t mean that it can’t get into a bubble face. You look at the Internet and how popular it is and how necessary it is to everyday life.

3:46
Yet that was still a bubble in its own in the 90s when it was coming about and so that bubblethatthe.com era created came to a crashing halt. NASDAQ dropped like 80 plus percent from highs to lows. I think it was 87% if I remember exactly.

4:02
But yet the Internet was still around and it will be around probably for the rest of the time. But nonetheless it still got into a bubble craze. A I is doing the same exact thing and so you look at stocks like NVIDIA with a 200 + P, E and even non A I stocks that are just running like crazy like Tesla or even Apple with a very much a historically high P/E ratio than what it usually runs at.

4:26
And yes, these are concerning times when you look at the valuations and how far some of these stocks could drop if we get a legitimate recession. The other thing I would say is the interest rates. Powell is still hiking rates and probably still will until inflation comes down and I doubt inflation will come down until something breaks in the economy and people could say, well we were at 8% or 9% and now we’re down to 4%.

4:51
What gives Ryan? The inflation’s been beaten. No, it’s not, because we’re compounding. Still, We need actual deflation. Deflation would probably be the best thing for average Joe. But you know, back in like the 1970s or 1980s, somebody said that we should make an inflation target of 2%.

5:10
The dude was from New Zealand, and that’s been the narrative ever since. Inflation should be pegged at 2%. No, it doesn’t need to be pegged at 2%. That’s what the Federal Reserve believes, but it doesn’t make it right. Deflation would be really good. Yes. The banks might suffer.

5:25
Yes. The big corporations might not like it. Oh well. But guess what? People might be able to start affording things again. And when you’ve run prices up as much as we have over the last three years, a little deflation would go a long ways to help people out.

5:42
And it would actually create some opportunities for people to have some disposable income. You look at the overvaluation in homes. You look at how much we’re building in terms of homes. People say, well, there’s a shortage of homes. How is there a shortage of homes?

5:58
If we’re reproducing less, we’re reproducing less and less and less. Even the Elon Musk will tell you that we need to reproduce more. And eventually, when the baby boomer generation starts to die off and the Gen. Z generation is reproducing far less, there’s going to be a glut or a huge supply of homes available that’s going to on its own.

6:14
If we don’t see one in the near term, that alone will bring the housing prices back down because the supply will be so much bigger than the demand. However, in the very short term people are not going to be able to afford these homes if the interest rate stay this high. If the inflation continues to remain high, people aren’t going to be able to afford all these different things.

6:34
They can’t buy a new home. That’s average prices like $450,000 and still put food on the table, costing them another 15 to $2000 a month. And have you looked at the bond market lately? The bond markets collapsing, interest rates on the 10 year yield are soaring.

6:52
That’s another huge problem because people are not wanting to buy U.S. debt and so bond prices have to go down to make the yields much more attractive. The yields with Japanese bonds are becoming more attractive and Japan is the biggest holder of U.S. debt that there is.

7:08
So as their interest rates keep going up, their yields become more attractive, making it to where the prices of our bonds have to go down to be able to attract people to continue to buy our debt. And look at DC, and I’m not talking about just with the Biden administration or the Trump administration.

7:25
You go back to the very early 80s. We’ve been spending like things for the better part of 40 plus years and we’ve got $31 trillion of debt, 31 trillion. That’s a lot. I think we’re running budget deficits this year so far of $1.6 trillion.

7:46
That’s some crazy town stuff. And another thing to watch for in the coming year, Civil unrest for the next election. I don’t think it matters who wins. There’s probably gonna be civil unrest. One side’s not gonna like the other and we’ve seen plenty of civil unrest over the past few years to where it’s not that big of a stretch to assume that once the elections our final in 2024 that there’s a good chance that there could be some civil unrest there as well.

8:12
So there’s a lot going on with this economy that’s not good. And I know this is a swing trading podcast, so I’m not trying to get into all these macro elements, but all these things do put pressure on the market and we’ve seen the market pull back quite a bit over the last 3-4 weeks.

8:28
We’re getting a little bit of a bounce this week, but it doesn’t necessarily mean the selling is done and over with. So the second question is about preparation. If there’s a legitimate cause for a concern, what measures can in an average investor take to safeguard their portfolio? One, and I harp on this probably with every single podcast episode that I do use, stop losses, know where the line in the sand is, whether it’s long term investments, whether it’s short term, what’s the line?

8:51
The same where you’re going to go ahead and take some profits off the table. I have a long term portfolio, I have swing trading portfolio, I have a dividend account. I spread myself out quite a bit when it comes to equities in terms of having it in different accounts, separate baskets, my long term stuff I don’t like to add to my long term portfolio.

9:07
I know a lot of people like to do the dollar cost averaging. I don’t mind putting stuff into my account. From a dollar cost averaging standpoint, I don’t think it’s really bad for a passive investor to do it either. But for me, I look when the market’s booming, I’m looking to raise cash. When the market’s sinking, that’s when I really want to be the pointing some of that cash at some really good bargains.

9:25
I’m not looking for stocks that haven’t proven themselves yet. I’m looking for proven stocks, proven companies that have a history of outperforming and when they take these big hits, when there’s a market correction like we saw in 2022, I want to be buying those stocks.

9:41
So back in like August, September, October, I started adding to my long term portfolio some new positions, whether it was a MD or DKNG or Shopify, there was plenty of those. And then when they, you know, most of them pretty much doubled off of the October lows. I took my original position off the table.

9:57
I wanted to make sure that I couldn’t lose on the trade because now all I have is the profits that I made in the trade still in the market. So it turned out to be really good investments. But knowing that the markets getting way over inflated and that the PE ratios are through the roof, we still have interest rates at extreme highs.

10:14
In fact interest rates since we’ve already talked about it a little bit just broke the October highs that’s where the market was at its lowest point at back at those October highs. Now the markets just a shade off of its recent highs and that creates a lot of stress. That was one of the main drivers of why the market sold off so much in 2022 and now we’re in 2023.

10:34
We’re pretty much ignoring it for now. But with the bond market collapsing, with interest rates soaring, but there probably being at least another rate hike or two down the Pike, there was a need for me to take some profits off the table. So profit taking when things are getting frothy is not a bad idea.

10:51
Another thing that I don’t like is putting all my eggs in one basket. I talked about having different portfolios. I also think that you don’t want to be all capitalized in one particular stock. There’s a lot of people out there that have all of their eggs and Apple and yes, for years, not decades, it’s been a great strategy.

11:10
But the same could be said about Microsoft in the 90s. Same thing could be had been said at one point about GE or Ford and what have those stocks done? They saw significant pullbacks when there was a frothy top in the market and then finally the equity prices fell apart.

11:26
Saw that with microsoftandthe.com bubble where it pulled back 80%. The same thing could happen for Apple. And what is that going to mean? What’s that going to mean for all the pensions out there that are just fully dependent on Apple and all the other big tech stocks?

11:44
That’s going to get ugly. You get a major credit event that the Fed can’t contain. That’s going to get ugly for a lot of things. That’s going to have a huge trickle down effect on a lot of different areas. Now, do I think Apple’s a bad investment? No. I mean, the charts over the years have proven it’s amazing investment, but do I want to be 100% long on it or 50 or 60% long on it?

12:02
No, because then you’re putting all your trust into one company. If something bad happens, that could be a really bad thing for your future. And yes, I know that a lot of people owe their retirements to Apple, but again, we got to be looking at the risk side of things as well.

12:22
And so remember when the market’s getting frothy, when the market’s really starting to act like this is too good to be true. That’s where I want to start raising cash. And in the case of some of my long term investments, I took profits off the table of my original position and kept all the profits there cuz it more than doubled off of those October loads.

12:38
The third question is about swing trading during the downturn. How can you capitalize on that? What kind of sectors, what kind of stocks would you avoid? One of the things that’s important to know is what sectors not to trade during the market downturn in terms of shorting the market, if you’re looking to short it and be mindful with the higher interest rates when you short the market, it does require margin even if you have plenty of capital cuz you’re borrowing those shares.

12:55
So you’re gonna be charged interest on those shares that you’re borrowing when you’re being charged interest on those. The margin rates right now are extremely high. Some of them talk about 8-9 percent interest rates. I’ve seen some of them at 1314% interest rates that they’re charging on margin. So if it’s like a 12% for instance, to keep the math simple, you’re paying 1% interest every month on that margin.

13:15
So if you go, you know, 100% short and to margin, guess what, you’re paying 1% of your capital to the bank every month for that position that you’re holding. But if you instill insist on doing it, the sectors that I would avoid first and foremost would be Staples, utilities and real estate.

13:34
Those tend to be your safe sectors. That tends to be what a lot of people flee to when the market gets bad because like take for instance Waste Management or you take Costco. People are probably still going to go to Costco during a downturn. In fact, probably more people will go to Costco during a downturn.

13:49
And why is that? Or Dollar Tree? Those are Staples. Those are plays that people need. Utility companies like Next Air Energy, people still need to have power in their house. Definitely here in Florida, people need to have some A/C running. Even if it’s a depression, it doesn’t matter, you’re going to be running that A/C.

14:13
So I don’t think I want to be shorting utility companies or companies like Waste Management where you still have to have trash collection going on, The city’s still going to be employing them. And then sectors that I would focus on from a shorting standpoint are going to be your growth.

14:32
Sectors like your tech, your discretionary retail, for instance. People tend to do less shopping when their pocketbooks are being hit. So companies like Amazon people might not be shopping as much on Amazon. People might not be updating their newest iPhone, so those things tend to pull back a little bit more during a recession.

14:32
Tesla, for instance, is probably a perfect example. Less people are gonna buy a Tesla when the economy is not good. People are looking at their disposable income and they’re not gonna have any. For me, I don’t tend to short individual stocks as much.

14:50
During a recession during 2022, for the most part, all I did was use the inverse. ETSI did a lot of like PS:, Q&SH. Those are one to one inverse. ETS also did a lot of QIDI did a lot of SDSI don’t get as much into the three to 1 inverse because it’s very difficult to be able to get quality trade setups with a lower risk level.

15:05
Right now I’m playing the bounce in the market with QLD. My remaining position is up about 7% from where I got in at and I was able to keep the stop loss pretty tight. I think I used a 1.2% stop loss on QLD, so QLD is a 2 to one.

15:22
Would I have gone to a three to one? Probably not, just because the ability to be right while using a tight stop loss is very difficult. There’s so much volatility in those. Even with QLD, you really got to make sure that you’re getting in at the right spot.

15:42
But for the most part, ETF’s are the way to go. For me, the inverse ETS, particularly the PS:, Q and the SH because it’s a lot easier to get right on those than it is a 2 to one or a three to one.

15:42
Also, one of the things that I would tell you that you’ll get right is by subscribing to swingtradingthestockmarket.com. That is my patron website that focuses on all things swing trading related. You’re going to get my weekly watch list.

15:59
You’re going to get my daily watch list. That I do as well. That’s going to be the stocks that I’m following each day for potential trades.

16:14
Also multiple videos each day, Updates on the S&P 500 and the NASDAQ and the Russell 2000 VIX. All that good stuff. Also updates on all the big tech stocks. Really a fantastic deal, so check that out. swingtradingthestockmarket.com. I do not think that you’ll be disappointed.

16:31
And if you enjoyed this podcast episode, I would definitely encourage to like and subscribe to what I’m doing here on YouTube. Your support means the world to me. It really does. I mean it gets me really excited every time somebody subscribes.

16:47
Also make sure to send me your questions, send me your concerns, tell me your stories. I want to hear all about them. Send me your emails. ryan@shareplanner.com. I read them. I probably make an episode out of about 90 plus percent of all of the emails that I make.

17:07
I might even say 95% of all the emails I received. I make an episode out of it. Some of the ones that I don’t do is when people ask me about wash sales. I’m not a tax accountant and really just not something that that I have a lot of knowledge on. So I tend to not do those kinds of things. Or when people get into stuff that goes outside the the parameters of the financial markets or swing trading.

17:28
But send me your questions. I want to hear from you guys. Want to see what you guys got. Leave the five star review on whatever platform you’re listening to me on. Thank you guys and God bless, Thanks for listening to my podcast Swing Trading the Stock Market. I’d like to encourage you to join me in the SharePlanner trading block where I navigate the stock market each day with traders from around the world.

17:49
With your membership, you will get a seven day trial and access to my trading room including alerts via text, e-mail and WhatsApp. So go ahead, sign up by going to shareplanner.com/trading Block, that’s www.shareplanner.com/trading-block and follow me on SharePlanners, Twitter, Instagram and Facebook where I provide unique market and trading information every day. If you have any questions, please feel free to e-mail me at ryan@shareplanner.com. All the best to you and I look forward to trading with you soon.


Enjoy this episode? Please leave a 5-star review and share your feedback! It helps others find the podcast and enables Ryan to produce more content that benefits the trading community.

Have a question or story to share? Email Ryan and your experience could be featured in an upcoming episode!


Become part of the Trading Block and get my trades, and learn how I manage them for consistent profits. With your subscription you will get my real-time trade setups via Discord and email, as well as become part of an incredibly helpful and knowledgeable community of traders to grow and learn with. If you’re not sure it is for you, don’t worry, because you get a Free 7-Day Trial. So Sign Up Today!
 

You Might Like

  • Fading the Gap: How Large Overnight Moves in SPY and QQQ Play Out During the Trading Day

  • How to Trade a Bear Flag

  • Technical Analysis vs Market Conditions: How to Know What’s Affecting Your Trades