Market Crash: A Trump Move? - QCP Capital Analysis
QCP Capital analyses the impact of Trump's victory on financial markets, highlighting the correlation between the collapse of technology stocks and future economic prospects.
The trading firm QCP Capital released a report showing a sharp reversal of optimism following Donald Trump's victory. The US stock market continues its downward spiral, with the S&P 500 and Nasdaq down 2.7% and 3.8% respectively. The Magnificent Seven, the group of tech giants that includes Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla, lost over $830 billion, marking the largest daily loss in their history.
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Bearish Sentiment Gains Momentum
Bearish sentiment is now booming: the volume of put options (financial instruments that allow investors to protect themselves against an asset's price decline) on US equities has risen to the highest level since 2020.
The latest catalyst was a Trump interview on Fox, in which the president was unconcerned about the risks of a recession. Despite his reputation as a 'stock market president', he suggested that a downturn might be necessary to 'fix' America.
Bitcoin as Risk Indicator
In the crypto world, Bitcoin again acted as a safety valve and a key indicator for risk assets. BTC briefly fell below $80,000 as the market rushed to protect put options.
However, in the early hours of trading in Asia, unexpected demand emerged for call options with longer maturities, potentially signalling a preparation for a quick rebound from pre-election support of $75,000.
Market-Contrast Signals
Despite the chaos in the markets, not all signals are bearish. The wave of risk aversion pushed 10-year US Treasury bond yields down about 60 basis points and weakened the US dollar, historically a positive for dollar-denominated assets such as US equities and cryptocurrencies.
Bitcoin Risk Metrics: Source TradingView
A drop in bond yields also provides some breathing space for the US government, reducing borrowing costs at a time of massive debt refinancing. This comes at a crucial time when Trump's political agenda is taking shape, particularly with his proposals for tax cuts and more expansive fiscal policy.
Trading Strategies Facing Uncertainty
A report by QCP Capital suggests investors consider defensive trading strategies. One of these is the purchase of put options on BTC to protect against further declines. The essence of this strategy is to buy the right to sell an asset at a specific price in the future, providing a hedge in the event of a market crash.
For more experienced traders, QCP proposes the 'bear put spread' strategy. In this strategy, a trader simultaneously buys a put option with a higher strike price and sells one with a lower strike price. This approach reduces the cost of protection, while limiting the potential profit.
Parameters of strategies recommended by QCP:
Buy put options on BTC with a strike price of $75,000 and 1-month expiry
For a bear put spread, buy put options with a strike price at $80.000 and sell with strike price at $70,000
Buy call options with longer expiry dates to prepare for a possible market rebound
QCP also emphasises the possibility of using the 'calendar spread' strategy, which consists of simultaneously buying and selling options with the same strike price but different expiry dates. This strategy can be effective when a temporary decline is expected followed by a market recovery.
The current situation demonstrates the complex interaction between policy statements, market expectations and capital flows. Falling bond yields and the weakening of the dollar create a mixed picture, combining traditional risk signals with potentially positive factors for some asset classes.
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The trading firm QCP Capital released a report showing a sharp reversal of optimism following Donald Trump's victory. The US stock market continues its downward spiral, with the S&P 500 and Nasdaq down 2.7% and 3.8% respectively. The Magnificent Seven, the group of tech giants that includes Apple, Microsoft, Alphabet, Amazon, Nvidia, Meta and Tesla, lost over $830 billion, marking the largest daily loss in their history.
Bearish Sentiment Gains Momentum
Bearish sentiment is now booming: the volume of put options (financial instruments that allow investors to protect themselves against an asset's price decline) on US equities has risen to the highest level since 2020.
The latest catalyst was a Trump interview on Fox, in which the president was unconcerned about the risks of a recession. Despite his reputation as a 'stock market president', he suggested that a downturn might be necessary to 'fix' America.
Bitcoin as Risk Indicator
In the crypto world, Bitcoin again acted as a safety valve and a key indicator for risk assets. BTC briefly fell below $80,000 as the market rushed to protect put options.
However, in the early hours of trading in Asia, unexpected demand emerged for call options with longer maturities, potentially signalling a preparation for a quick rebound from pre-election support of $75,000.
Market-Contrast Signals
Despite the chaos in the markets, not all signals are bearish. The wave of risk aversion pushed 10-year US Treasury bond yields down about 60 basis points and weakened the US dollar, historically a positive for dollar-denominated assets such as US equities and cryptocurrencies.
A drop in bond yields also provides some breathing space for the US government, reducing borrowing costs at a time of massive debt refinancing. This comes at a crucial time when Trump's political agenda is taking shape, particularly with his proposals for tax cuts and more expansive fiscal policy.
Trading Strategies Facing Uncertainty
A report by QCP Capital suggests investors consider defensive trading strategies. One of these is the purchase of put options on BTC to protect against further declines. The essence of this strategy is to buy the right to sell an asset at a specific price in the future, providing a hedge in the event of a market crash.
For more experienced traders, QCP proposes the 'bear put spread' strategy. In this strategy, a trader simultaneously buys a put option with a higher strike price and sells one with a lower strike price. This approach reduces the cost of protection, while limiting the potential profit.
Parameters of strategies recommended by QCP:
QCP also emphasises the possibility of using the 'calendar spread' strategy, which consists of simultaneously buying and selling options with the same strike price but different expiry dates. This strategy can be effective when a temporary decline is expected followed by a market recovery.
The current situation demonstrates the complex interaction between policy statements, market expectations and capital flows. Falling bond yields and the weakening of the dollar create a mixed picture, combining traditional risk signals with potentially positive factors for some asset classes.
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