The Contrarian's Guide to Tariff Tremors

Declines in the major indices reflect investors’ aversion to increased risk

New tariffs on imports from Canada and Mexico and increased duties on Chinese goods have triggered a sharp downturn in equities, with the major indices reflecting investors’ aversion to increased risk. They’re concerned about how these trade policies may affect economic growth, corporate earnings and inflation.

• Nasdaq Composite: The tech-heavy index has taken out its three-month low, extending a nine-day losing streak as investors de-risk from high-growth stocks in response concern bout disruption of global trade.
• S&P 500: The broader market index has erased all of the gains it made since the last election, reflecting widespread economic caution.
• Dow Jones Industrial Average: The Dow has dropped nearly 800 points, marking one of its steepest declines this year.

Adding to the unease, the CBOE Volatility Index (VIX)—a widely followed gauge of market fear—popped above 25 for the first time this year, signaling a sharp rise in hedging activity and uncertainty about near-term market stability.

Concern over the trade war and retaliatory measures from Mexico and Canada are weighing on investors’ confidence and have pushed the U.S. dollar to a three-month low, according to a report from The Guardian.

Business leaders are becoming increasingly wary of prolonged trade tension, which could disrupt supply chains, increase consumer prices and reduce corporate profit margins, the report said. The tariffs may be intended to boost domestic production but could lead to slower economic growth and weaker global trade flows, The Guardian said.

The uncertainty surrounding trade policies has driven capital flows into safer assets, including gold and U.S. Treasuries, while equities—particularly high-beta tech stocks—face selling pressure.

Positioning for a short-term Nasdaq rebound

Despite the broader market downturn, short-term trading opportunities still exist. Given how extended the Nasdaq’s sell-off has been, I’m leaning bullish for a short-term bounce, as markets tend to experience counter-trend moves after extreme downside extensions.

Here’s how I plan to position:

• Selling out-of-the-money puts on QQQ—This strategy allows me to collect premium while anticipating a potential stabilization or bounce in the Nasdaq. If volatility remains elevated, put premiums will stay rich, offering attractive risk/reward setups.
• Intraday long positions using MNQ futures—If price trades back into the main value area (where 70% of last week's trading activity occurred), I will look for intraday long opportunities using MNQ (Micro Nasdaq futures).
  

Technical levels to watch: volume profile analysis

Using volume profile analysis, which identifies where most market participants executed trades, we can highlight areas of interest to guide our decision-making.

Main Value Area (Where 70% of Last Week’s Trading Occurred):

• Value Area Low (VAL): 20,919
• Value Area High (VAH): 21,659

High Volume Node (First Upside Target):

• 20,547 to 20,760

If price accepts into the main value area, we could see a mean-reversion bounce toward the POC (point of control), where the most trading volume occurred last week. However, if price rejects our area of interest, we could see continued selling pressure.

Moving forward

With tariff uncertainty weighing on equities, traders should remain cautious and closely watch economic data, market internals and key areas of interest for clues about whether the market will stabilize or continue to slide.

What to watch this week:

• How the Nasdaq interacts with the main value area—will it bounce or continue lower?
• Updates on how Mexico and Canada are responding to U.S. tariffs—Will additional retaliatory measures ensue?
• Economic data releases—Any signs of inflation creeping higher will weigh on rate-cut expectations.
• VIX levels—If volatility remains elevated, it signals continued uncertainty and choppy conditions.

The recent sell-off in equities, rising volatility and shifting trade policies have created a dynamic market. While short-term opportunities exist for tactical trading, it’s important to remain adaptable and stay informed about macroeconomic developments.

Errol Coleman appears on the tastylive network shows Today’s Assignment and Trades on the Go

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