The Room Full of Sharp Objects

Don Kaufman here.

Don't buy a damn dip today or you're gonna get killed.

I don't usually come in here and tell people to avoid buying dips. But today?

Today is different.

We're not in a normal market anymore - we're in what I call "a room full of sharp objects," and most retail traders can't see what's about to cut them.

Yesterday the Fed cut rates. Markets celebrated. Everything looked peachy.

Then this morning happened.

The Fed cut rates, but interest rates went UP

Here's what's gonna blow your mind: The Fed lowered their rate yesterday - golf clap, golf clap - but actual interest rates? They went higher.

We were trading 4% yesterday on the 10-year, and today we're back to 4.15%.

"Wait, what? They lowered rates!"

Right up to the point where interest rates actually went higher. It was already priced in.

Markets aren't stupid - there's trillions of dollars at risk here.

You think NVIDIA's big? Please. NVIDIA's an afterthought compared to US government debt.

We're sitting on the biggest gamma bomb in history

Here's what's really got me spooked: We're one day before triple witching - one of the biggest option expirations on record. I'm looking at massive open interest. 50,000 contracts here, 60,000 there, 40,000 over there.

That's hundreds of billions of dollars packed into a narrow range. And we're stuck right in the middle of it.

If we start to sell off and cross through those levels, everybody in the professional world's gonna have to sell in the direction of that move.

It becomes a gamma cascade. Very fast. Very unrelenting.

The ball of risk has never been bigger.

The warning signs are flashing red

I see the bonds getting hammered.

The dollar moving in a big way since cash open. This is a dramatic shift of order flow that just hasn't played out yet in the equity marketplace.

So keep your hands and feet inside the vehicle today.

I was looking at NVIDIA's option flow this morning. Of the 266,000 calls that traded, about 200,000 have traded at the bid or below, or ask or above. That's heavily, heavily retail driven.

You better be careful on the retail side today.

This is where retail can systematically get dismantled by a marketplace.

I've seen accounts just get decimated because they're gonna fight. They don't understand - today isn't about what you think. It's about risk. And there's a crap load of risk out there.

If we are to sell off, why I'm saying don't buy dips: everybody in the professional world's gonna have to sell in the direction of that.

If we start rolling down the hill, it's gonna roll very, very quickly.

It would be a massive reversal today.

What I see instead

The upside potential is limited, but the downside? That's where things get ugly fast. We have a pretty dramatic expected move of $44, and we've only moved $20.

My volatility position? Doing lovely. This is exactly the kind of environment where understanding the volatility ecosystem pays off.

But I'm not touching any buy-the-dip plays.

There's times where you can buy the dip, and there's times where you don't see all the sharp objects around you

Risk-reward is not on your side, especially on the buy side. Even if we rally back up, you do not have risk-reward on your side.

This is one of those days where I'm telling you - I've seen this before. Accounts get decimated because traders fight the tape. They think they're smarter than the market structure.

They're not.

The bottom line

It's not about being bearish.

It's about recognizing when you're walking into a room full of sharp objects. The professionals can see them. Retail can't.

Today, those sharp objects are:

Massive gamma risk from tomorrow's expiration
Bond market selling off hard
Dollar strength contradicting the Fed's dovish move
Retail-heavy option flow in the wrong direction

Some days you hunt. Some days you survive.

Today?

Keep your damn hands in your pockets.

To your success,

Don Kaufman

P.S. I'm going to live with Blake in an hour. Make sure you're there!

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