CTAs are at max short. Shorts need to cover. When the squeeze comes it will be violent. Here is how I am positioning for it without getting caught in the chop.
| | In the middle of every serious down market, something happens that catches everyone off guard. | A rip. Not a bounce. A rip. | The kind of move where the S&P is up 140 points in a single session and every short in the market is scrambling to cover. The kind of day where people who have been bearish for weeks suddenly flip to buyers because they cannot afford to be wrong anymore. | Those moves do not happen at the bottom. They happen in the middle. When everyone is still scared, still short, and still convinced the selling is not over. | I have been saying this for 30 years. The data says the same thing. | Every single one of the top ten best days in S&P 500 history happened in 1987, 2008, or 2020. | Three of the worst bear markets ever recorded. | Not after the bottom. During the carnage. | | Over the last 20 years, 42% of the S&P's strongest single days happened inside a bear market. Another 36% happened in the first two months of the recovery, before anyone knew a bull market had started. | By the time it felt safe to buy, the best days were already gone. | This market is loaded with shorts right now. A lot of people leaning one direction after five straight losing weeks. | When the tape turns, those shorts need to cover. Every cover is a buy. Every buy pushes price higher. Every move higher forces more shorts to cover. | That is the rip-your-face-off rally. And I have been waiting for it. | This morning the market tried. End of quarter, some short covering, a gap up at the open. But tech did not show up. | Apple flat. Nvidia underwater. Bonds moved back to highs. The VIX barely budged. That is not the setup. | The setup I am waiting for has three conditions. Tech leads the move, not energy or financials. | The VIX gets crushed, not just dips a few percent. And the shorts start to panic, which shows up in the tick data when you get sustained positive readings above 1,000 for more than a few minutes. | Until those three conditions exist, I am not chasing. | What I am doing instead is positioning around the expected move with a specific type of trade setup. | I'll explain it to you live tomorrow at 1 pm ET. | And here's the thing about my trading right now… | I am not trying to catch the rip. I am trading the edges of the range while I wait for the conditions that confirm it. | When those conditions show up, I will be positioned. When they do not, I lose cents and move on. | The rip is coming. | I have been watching this market for 30 years. Every down market that looks like this has produced at least one violent move to the upside that caught everyone leaning the wrong way. | The question is not if. The question is whether you will be ready when the tape says go. | To your success, | Don Kaufman | |
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