My Five-Step Game Plan for an Ugly Market

Stocks are stumbling around on Thursday morning as investors seek clarity in a murky mess. Tariffs and a potential recession continue to dominate the news and lower-than-expected PPI is having no impact.

The Nasdaq 100 QQQ gave back all of Wednesday's bounce, with the Magnificent Seven ETF MAGS dropping 2%. Breadth is running around 3,200 gainers to 5,800 decliners, and there are 40 new 12-month highs to 195 new 12-month lows.

JPMorgan Chase JPM, in a report Thursday morning, states that the main issue isn't recessions or tariffs. The main issue is that the giant equity hedge funds have been liquidating positions. They have a variety of reasons for doing so, but hedge funds are creating the primary selling pressure that is making things difficult.

As I discussed on Wednesday, bounces simply can't be trusted in this environment, and the potential for a V-shaped move is extremely low when there is no leadership group like the Magnificent Seven.

My game plan is as follows:

1. Develop and refine a shopping list. This is an ongoing process and requires constant updating. A stock that looked extended and expensive one day can quickly turn into a value when the selling hits.

2. Constantly monitor chart setups. Stocks need to build a foundation of support. That support level becomes the key to setting stop levels and adding further buys.

3. Keep buying very small and incrementally until there are improved chart patterns.

4. Be ready to be much more aggressive when conditions improve. Countertrend moves in this environment can be quite sizable.

5. Don't let losses grow too big. Be ready to cut a position even if it feels like you are too late.

This is an extremely tough market environment, but when things are this ugly it means that there are some great opportunities developing.

At the time of publication, Rev Shark had no positions in any securities mentioned.