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Don Kaufman here. |
Yesterday afternoon, I sat in my office staring at something I've never witnessed in over two decades of trading volatility futures. |
The VIX hit 29 overnight. |
Backwardation went completely insane. The VVIX spiked to territory it's only visited a handful of times we've seen in years. |
And the S&P 500? |
Sitting pretty near all-time highs, finishing the week UP over 100 points. |
This doesn't make sense. |
And that's exactly why it should terrify you. |
I've been analyzing volatility futures since they launched in 2004. |
I've seen backwardation during the 2008 financial crisis. I lived through the COVID chaos of 2020. I traded through every major volatility spike of the last two decades. |
But I've never seen backwardation like this when markets are at these levels. |
Here's what backwardation means in plain English: The market is pricing MORE risk in the next 30 days than in the next 60 days. That's backwards. That's insane. That's the market screaming that something is about to blow up. |
Usually, more time equals more risk. |
Sixty days gives you twice as many opportunities for things to go wrong compared to thirty days. Basic math, right? |
But a few times this week, we saw the volatility futures curve go completely backwards. |
It was implying that whatever risk the market sees coming, it's imminent. Like, next-30-days imminent. |
"You can taste the fear, you can touch it, you can literally smell it on people," I said in my nightly video yesterday. |
Yet somehow, markets finished dramatically higher for the week. |
This is the classic setup that keeps experienced traders awake at night. |
Look, I don't waste brain power trying to guess what the catalyst will be. |
Maybe it's the regional banking mess that started with Jefferies. Maybe it's AI stocks finally rolling over - and trust me, Nvidia's volatility is spiking for reasons that have nothing to do with earnings. |
Maybe it's Bitcoin, which just cracked below my 110K level and is now sitting at 106K - an 18% decline that puts it in near-bear-market territory. |
Or maybe it's something none of us see coming. That's usually how it works. |
The point isn't figuring out what the catalyst will be. The point is reading what the market is telling you RIGHT NOW. |
And right now, volatility is screaming imminent risk while prices ignore every warning signal. |
You know what I'm NOT doing this weekend? Going home long anything. |
But I'm not sitting on my hands either. |
When volatility gets this crazy, my go-to strategy is In/Out spreads. |
Limited risk, defined profit zones, and the ability to capitalize on the wild swings without getting blown up by them. |
Yesterday alone I pulled profits on XSP, Broadcom, and a few earnings plays - but the real edge comes from having a strategy that works regardless of which direction this madness breaks. |
I don't care that the VIX came down to 21. I don't care that we finished Friday strong. |
When you're flirting with backwardation and the VVIX still sitting in the 115s, you don't get comfortable just because we had one good afternoon. |
Next week's expected move? |
Still sitting at $143 for the SPX. Normal weeks have been running $85-87 expected moves. Even Fed announcement weeks typically see $92 expected moves. |
We just came off a $197 expected move week where volatility soared and markets completely ignored it. |
That's not sustainable. Something's gotta give. |
Here's what I'm watching: |
The AI trade is showing cracks. Nvidia's volatility is elevated like it has earnings coming up - except it doesn't. Google just hit new closing highs in the middle of this chaos. That's not normal behavior. |
Regional banks are contained for now, but if volatility spikes again, KRE gets demolished. |
Gold is in a gamma squeeze that's starting to unwind - 2 million option contracts traded in GLD yesterday versus the normal 40,000. That's not sustainable either. |
And crypto? If Bitcoin breaks much lower from here, the contagion spreads fast. |
Look, I'm not calling for a crash. I'm not predicting doom. I'm simply reading what the market is giving me. |
The setup we have right now - extreme volatility signals with markets near highs - doesn't last. Either volatility comes down and we continue higher, or volatility stays elevated and markets catch down to reality. |
Guess which one has historically been more likely? |
I'll be watching early next week for signs of which direction we break. But I sure as hell won't be betting on the side that ignores decades of volatility history. |
When the market shows you something unprecedented, pay attention. |
To your success, |
Don Kaufman |
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This Guy Made 188% While the Market Got Destroyed Last Week | Remember last Friday when everything went to hell? | 80% of S&P stocks lost money. Retail traders panicked. Portfolios got crushed. | Brandon Chapman made 188% across 4 trades in 48 hours. | Here's exactly what he closed: | 72% on EWZ 57% on SPY 34% on BAC 25% on XLE
| While you were watching your account bleed, he was banking wins. | The difference? His system spotted the move before it happened. | This Monday at 2 PM ET, Brandon's going live to break down exactly how he did it. | And more importantly... how to see the next one coming. | REGISTER FOR THE FREE LIVE SESSION |
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