Read any major mainstream financial media outlet, and the quotes from old school analysts are all the same: “the stock market is in a bubble, and it is about to burst.” It is a narrative that’s been heavily publicized since the start of the pandemic, but markets have turned contrarian and are now trading at more than double pre-pandemic prices.
Still, the secular bull run in the stock market will eventually end, and according to longer-term market cycle theories, every 90 years or so there’s a major economic and stock market collapse. It has now been more than 90 years since the stock market collapse of 1929, and today’s stock market is overvalued by most standards.
Will it eventually all come crashing down? Or will stocks continue to climb parabolically as they have for nearly one hundred years? When the tide does turn, investing gains could be done for a while, and it could be a time to short instead during a bear market. Here’s how to short the stock market on PrimeXBT, ahead of any potential coming collapse.
The United States And Secular Stock Market Success
After World War II ended, the United States economy went through a recovery phase, and during that time, the S&P 500 saw steady growth and relative tranquility. It wasn’t until almost 30 years later in the 1970s that markets began to get shaky again. Another strong selloff was combated with a major shift in monetary policy, the dollar was de-pegged from the gold standard, and fiat currencies as we know it was born.
Central bank control over monetary policy led to high inflation, but also high asset prices. This also started the large divergence between productivity and wages, which has only become significantly worse since COVID-related stimulus efforts first kicked off.
Dot Com Bubble Bursts For First Major Crash Since 1929
It wasn’t until the early 2000s when the advent of the internet sent asset valuations far beyond their realistic values. The result was the dot com bubble burst, which crushed the stock market and many top internet stocks that today dominate finance.
The housing market collapse in the late 2000s caused a double top in the stock market and The Great Recession. The Great Recession itself ended when central banks further pushed monetary policy into the gutter, by introducing quantitative easing. The government debt programs helped restore the economy, save dying companies, and bail out the banks.
The stock market was saved and continued on its secular upward trend. Then finally, last year in 2020, COVID struck and sent markets haywire. The response again was to flood the world with access to low-interest cash. Easy access to borrowing and a near-endless glut of cash has caused the stock market to double since its pre-pandemic number and even pushed cryptocurrencies to incredible new valuations.
Inflation, Interest Rates, And More To Cause Next Major Crash
However, inflation has started to catch up to the wave of currencies and it is causing the market to once again panic. Retirees who have fixed incomes might need to cash out stock market holdings in order to cover the cost of living, and with the days of low-interest rates ending, valuations could start to taper off.
With the economy already still fragile due to the pandemic and the long-lasting supply chain issues and employment problems, the stock market could see another catastrophic collapse at any given time. Risk is increasing by the day, and so are the warnings from top analysts who helped predict the housing market collapse.
How To Short The Stock Market With CFDs
If the stock market does crash again, investors are stuck with nothing but losses for years on end during a bear market. Rather than investing in the stock market either through individual stocks, ETFs, or potentially through major stock market indices like the Dow Jones or S&P 500, traders can short stock market CFDs.
CFDs let traders speculate on the price of an underlying asset by going long or short. When trading the S&P 500 this way, for example, traders can profit from both directions of the market instead of seeing returns only when prices increase.
CFDs stand for contracts for difference, and any price difference between the time the contract is opened until it is settled and closed determines the overall total profits or losses. CFDs also are popular on margin trading platforms, and typically allow for added modifications that can enhance profits such as leverage.
A leveraged short on the stock market at the right time, precisely before a bubble burst, could lead to life-changing wealth being built, while the economy collapses around you. CFDs and long and short positions such as those offered at PrimeXBT can mean the difference between long-term profits and losses.
How PrimeXBT Can Protect Against The Crash
PrimeXBT also includes all the tools required to get a tip on when the stock market could finally be turning. Price action has gone stagnant for the last several months, and if after consolidation the stock market cannot push higher, it may return lower to retest former levels for support.
If a real collapse is coming, the fall could take markets even lower than the Black Thursday plunge last year. Worst of all, no one would see it coming, nor would the current wave of market participants be prepared.
The pandemic stopped sports and with it, sports betting, which turned a lot of gamblers toward trading and investing. It created a massive boom in meme coins, brought about the WallStreetBets trend, and caused stocks like GameStop to go ballistic.
But without experience with risk management and only experiencing a bull market with easy cash, these traders are easy targets and could get crushed if and when the stock market turns. Using the technical analysis software built into PrimeXBT along with stop-loss protection and take profit orders are the missing ingredients that these traders require to stay safe with what’s to come.