Interview with Veteran Trader Jeffrey Bierman on the Stock Market

The following is a column I wrote for MarketWatch on what veteran trader Jeffrey Bierman thinks about the stock market, and the stocks he likes --- or doesn't like.

Link to MarketWatch article: https://bit.ly/4jq80XV

Jeffrey Bierman, an adjunct professor of finance at Loyola University Chicago and founder of Genisuscog.com, says the market is trying to figure out a lot of conflicting information, including the biggest wild card of all, Donald Trump. 

“Trump is a wild card in terms of his habit of tweeting,” Bierman says. “He’s mercurial.” Every time he comes out and says he’s going to cut taxes, impose tariffs, or invade Greenland, he creates a crosscurrent of uncertainty, which keeps the market guessing. If there is anything the market doesn’t like, it’s uncertainty. They like clarity and steadiness. You are not going to get that from him. This will be the year of volatility. It will be the new norm.” 

MarketWatch recently spoke with Bierman to discuss his contrarian views about the market, including the names of stocks he is buying and the ones he’s avoiding. This interview has been edited for length and clarity. 

MarketWatch: What do you think of the market right now? 

Bierman: It’s a trader’s market, not an investor’s market. The market is going to move in fits and starts for an extended period. You’re going to have a lot of false breakdowns and false breakouts. The key support level on the S&P 500 is around 5,800 (editor note: which was hit the day after the interview). The next line of defense is 5,600. If we take that out, we’ll mostly trade down to 5,200. 

MarketWatch: Do you expect a crash?  

Bierman: The odds of a crash are not high, but the odds of a garden variety 10% correction is fait accompli (i.e., inevitable). It’s likely and it’s healthy. The momentum to the upside is broken, but the long-term trend is not broken. 

MarketWatch: What preparations are you taking? 

Bierman: I’m lightening up on my exposure to technology. Hardware and software are in a bull market, so I’m scaling back my exposure to them and taking profits. I’m deploying that cash to semiconductors, which are in a bear market. I like stocks that have been beaten down. The semiconductors look awful.

MarketWatch: What specific stocks do you like --- or not like? 

Bierman: I added Applied Materials (AMAT) to my portfolio and also Qualcomm (QCOM) because the valuations are compelling. What I am avoiding like the plague are Intel (INTC) and Advanced Micro (AMD). They are highly overpriced in a highly competitive space. They are not gaining traction.

MarketWatch: Are there any investment themes that you like? 

Bierman: I like nuclear energy and AI healthcare, but not AI computers. The AI momentum trade is not going to work this year. I own Medtronic PLC (MDT) and Intuitive Surgery (ISRG), and they are both doing very well. My long trades are mostly pharmaceutical companies. It’s been the most hated sector for the last four years, which is why I went back in it. I’m also selectively buying consumer staples. 

MarketWatch: What investment themes are you avoiding? 

Bierman: I am avoiding retail such as Costco (COST) and Walmart (WMT), and stocks such as Lululemon (LULU), which is at its 52-week high. If the market corrects 10% and consumers are tapped out on debt, they will dramatically curb their spending. Consumers have used their investment portfolio as if it was an ATM machine. This will affect retail stocks.

MarketWatch: What advice would you give traders? 

Bierman: I would tell them not to be too bullish or bearish in their thinking because their thesis can turn against them. If you’re a trader, manage your risk. Don’t take big positions, and curb your expectations. Trade half the size you usually trade. Also, keep larger than normal cash on hand. Finally, be unemotional. Don’t fall in love with your stocks. There is a point where you have to cut your losers. You have to admit you made a mistake and walk away.  

MarketWatch: Should traders follow the strategies that have worked in the past? 

Bierman: The market may have had a 25% return last year and the year before, but we are not getting a 25% return this year --- although it could be positive. Because of the generalized tweets from the new president and macro data from the Fed, it will a bump and grind, fits and start market with unexpected spikes in volume and volatility at any given time. 

MarketWatch: Are there any indicators that you use? 

Bierman: The number one indicator I use is MACD (Moving Average Convergence Divergence). The second indicator I use is RSI (Relative Strength Index). The third indicator I like to use are channels. 

MarketWatch: What do these indicators tell you?

Bierman: I use these indicators to identify market strength and weakness. Because of algorithms (algos), stocks that are strong continue to be elevated and overbought and the weak continue to be depressed and oversold --- regardless of valuation. Algos buy into strength and sells into weakness. 

MarketWatch: Are algos that powerful? 

Bierman: Most investors aren’t aware that about 95% to 99% of all trades on any given day are done electronically by algos. They’re preprogrammed machines that are buying and selling based upon order flow and slopes (i.e., uptrends and downtrends). They’re completely detached from fundamentals. Don’t underestimate the power of algos. They took this market up and defended it for years. They can take the markets down either slowly or quickly. 

MarketWatch: What happens if the algos start selling? 

Bierman: Right now, we’re in a purgatory of nothingness as the algos keep swing trading. Because key support levels haven’t been violated, the market isn’t moving lower. However, if the market starts to go into a downward spiral and we’re down 20% to 25% in a month, the government might step in and curb the algos by changing the rules of the game. If the algos cause price deterioration and destroy the market, the government will impose regulations on both the upside and downside. Investors should be prepared that gains on the upside will also be curbed. 

MarketWatch: Is there anything else that could collapse this market? 

Bierman: If money managers start to back out of the Magnificent Eight stocks, the eighth being Broadcom (AVGO), then it could unravel the market and create an incredible meltdown. If the trend is broken, there will be forced liquidations by either margin calls or customer redemptions. The Magnificent Eight could also be the reason the market falls by 15% to 20%, and in a short period. This is the year it could happen.

MarketWatch: Is this your prediction? 

Bierman: No. I’m not saying it’s going to happen, but I would not be surprised if it does. It only takes a few seconds to wipe out these stocks. If things start turning down from a slowing economy, it could be the death nail that forces the market lower. There is one thing that I am certain of: We are going to have a 10% correction this year. I don’t know when, maybe April or the summer. The market needs to go through a garden variety correction. A lot of people are calling for a 40% haircut. I’m not. I’m not expecting a massive meltdown but I am expecting a substantial correction. 

MarketWatch: Do you have any hedges? 

Bierman: My hedge is to buy a little gold and silver. I bought Newmont Corporation (NEM) and VanEck Gold Miners ETF (GDX). Everyone should have some exposure to gold. 

Michael Sincere (michaelsincere.com) is the author of “Understanding Options,” “Understanding Stocks,” and his latest,“Help Your Child Build Wealth” (Wiley, 2024).