The market gapped up this morning. That should worry you, not relax you.
Friday got ugly. NVIDIA took a dramatic hit, Broadcom got absolutely smoked, and the options market traded a record, just shy of 110 million contracts.
Then this morning we gapped higher, opening up 66 handles. And the comfortable story wrote itself: the dip got bought, the worst is over, we’re fine.
Everybody says people are buying the dip. What the hell are you talking about? Retail doesn’t wake up in the middle of the night and buy a dip.
And if they do, it’s a couple of contracts.
So let me show you who was actually buying.
We did roughly 430,000 contracts before the cash open even rang. That’s enormous size for pre-market, on a morning that had barely sold off, and retail does not move that kind of size overnight.
That’s institutional-sized hedging, and it’s massive. The gap you’re staring at isn’t a crowd of regular traders scooping up bargains.
It’s the big money repositioning, and that green number on your screen tells you nothing about why.
This is what I hammer day in and day out. Wipe the slate clean. Don’t worry about pre-market. The S&Ps being up 60 doesn’t mean crap on its own. The options market dictates the session, and the price is the last thing that tells you the truth.
You want proof the gap was thinner than it looked? Look at what was holding it up at the open.
NVIDIA and Broadcom, and not much else. Apple wasn’t pulling its weight, Microsoft opened down, Google was lower, Amazon was flat, and the breadth backed it up, about as many stocks falling as rising.
So at the open, if either one of those chips had caught any sell side, there was nothing underneath to hold the market together. A rally leaning on two names isn’t the broad, healthy comeback the headline number sells you. It’s a tightrope.
Then there’s the math.
The expected move for the day was $101, and at the open we’d already gapped about 100 points off the overnight lows, before even counting the overnight drop of 32. So even after a triple-digit gap up, this tape had plenty left in it.
I’m not saying we were going to spin around and sell off. I’m saying expect some scary moments, the kind that look frightening and turn out to be opportunity. Keep your hands and feet inside the vehicle.
Here’s what you take from a morning like that, and it holds on any green open. The gap is not the signal. The volume is, the breadth is, the options flow is.
When the market pops on enormous institutional size and two chips doing all the lifting, you’re not watching retail buy the dip. You’re watching the big money hedge, and a tape that hasn’t shown its hand yet.
Don’t trade the green number. Trade what’s underneath it.
That’s the whole job, and it’s what I do out loud every morning. I’m live as the open hits, reading the volume and the flow in real time, telling you what I’m stalking, what I’m staying away from, and the line that tells me I’m wrong.
You hear it before you put a dollar down, not as an alert two hours after the move already happened. The read I just walked you through on this morning’s open is what the room sounds like every session.
Your first month is 29 bucks, less than a single bad guess at the open costs you.
Thirty days to decide I’m worth it, and if I’m not, email us and we send back every penny.
To your success,
Don Kaufman
P.S. The next same-day trade window is Wednesday, then Friday. Most people will guess at the open. You don’t have to. I’m in the room every morning at 9:30, reading it out loud.
