Get Ready: We’re In “the Suck” Before the Storm

[Music] welcome to theot trade this is Don Kaufman it's August 30th 2024 just about 30 minutes stands between us in a holiday weekend here oh look this Marketplace bottom line it's just the suck before the storm and I'm going to tell you exactly in detail what that means right here on this weekend's update you know I'm going to jump forward right off the bat and talk about as I said what I kind of call the suck before the storm what I'm actually referencing on that front is oh not that the marketplace sucks and it's just grinding look that's the obvious take a look actually at trade for like the last two weeks I mean literally the last two weeks and this is the S&P future and we're absolutely dead but there is an element of what I would term low liquidity really just high impact trade that is wreaking havoc upon the markets especially upon intraday Traders look if you're an intraday Trader uh that's somebody that's usually scalping on an intraday basis just trying to take any intraday position you got to be aware okay of exactly what I'm talking about like a low liquidity situation you know low liquidity it's not just about low volume you know like oh it's low volume it's not about low volume yeah yesterday actually the volume wasn't half bad yesterday I yesterday he did you know 1.5 million contracts inside of the snps and most products including like spiders yeah they picked up a little bit more in terms of volume but I'm not talking about volume talking about low liquidity and what low liquidity really means is when you start to dig in okay to literally like you know active Trader here and you start looking at kids and offers just kind of highlight this for a second there's just not a lot out there and what I mean by that again without you know digging into exactly what the size is what I mean by that you know there's lots of Market making firms lots of proprietary trading firms they're not making okay markets of size right now and what I mean okay they're not making markets of size they're just not heavily on the bid or the offer so you get these fairly flimsy okay liquidity situations and all of a sudden you get a heavy bid or a heavy offer Market's just tear to the downside or ripped to the upside it is downright sketchy on an intraday basis like look I'm in the snps right now I'm in a one day one minute absolutely is nothing is going on here right you doing 1,600 contracts and boom out of nowhere okay just a little bit more hit hits the tape next thing you know you're moving four five points I I got to tell you earlier on in the trading day there was you know there was a couple of data drops today but not a lot of like exogenous events and you're seeing 8 and 10. one minute candles and there was incidents today inside of the NASDAQ okay I don't worry it's only 50 handles and we saw this yesterday as well it is okay one sket little Marketplace out there uh and that's what I mean by know the suck before the storm over here it's a low liquidity mess to where uh especially like you know we're just looking at the NASDAQ futures look at the S&P futures but listen to me it's everywhere okay you know you're watching Nvidia throughout the course of the day and there are some alarming moments in here and this obviously doesn't have its earnings you know it's it's still like an earnings hangover but there's massive you know dollar $2 moves in extraordinarily brief periods of time uh and that can be uh really a recipe for disaster for those of you actually uh trading on an intraday basis it's uh it's ugly again it's what I call low liquidity high impact trade low liquidity is you know there just not a lot on the bids and offers and when size actually comes into trade all of a sudden boom this high impact you just get punched with with this humongous move and uh I have to tell you okay there's no rhyme no reason here's a big reaction to the downside followed by you know 10 minutes of a of a bid back under it and again some of this is data related some of it's not though so just be aware again high impact trade with that okay the data drops you know I'm going to jump forward right now and even talk about next week next week is just look it's a holiday week of trade so you're going to be Tuesday okay Wednesday Thursday Friday and there's a lot of data drops of course including an employment situation at the at the end of the week right so nonfarm payrolls before that you got you know ADP I mean we're just loaded PMI ISM jolts okay Factory orders let me tell you it's going to be a fullon crapfest next week with data drops and that is exactly what in intimidates me cuz uh I'll tell you what you get caught on the wrong side of one of these even like construction spending I've been shocked as of late any of the data drops how significantly they've moved markets and even though like look we can all sit here in comment I'm going actually going to move from the one day one minute I'm going to go with 30-day one hour okay 30-day one hour why am i showing you that I don't care that we're trapped inside of a range it's why I kind of call it also the suck before the storm you're getting chopped out okay unrelenting moves and uh people are getting caught up in it and they're getting ground up and it's uh that's not where you want to be it's okay to actually cut some size and just recognize you're in a low liquidity high impact trade every one of those data drops look not telling you not to trade I'm not saying don't trade on an intraday basis I'm saying you really gave better set alarms and be aware of every one of these data drops that are coming out and I wanted to start with that because that's why I kind of call it like a little bit of the suck before the storm not only are we in a uh you know a really tight range over like literally the last two weeks of trade okay talk about sucking right it's just over the last two weeks of trade but we're in this really like Fast high impact trade which again the two in my experience you know you don't usually get this where you you're getting 30 handle moves in the snps except we're not going anywhere you know and that's why it's like it's some high impact trade where we're not going anywhere uh we go have gone a lot of places to get absolutely nowhere right now over the last two weeks but uh let's let's get back into it here so that was critical to discuss because this is going to continue this lower liquidity situation even coming into September okay it's it's going to get a little wild all right September and I'm kind of working backwards here is historically and notoriously okay the most volatile month of the year and now throw in the fact that you know we have an election coming up all right some geopolitical risk okay the FED meeting you know I don't even care about the FED meeting because the FED meeting to me look they're going to cut 25 basis points yada yada yada unless we get some big ugly negative data because all of a sudden bad data is bad again except you know if you look today today we had pce data come uh that came out you can barely even see where PC data came out that's the fed's you know indicator of choice oh no that was one of the smallest moves we saw all day it's crazy right so uh data drops that didn't normally mean anything well they meant something throughout the course of today so again wild wild trade over there but you got to keep your head uh on the shoulders during September because uh again historically notoriously the uh the most volatile month everybody thinks it's October because that's where some of the crashes happened the uh the irony though it's it's actually September all right let's actually spin back around and talk about you know is it a boring week well here I want to start with the SPX the uh the SPX okay where are we right now well two weeks ago we were here and uh we're right there so we are massively unchanged on the week but okay conversation pieces if you look at the QQQ and actually go to auto expected moves uh the q's actually have been riding the lower edge of their expected move and they caught a little bit of a bid but they're still lower so the NASDAQ is actually lower on the week um predominantly that move okay lower has a lot to do with of course Nvidia Nvidia actually having a little bit of sside activity a little bit of cide activity I wouldn't read too deeply into that so that's Nvidia and Tech and again there's not a huge amount to talk about in here so Microsoft what's it done absolutely nothing you bring in apple okay it it looks like you know Apple caught a little bit of a bid on Thursday Apple caught a bid on Thursday because of an AI announcement but they faded on uh today I mean the the Apple bid has kind of faded a little bit so uh you know one and done over there in terms of the AI you look at Amazon here Amazon's on the uh on the bid today that's actually what's lifting the uh the NASDAQ if you will Google there's nothing to speak of meta nothing to speak of again we already covered Nvidia and of course Tesla Tesla bring up Auto expected moves also closing on the lower edge of its expected move now okay I'm actually going to come back to Tech in just a second what I want to show you that's actually leading markets right now okay are the financials and more specifically if you take a look at financials like this is the XLF it's ripping so does it make sense the financials are ripping when we're about to lower rates you're like uh doesn't make a lot of sense and and typically when you're lowering rates it could be going into weak weaker Economic Times which case the financials may actually take a little bit of pain but the more you dig into this and I actually want to show you something interesting about this because the more you dig into it is it Wells Fargo leading the markets no that thing's not at all-time high right is it Morgan Stanley no not really Morgan Stanley has kind of been flat for the last two weeks is it City it's definitely not city is it Bank of America not really this thing still way off of its high and Warren Buffett continues to sell it okay Goldman Sachs all right it's picked up but it hasn't done anything over the last two weeks that leaves us with basically JP Morgan so JP Morgan is on the run but was also there okay is none other than uh birkshire hathway birkshire Hathway's Breakaway uh hitting a trillion dollar market cap and here's the interesting thing most people are not aware that birkshire hathway is by far in way the biggest component along with like JP Morgan but it's the biggest component inside of the XLF and directly responsible so what's interesting about this is the banks are not fairing all that well but birkshire haway is uh moreover okay bringing up birkshire halfway I'd be re like just really remiss not to mention okay how much of apple and of course everybody's aware Warren Buffett's selling apple and he's selling Bank of America uh and he's actually a record cash positions right now which to me is a again maybe that's a little bit of a suck before the storm if you will to the uh to the marketplace I think that's a huge blow to the marketplace that you know one of your number one Buy and Hold investors is basically screaming to you that he's in effect moving to cash because there's no good deals out there not putting that Capital to work they're putting that capital in cash and actually reserving it for another day you should think about that in the near future the reason I'm actually talking about the financials though okay and and I covered a little bit of Tech and then the financials is look here's the bottom line if you come back to the snps the snps are not progressing to the upside financials are but financials are not enough to carry the snps so here's the very bottom line with this if markets are going to continue to progress to break out if you will into alltime and new highs okay once again it has got to be technology that's going to be the leader because even if you had financials trying to break us out like look how far these things have moved okay this is an absolutely parabolic move where we're shattering an expected move and hitting an expected move and shattering an expected move I mean it's a phenomenal move inside of the financials and at the exact same time I'm saying that it's still not enough it's not enough market capitalization to actually break us to the upside unequivocally once again it has to be Tech so I started looking around Tech after Apple not too far off an all-time high okay but fully priced up here okay Amazon Amazon's been getting beaten up it's a possibility but Amazon is also heavily involved obviously in the retail side okay which could actually maybe actually cause some issues down the line because we've seen some retailers including like Dollar General having some issues Google Okay Google right now to me is fractured and broken because you know well you know you've got some monopolistic issues uh and the department is uh well Department of J doj and so forth is going after them uh there's a number of issues that are going to be surfacing inside of Google continuously following well charges of Monopoly in there then we actually look at meta all right meta very close to all-time high and could absolutely break out but the ones that really catch my attention now okay are going to be like Nvidia which is a little bit of sell-side activity in here this could actually be all right something you might want to beong if you believe we're going to break back to the upside okay but Microsoft to me really kind of takes it Microsoft right now which has been relatively quiet okay this to me has to be the underlying that gets The Big Break back to the upside if if the snps okay are going to progress significantly higher now as I say that I'm talking about new trade ideas in here as well okay it's actually one of the trades I've got on uh in fact the way that I actually put a Microsoft trade on is I bought an out- of- the- money call spread but I financed it okay using catapult okay for those of you that know what catapult is I'm actually financing one trade okay by selling another and the trade that I'm selling is in okay the uh the micro options on Futures I'm doing a trade it's got about a 95% probability but it financed uh 100% of my Microsoft trade so I'm taking in effect a bullish trade taking a little bit of a flyer on that one interestingly enough I also happen to take the Nvidia trade figured that nvidia's got a little sell-side activity but if the S&P are going to break to new highs nvidia's actually got to get the bid back under it okay meanwhile on the other side of that okay I actually took some other catapult trades if the S&P are going to break down okay I took a nice big Disney position that's Disney position though if Disney starts to break under the 80 level and again by the way you got to pull up like a 15-year chart check this out Disney breaking under would be absolutely spectacular it's another position I've actually taken uh also again using catapult so I'm taking okay a couple of what I would current time uh like flyer you know um uh type trades where when I say Flyers like they're lower probability trades but the payouts on them uh are huge and it's a type of strategy that look at this talking about uh that uh again low liquidity high impact trade right nobody saw that one coming absolutely huge right now okay we're squeezing into the uh into the close but the type of Trades and the type of strategies that I'm using Okay are for you know Wild and Woolly type moves but again if the markets are going to progress higher you got to do it on the back of individual products it's going to have to be a Microsoft it's going to have to be an Nvidia if we're going to go lower stuff like Disney is just going to crack apart all right let spin it back around for a moment because again we've talked a little bit about tech right and uh again maybe people are not so you know used to me being bullish taking plenty of bullish trades but the bullish trades I'm taking right now okay are very very measured and they're designed specifically around underlyings that I believe have to be involved okay wow talk about being involved over here in Microsoft okay that's the last couple of seconds of trade uh that people is a $2 move in one minute right again this just exemplifies what I'm talking about and it's not about like news like look news can come out absolutely okay this is about low liquidity and that's it's making my point that's why I call it you know the suck before the storm over here because you are getting sucked up in what is some wild wild trade coming into this holiday weekend all right so uh back to it some new trade ideas and uh as I do each and every week here at theot trade talk a little bit about uh expected move so with expected move what do we have you know just a moment ago I was bringing this up and I'm like we have done nothing okay well right now if we ended the week right here we are very very mildly higher but I got to tell you give it give it another five minutes we could sell off massively over here no um inside of the SPX this last week of trade okay this last week of trade we had about uh an $82 expected move and and I just want to be able to denote that on the screen make sure everybody's kind of comfortable with what exactly we are looking at over here but um in this case it's plus or minus basically $82 right you're looking for an $82 move actual move nothing so we came down and pretty much hit the lower edge of the expected move by the way that that little X okay we were six points away during the trading session from hitting the lower edge of the expected move uh actually overnight in the technicality overnight we really did hit the edge of the expected move Meanwhile we're closing out the week unchanged even after an unchanged week and again about $82 of movement packed in what are we expecting for next week okay so you know as I said little little suck before the storm or Calm before the storm what I found interesting is this is and again the Market's not closed and this is not set in stone just yet okay but 7 days out but we're coming into a again a 4 day trading week 4 days right so you've got Tuesday Wednesday Thursday Friday that's it I was actually surprised we have almost a $75 move almost a $75 move okay uh accounted for next week and you go well why are you surprised by that because you only have four days and the uh the volatility ironically even in uh two weeks of flatness the volatility has been sustained okay that again kind of a sign if you will of uh of interesting things obviously to come clearly there's a lot of data points that are going to hit this Marketplace so the market overall well making my point for me here it is chopped out okay I I don't even want to use the term volatility in here trade feels broken disconnected and I'm telling you as I said last weekend I'll say it again there's Echoes of volatility that continually hit this Marketplace so with that you know look sit tight know when you're in announcements are coming out it's going to be critically important next week uh and expect some pretty serious volatility to hit this tape thanks everybody for joining us here at theotrade have a wonderful weekend bye-bye