Dear trader,
Yesterday was the worst day of the year, and it happened two days after an election. The Qs (Invesco QQQ Trust (QQQ), the Nasdaq-100 ETF) closed down 6.5%. The S&P lost 334 points, 4.35%, and settled at 7353.80.
More than 400 names in the S&P 500 finished red and all 11 sectors closed lower. The VIX hit its highest level since the war scare in March. For the first time in months, traders paid more for protection this week than for protection a few months out, which only happens when people are scared about right now.
So we did what we do when the market does something ugly. We put everybody on camera and let them talk.
Here’s what you missed.
Mark Sebastian opened by pointing at something that surprised me. There were no panic candles anywhere in the day. The Qs gapped through the 200-day moving average (the average closing price over the past 200 days, and the one line every fund manager on earth watches) and kept going.
Mark says he hasn’t seen that since the China scare in August 2015. Yet the selling never got extreme on any single candle. No crazy puke, no big wick off a low, just steady, orderly selling from the open to the close.
His read: “I don’t have to sell, I want to sell.” That’s a different animal than a flush, and it’s why he’s still waiting on the dip rather than buying it.
He went into The Mine looking for institutions selling puts in Nvidia (NVDA), which is what big money does when it thinks a selloff is getting old. He found the opposite. Traders were closing their puts and rolling them lower, a few were panic-buying puts outright, and nobody was stepping in to take the other side.
Nvidia closed below 180 for the first time since April.
Voz was the first guest and she was blunt. The rally off the Iran lows had no volume behind it, which means there aren’t buyers underneath to catch this. She sees no real support in the Qs until the 628 to 630 area.
Below that sits 610, the price where the most shares have changed hands over this whole run and where buyers have historically shown up. The fuse is a bear, and she’s short the semis in The Close.
She also gave the rest of us a roadmap for the next two sessions: if we gap down Friday, yesterday’s candle gets confirmed as capitulation. If we bounce Friday, watch Monday.
Licia had the semiconductor call before anyone. VanEck Semiconductor ETF (SMH) has been driving the bus for weeks, and she thinks yesterday’s gap lower (opening well below where it closed the day before) could carry SMH to 400 if it doesn’t fill.
Her trading advice was the most practical thing said all afternoon. Everybody can trade intraday right now. Pull up your five-minute and your 30-minute charts, wait for the bounce to fail at a level, buy puts, take your money, do it again.
Then she gave three trades going the other direction. iShares 20+ Year Treasury Bond ETF (TLT) calls, where she’s in next Friday’s 82s looking for 83.48. SPDR Gold Shares (GLD) to 385, and iShares Silver Trust (SLV) to 49.25.
She also mentioned that GLD has daily options, which makes it her favorite 0DTE play (options that expire the same day you buy them) most people don’t know about.
Tim Colby brought the stat of the day. On Wednesday, the Nasdaq closed up more than 1% while SMH closed down 3%. He checked his data back to 1995, before the ETFs existed, and it has never happened.
Under the surface of Wednesday’s rally, everything tied to data centers was getting sold, and that’s the tell. Tim’s view is that the AI build-out is the single biggest concentrated position on the planet. It’s in his retirement account, it’s in yours, and a whole subset of the market has it on with triple leverage.
This is that position coming down, and it’s been coming down since the OpenAI miss on October 8th. He was careful about the other side, too. Earnings came in fine and the job market looks fine, so he’s treating this as position adjusting rather than something breaking in the economy.
Below the 200-day you move to short-term trading. The thing he’s watching for tonight is news of funds getting blown out, because that’s what a bottom looks like.
Hans is eyebrow-deep in compute, his words, and he explained why Micron (MU) looks like it goes down every second. The triple-levered ETFs are concentrated in semis, nobody builds a 3x product on Colgate, and those funds have to sell more at the end of every down day just to stay 3x. So the selling feeds on itself.
Add the market makers who have to sell into weakness to stay hedged and you get a snowball.
As for what he’s doing about it, he calls this a tap-on-the-shoulder market, the kind where managers walk over and tell their traders to get out whether they like the company or not. He’s avoiding anything with heavy Texas exposure, meaning IREN (IREN) and Hut 8 (HUT). He added a little Nebius (NBIS) and has GE Vernova (GEV) on his list because it can move business between states and overseas.
He also put a number on a political reversal on data centers: a lot higher than zero.
Andrew came on to talk about the VIX, which is the market’s estimate of how much the S&P will move over the next 30 days. A 4% daily move, if that became the new normal, works out to a VIX of about 64. The VIX closed under 28.
So even after a spike, options are still priced for a calmer market than the one we just had, which means you can still buy them here without overpaying. His December VIX futures were trading five bucks under where the VIX sat yesterday, so there are cheap call spreads and butterflies (defined-risk option combos that pay off if the VIX lands in a range) to be had out there.
His trade for a market like this is long VIX and long SPY together. When the snap rally comes it’s going to be a face-ripper, and you’ll make more on the hedge than you ever made pressing the short.
He also happened to close a VIX call spread in Weekly Profit Cycles yesterday for 284%. In for 39 cents, out at $1.50. Plus a SPY put spread up 67%, the day after taking 24% on puts.
He’d spent weeks collecting singles before yesterday showed up and paid him for all of them. Mark calls it the smart strangle. I’m not going to argue with him.
Mark’s closing thought was the one I’ll leave you with. He put every program he runs into strangles yesterday (a call and a put, same expiration, so you get paid on a big move in either direction). The next 60 days between now and when the new Congress is seated are going to be a mess both ways, and he doesn’t want to guess which one.
That’s also why Cycle 11 exists. All seven traders, roughly two trades a week, every play vetted by Mark, running from Monday through the day the new Congress is installed. It’s $299.
And as of yesterday afternoon it includes a free month of Weekly Profit Cycles, because Mark decided on the spot that you’re going to want Andrew’s book next to yours for the next few weeks.
First trade goes out Monday.
Charlie