We had kind of a legendary candle down this morning.
At its peak yesterday, the S&P was up about 140 points. This morning it was down 263. The Nasdaq was down 6%, and SMH, the semiconductor fund that’s been driving the bus, hit its lowest level since April.
This tape is ‘08-esque, and I guarantee you a lot of people are staring at their screens right now looking for a way to get short. Totally makes sense.
But in markets where you get 6% down days, you also get giant rips the other way.
We saw one yesterday. And while everybody else was running for the exits, one trader bet $29 million that a single stock is headed sharply higher.
Yesterday Was A Head Fake
I sent a note to our traders yesterday. The QQQ, the Nasdaq-100 fund, was up more than 1.5% at its peak while SMH was down. Since SMH listed in 2012, that has happened six times.
It was a head fake.
The Democrats didn’t only win on Tuesday, it was a landslide, and data centers were one of the big pain points for voters. The chip and data center names started cracking yesterday while everything else rallied, and today the selling caught up with the rest of the market.
What’s interesting is that this hasn’t been disorderly. Pull up a one-minute chart of SPY, and it’s stair-stepping lower.
This isn’t computer programs, and it isn’t one headline. This is legitimate liquidation, traders getting out of the way.
The $29 Million Bet Against The Panic
I built a tool we call the Mine.
It scans the tens of millions of options orders that trade every day and pulls out the ones placed with extreme conviction.
This week it flagged the single most aggressive trade type I track.
A trader spent $17.25 million on a call spread, a bet that one stock would climb into a set price range by Dec. 18. The stock jumped from $85 to $89 in a day, and the position was worth about $34.2 million.
Most people take that money and run. This trader rolled it into 157,000 new call spreads, a $29.2 million bet that the same stock goes about twice as far in the same amount of time.
I’ve got a friend who says if you’re at the track next to a guy who keeps cashing winners, you listen to that guy. An order like this, at this size, shows up maybe once a month.
Don’t Get Run Over Either Way
If you’re going to short this market, you need some sort of upside outlet, like a spread, so you don’t get run over if they decide to railroad this market straight back up. Yesterday showed you how fast that can happen.
And if you want to follow that trader, there’s an easier way than catching a falling knife. It’s better to buy a stock on its way from $86 to $95 than to buy it at $84 on its way down to $80.
Learn To Read The Mine With Me Next Week
Starting Monday, Nov. 9, I’m teaching a five-day master class on the Mine.
In five 30-minute sessions, I’ll show you why I built it, the eight trade types I look for and how I turn an order like this one into a trade.
Every class is recorded, and if I find trades during the week, you’ll get them too.
Your only option,
Mark Sebastian