What’s going on, everybody?
This morning on I’d Trade That, I started with a number, and I want you to sit with it for a second. In a normal distribution (the plain old bell curve from stats class), the odds of what the S&P 500 did on Thursday come out to once every 8,231 years.
That same session gave us the Nasdaq’s worst day since COVID and the largest put volume day in the history of the options exchange. The volatility of volatility made a move topped only by Volmageddon in February 2018.
So why does this market keep producing days that break records? I spent most of the show on that. Then I got to the first chart I look at every single day, the one box Thursday didn’t tick, and the level I’m using on Nvidia.
Check out the replay below or read the recap.
The Buyers Who Used to Show Up
The answer isn’t that the world got more dangerous. It has little to do with the Iran war. The answer is structural, and it’s about who actually owns and trades stocks now.
Passive money owns over half of all stocks. Think index funds, target date funds and retirement accounts. When something happens, those owners do nothing, because doing nothing is the entire mandate of the fund.
A large and growing chunk of daily volume comes from quant funds, trend followers, CTAs (funds that buy and sell on price rules), volatility control funds, and ETF creation and redemption. None of them read an earnings report. None of them have a view on whether a company’s cheap.
That leaves the people who actually read reports and form views. They’re probably 15% to 20% of the market now, compared to maybe 80% back in the ’90s. The fastest of them run leveraged books on similar risk models, so when volatility goes up, they all get the same instruction at roughly the same moment: reduce.
So the people who’d normally buy a dislocation end up selling into it. I call that a shrinking denominator. The same amount of selling produces a much larger price move.
It’s not that the market got any riskier. It’s that the market got thinner.
J Bone said in the chat that it’s manipulation. I’ll take the other side of that, and you can call me whatever you want to call me. Do I think this market’s devoid of manipulation? Absolutely not.
But everything responds to incentives, and all of these scaffolds got built independently over 30 to 40 years. There’s a reason more people create ETFs today than build bridges.
Nothing Good Happens Above This Line
Everybody wants a trade a day. What I’m pointing out to you is that these moves keep showing up in the same place.
The chart is the MicroSectors FANG+ -3X Inverse Leveraged ETN (FNGD). It’s a bank promise that tries to deliver negative 300% of the FANG index using total return swaps. I understand how insane that sounds.
My rule: nothing good happens in the market when the FNGD sits above its 20-day and 50-day moving averages. That’s leverage leaving the system, and it’s where the big down days happen.
Go back through it. Our momentum signal went negative on March 7th, 2023, and Silicon Valley Bank was gone four days later.
This year, we went positive on April 7th. The next day the Nasdaq gained 2.9%, and the big desks had flagged tens of billions, if not more than $100 billion, in forced buying if momentum came back. The semiconductor index doubled.
The down days line up the same way. On October 22nd, we tested the 50-day, couldn’t get above it and dropped 2.3%. On October 30th we fell 3.4%, and then came Thursday.
If this keeps accelerating, your best trading days will come around these moving averages. You trade them with VWAP (volume-weighted average price, the day’s fair-value line), or you buy a low-probability call option right at those levels.
Today the FNGD is down and we’re getting a rebound. Great. Ride that lightning for today.
But I’m not stepping back into this market full-throated until its bullish twin, the FNGU, clears its 20-day moving average. It’s made lower highs and lower lows going back to October 15th.
The Box Thursday Didn’t Check
So was Thursday the bottom? On my capitulation checklist, nearly everything fired. On the New York Stock Exchange, 86% of volume landed in declining stocks, the first 80% down day in nearly a year.
One box stayed empty, and it’s usually the one that matters most: breadth. About 60% of stocks sit below their 200-day moving average. That number typically bottoms out in the 80% range.
I don’t think the bottom’s in. I think it comes toward the end of 2027, with hated rallies along the way. This looks like 2022 to me, with lower highs and lower lows.
Friday told me the same thing, because funds used the bounce to cut risk on both sides of their books. And when Mark Sebastian jumped on at the end of the show, he said he’s not seeing traders sell puts into this rally the way they would near an investable bottom.
On Nvidia (NVDA), anchor VWAP to Friday morning. $175 becomes the entry point, and you’re looking for that gap. That’s the only clean way to trade a headline-driven tape this chaotic.
On energy, I watch the MicroSectors Oil & Gas E&P 3X Leveraged ETN (OILU). It hasn’t hit oversold on the MFI (money flow index) yet, so I don’t step in. When it does, I start to nibble on names like APA Corp. (APA), Devon Energy (DVN) and Diamondback Energy (FANG).
Then there’s data centers. About 40% of capacity sits in Texas, Georgia and Ohio, and the expectation is a temporary moratorium of several months. On the Carnegie model, a six-month delay knocks 3.6% off a project’s lifecycle value.
If you’re a company borrowing at 15%, you’re in a lot of trouble. That can pull down individual names, and that creates tradable opportunities.
The fun part: you could double the cost of natural gas and it would barely touch the math on these projects. So my proposal is simple: tax the gas and use it to build the grid.
But that’s too easy of an idea, is it not?
I’d Trade That,
Garrett Baldwin