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Don Kaufman here. |
You think you understand why markets bounce after selloffs. |
You're wrong. |
This morning, watching the Dow claw back 500 points after Friday's jobs report disaster, I'm seeing the same retail fantasy play out that I've watched destroy traders for two decades. |
The financial media is calling it a "bounce-back day" - and retail traders are eating it up like it's some kind of victory lap. |
Here's what's really happening, and why thinking like retail is costing you money. |
The Professional Reality You're Missing |
Listen guys, you can't think of markets like shorts are trapped and longs are squeezed. That dynamic you're seeing right now? |
It IS short covering, but it's short covering because the entire professional world had to go and sell S&P futures on Friday. |
Let me break this down for you. |
When markets sold off Friday after that weak jobs report, professional trading firms weren't caught "short" in some retail sense where they're praying for relief. |
They were doing what they're programmed to do: selling into the weakness because that's how market making works. |
Now this morning, with futures bouncing, those same firms have to buy back those shorts. |
Not because they're "trapped" - because that's the business model. They're buying into the strength, which creates this reflexive bounce that gets retail all excited about "recovery." |
Why This Isn't the Rally You Think It Is |
Here's the insider detail that separates professionals from retail dreamers: I spent the first hour of trading looking for the call buying that drives real rallies. You know what I found? |
Nothing. |
Meta was up almost 2% - no extraordinary call buying. Tesla up 2% - the only buying was arbitrage to keep it in line with futures. Even Google, which showed some call activity, wasn't seeing the explosive option flow that marks genuine rallies. |
All the action you're seeing? Pure professional volume. 5,000-6,000 contracts per minute. Retail doesn't move that kind of size |
This is professional hedging and short covering - not new investment capital rushing in to buy the dip. |
By the way, if you want to truly master institutional order flow, I'm hosting a live training this Wednesday at 2 PM ET, sign up here. |
What Professionals Actually Watch |
While retail gets excited about green numbers, professionals are looking at order flow. This morning's session during my live trading room showed me everything I needed to know: |
No heavy call buying in the leaders Futures-driven arbitrage, not organic demand Mechanical short covering, not conviction buying Sectors like financials and energy barely participating
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The tell was Amazon - despite the broad rally, it actually went negative during the session. When a major component can't participate in the "recovery," that's not strength. That's selective short covering running out of fuel. |
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This is just nothing more than a big, reflexive bounce. And you have to sit here today and literally say, let's see if it holds. |
The Reality Check You Need |
Stop thinking about "trapped shorts" and "squeeze plays." Start watching what actually drives moves: order flow, sector participation, and professional trading patterns. |
The next time markets bounce after a selloff, remember this morning. What looks like recovery to retail is often just professional housekeeping to those who control the flow. |
The difference? |
Professionals get paid to be right about market mechanics. Retail gets sold stories about trapped shorts and momentum plays. |
Which would you rather be? |
To your success, |
Don Kaufman |
P.S. Want to see how the pros really move money? I'm doing a live training Wednesday at 2 PM ET where I'll show you our new scanner that spots institutional footprints before the big moves happen. This isn't theory - it's the actual system we use to follow the smart money. |
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