Fear and Doubt Are Running the Stock Market - Here's How to Profit

It's the start of a brand-new week... and much more importantly, the start of an entirely new stock market.

That's right: Everything's changed.

The overriding bullish sentiment that powered markets higher for nine years died last week.

It was at death's door the week of Oct. 15, but the bull had a pulse at least.

Not anymore. It's flatlined. R.I.P.

The action last week... ouch; it was ugly. Particularly the Nasdaq, which is well on track for its worst October since 2008.

In fact, that may have been the decisive "death blow."

Why was that so bad?

Well, for years, the tech darlings, chiefly the FAANG stocks - Facebook Inc. (NASDAQ: FB), Amazon.com Inc. (NASDAQ: AMZN), Apple Inc. (NASDAQ: AAPL), Netflix Inc. (NASDAQ: NFLX), Google's parent company, Alphabet Inc. (NASDAQ: GOOGL), and Microsoft Corp. (NASDAQ: MSFT) - would routinely lead markets higher.

Not anymore.

Don't let Monday's rally fool you. There's just not enough there to change the inevitable fact that there's a new boss in town...

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The Mega-Cap Tech Leaders Are Gasping for Air

The Street is talking. Good times or bad, that'll never change, but there's a new topic of conversation on the table.

See, the Street isn't buzzing about record earnings, or record profit margins, or inflows into passive investment funds anymore.

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It's about peak earnings, stretched profit margins, and outflows from indexed mutual funds and exchange-traded funds (ETFs).

Fear and skepticism are the flavor of the day.

As far as I'm concerned, there's no magic potion investors can take to mask the bad taste they have in their mouths now.

When companies come out with good earnings, they go up then collapse back. When they miss on the top line, the bottom line, or pare back future guidance, the get pummeled mercilessly.

The hell of it is, nothing's changed, fundamentally speaking. Misses aren't bad; beats have been convincing.

It's just that the market isn't looking healthy. Technically, it looks like there's a huge weight breaking its back.

That's sentiment and psychology. And that's what's changed.

We'll respond to it with a classic from my playbook, though...

Even a Downtrend Is Still Your Friend

And it always will be, whether the bulls are running or the bears are rampaging.

Go with the flow.

There's no sense in fighting it because, if you do, you're just as likely as not to get sucked under, like millions of investors did over the past two weeks.

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In my paid trading services, for instance, several positions I was researching opened down too much. To get into those positions would be to chase them, and that would be foolish.

It's not unexpected, it's just indicative of how quickly a lot of stocks got levelled.

It's just the way it is. It's not the end of the world.

From here, for the time being, I like being on the short side of things. That's what I'm going to recommend for my paid-up readers as we look at specific sputtering companies to target.

Otherwise, it's a smart idea to - you guessed it - go with the trend, and play the broad declines with "bear" vehicles, like the ProShares Short S&P 500 ETF (NYSEArca: SH), the ProShares Short Dow 30 ETF (NYSEArca: DOG), and the ProShares Short QQQ ETF (NYSEArca: PSQ).

The trend is down until proven otherwise. It's not unrealistic to expect these bear runs to continue until the midterm elections are history.

Beyond that, it's anyone's guess, but I would not try to anticipate a change in the weather.

But it will change eventually.

When lightning strikes and a few intrepid bargain-hunting traders inject enough leadership momentum to rekindle hope and, who knows, maybe back toward highs, we'll be ready.

Because we want to be friends with that trend, too.

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About the Author

Shah Gilani boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.

The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.

Shah founded a second hedge fund in 1999, which he ran until 2003.

Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.

Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.

Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.

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