The S&P gapped up this morning. End of quarter. Some short covering. A bit of relief after five straight losing weeks.
You want to celebrate that? Go ahead. I was looking at something else.
Tech was not there.
Apple flat. Nvidia underwater. Microsoft barely moving after getting crushed for weeks. Broadcom unchanged. Google nominal. Tesla nominal.
Energy was up. Financials were ripping. Everything else was green on a percentage basis.
And none of it mattered.
Here is the framework. In this market, tech is the driving force or nothing is.
When the S&P rallies and the Mag Seven names are not leading it, you do not have a real rally. You have a bounce. And bounces in volatile markets get faded hard into the close.
The expected move on the S&P tells you the honest version of what is happening. The expected move is the at-the-money straddle price, what the options market is pricing in for movement in a single session.
When volatility is elevated and tech is not participating, the options market is not pricing in a sustained move higher. It is pricing in more chop.
So what do you do with that? You do not chase.
You do not get short because the opening bounce failed. You wait for the tape to show you something.
Specifically, you wait for tech to catch a bid. If Apple, Nvidia, and Microsoft start moving with the S&P, the rally has legs.
If the S&P rallies while those names sit flat or sink, the rally is lying to you.
This is not a bearish or bullish call. It is a read on what is driving the tape.
Energy rallying is not a sign that things are getting better. It is a sign that oil is above $100 and investors are rotating into the one sector that benefits from the thing hurting everything else.
That rotation is not the foundation of a recovery. It is the market telling you the problem is still the problem.
The test is simple. Before you place any trade on a bounce day, pull up your five major tech names on a percentage basis. If they are leading, the bounce is real.
If they are sitting flat while everything else moves, you are watching a mirage.
Don't think. Just go look at what tech is doing.
To yur success,
Don Kaufman
P.S. There’s really only way way to trade this market and that’s using short duration options. Tomorrow at 1 pm ET, I’ll share with you how I’ve been consistently getting triple-digit winners week after week. It all has to do on when you place your trades. Details here.