When Volatility Rules, Caution Wins

If you thought yesterday’s market action was a rollercoaster, buckle up—because Mr. Toad’s Wild Ride isn’t over yet. 

The S&P 500 might be trading higher, but make no mistake: the market is like a ticking time bomb, and the fuse is still burning. 

With volatility spiking hard this week, bonds breaking down, and tech looking shaky, this is no time to get cocky. 

As I like to say, Trust nothing you see on the screen.

So, how do you trade when chaos reigns supreme? 

Let’s dive into the madness and find a way to navigate the carnage.

The Market Is Moving at Warp Speed—Don’t Get Whiplash

Yesterday, we saw the S&P drop from 5,980 to 5,900 in a matter of minutes, and the Nasdaq had a thousand-point swing from high to low. 

That’s not normal, people. This isn’t some cute little pullback where you “buy the dip and hope for a rip.” 

No, this is the kind of environment where volatility breeds more volatility, and the market can rip your face off if you’re not careful.

What’s the culprit? 

A $142 daily expected move in the S&P. 

You read that right—the market is bracing for swings so big they’re practically incomprehensible. 

And with volatility futures now in backwardation, the near-term risks are louder than a fire alarm.

Actionable Tips:

• Respect the Risk: The size of these moves can wipe out your account faster than you can click “sell.” Scale down your position sizes and tighten your stops.

• Sit on Your Hands: If you don’t have a clear plan, it’s better to do nothing than to step into the crossfire of extreme volatility.

Tech’s Wobbling, Bonds Are Crashing, and Volatility’s Screaming

The tech darlings that have led the market all year—names like Nvidia, Broadcom, and Amazon—are starting to look shaky. 

Order flows are showing more selling than buying, and while a bounce here and there might look promising, don’t be fooled. As I said in today’s live room, nothing in Tesla’s order flow dictates that this is bullish.

Meanwhile, bonds are getting absolutely annihilated. 

The 10-year yield has cracked above 4.5%, and the 30-year bond is down a full point. 

This steepening yield curve is like a warning siren for risk assets. 

Don’t ignore it.

Actionable Tips:

• Watch the Drivers: Keep your eyes on the S&P futures, volatility futures, and bond markets. These are the real indicators of market health, not individual stocks.

• Don’t Chase Tech: With order flows showing weakness, this isn’t the time to go bargain hunting in high-growth names.

Volatility Isn’t the Enemy—It’s the Opportunity

Let’s talk about the elephant in the room: volatility. 

Yesterday’s selloff wasn’t just a blip; it was a full-on freakout. The market went from “fun, fun, sell, sell” to “holy beep, helmets on!” in a matter of hours. 

And yet, volatility isn’t something to fear—it’s something to respect and use to your advantage.

We’re now in backwardation, meaning short-term risk is as high as long-term risk. 

That’s rare and signals one thing: the pros are hedging with everything they’ve got. When vol futures start to invert, it’s like the pros are saying, “We’ll fire first and ask questions later.”

Actionable Tips:

• Sell Premium, Carefully: Elevated volatility can make selling options (like strangles or straddles) attractive, but only if you size your trades conservatively and stay far out of the money.

• Focus on Tangible Products: Don’t get distracted by the VIX or flashy stock moves. Instead, monitor volatility futures and use them to gauge what’s coming next.

Jerome Powell’s Surprise Hawkish Pivot: What It Means for You

Yesterday, Jerome Powell pulled a fast one on the market. 

Instead of going full “Double Down Dove” as I expected, Powell went hawkish, signaling fewer rate cuts ahead. This caught traders off guard and sent bonds into a nosedive.

Why does this matter? Because higher rates mean higher borrowing costs, and that spells trouble for sectors like housing and growth stocks. The homebuilders are already feeling the pain, with many names down 20% or more in just a few sessions.

Actionable Advice:

• Align with Reality: Don’t bet on rate cuts anytime soon. Powell’s shift to a cautious stance means the Fed isn’t coming to save the day.

• Diversify Your Trades: Consider rotating into sectors that can hold up better in a high-rate environment, like energy or financials.

When in Doubt, Sit Out—Until the Dust Settles

This isn’t the time to be a hero. Don’t let FOMO (fear of missing out) or the promise of a “Santa Rally” lure you into bad trades. 

Remember, the Santa Rally is a three-day event before Christmas, not the entire month of December.

You don’t have to trade every day. Sometimes the best move is to sit on your hands and wait for clarity.

Actionable Advice:

• Stay Small: If you must trade, keep your positions small and nimble.

• Wait for Confirmation: Don’t jump into trades just because something looks cheap. Wait for clear signals that the market has stabilized.

Survive Now, Thrive Later

This market isn’t for amateurs. It’s for traders who know how to respect risk, manage emotions, and wait for the right opportunities. With volatility this high, it’s not about swinging for the fences—it’s about surviving the storm and staying in the game.

This is no Disneyland, people. The gloves are off, and it’s every man, woman, and child for themselves.

But here’s the thing: the chaos we’re seeing isn’t just a threat—it’s also an opportunity. With the right tools, mindset, and game plan, you can navigate this storm and come out on the other side stronger—and maybe even profitable.

Ready to Take the Next Step?

If you’re tired of guessing and want a clear, actionable framework for trading, I’ve got something for you: The 3 Trades a Week Program.

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Remember: the market isn’t about being right all the time—it’s about staying in the game and letting probabilities work in your favor.

Stay safe out there. 

The market may be wild, but with the right mindset and strategy, you can ride the chaos instead of letting it ride you.

To your success,
Don Kaufman