A professional trader's Market Guidance: Thoughts on Leopold's blow up & whether this is a bottom or not based on the data.

This post was shared to my sub r/tradingedge last night, but sharing it here as a guidance to my wider community. Hopefully it helps:

This post was shared to subscribers last night, but sharing it here as a guidance to my wider community. This will probably be the last post of this detail and depth that I put out for a while, as I need to concentrate on building out more quality content for the community, but I will still be sharing little tidbits of research and reading that I am doing as I go as usual.

If you want to read more of these posts every day, feel free to subscribe, but I will still try to give you a good amount of value here whether you are in my community or not.

Anyway getting into it:

Now obviously one day of rip, no matter how big doesn't do much yet to fix the effects of the biggest momentum unwind in history, so I'm certainly not jumping to any assumptions.

Now looking at the price action with some chart review:

Much more constructive price action today. Firstly, the fact that it was the first day that we have managed to hold a big gap up and build upon it constructively throughout the session without meeting a very big seller.

That, in itself, represents a potentially meaningful shift in character.

Now, looking at the charts briefly:

On US500, after breaking down sharply yesterday, we have rallied strongly back to the top of the channel.

https://preview.redd.it/m1i2rjesyjgh1.png?width=1400&format=png&auto=webp&s=7542a1ee230c81b1a11f236049b2ca933eed091f

On NDX:

https://preview.redd.it/3ybc5lwsyjgh1.png?width=1334&format=png&auto=webp&s=908305e08b325d4a5b11143a8b241e202aaf35cf

We have a short term breakout here, and our first close back above the 100d EMA:

https://preview.redd.it/he9mra7uyjgh1.png?width=1362&format=png&auto=webp&s=a9b6a15c33d6b1158eed3ba0e78cb4cba8b6d95b

So a positive there.

And if we look at SMH:

https://preview.redd.it/0rx24wpuyjgh1.png?width=1400&format=png&auto=webp&s=a16c9cdcaa22a6a425b2575391a715ca994dce2d

We closed back above the 100d EMA also, and back to the centre of the channel, with the after market move taking us towards the top.

**Firstly, to review the data shared in premarket:**

We had SMH bounce off the YTD VWAP yesterday after hours at 495, before a strong open this morning, which wasn't immediately faded.

Based on looking at RSI, we reached oversold territory yesterday, the previous times we saw this level of oversold we did typically see a good bounce, and that's what we got.

https://preview.redd.it/52soy1jvyjgh1.png?width=1400&format=png&auto=webp&s=84ea90ce38547217f2c361fa8e498a49087e8eee

Those were encouraging signals, which led me in premarket to suggest a bottom in semiconductors is probably close, but I was not ready to call a definitive bottom just then. but the data was certainly becoming more supportive.

And then we got news of Leopold's blow up.

Now initially the reports were that he was tapping into investors for fresh capital, the suggestion being his fund was in trouble after being caught leveraged in the sharp downturn. Later in the day, it emerged that he had been forced to sell his public positions, taking his AUM from $49B in may to just $10B now, mostly held in private investments.

That's a 77% downturn off the highs. So whatever the state of your portfolio right now, it is better than the performance of one of the biggest asset fund managers in the world.

Now we know that Citadel absorbed the positions from Leopold. Now that in itself is rather suspicious, considering the fact that Citadel themselves were the ones to float the idea of a potential rate hike yesterday (which never emerged), which forced the market lower, intensifying the leverage unwind that forced Leopold to go bust. They then swooped in to take the pickings. A dog eat dog world for sure.

Now this actually, to me, is a pretty bullish thing. If you think about it, during this massive momentum unwind, whilst Leopold was seeing his fund go up in smoke, he would have been taking a number of actions against his positions to try to stem the bleeding. he would have been aggressively trimming positions firstly, adding to sell pressure. he also would have been adding short dated put options against his positions, that also adding to sell pressure.

With his fund now blown up, we lose a bunch of that sell pressure and have Citadel buying back the positions. I think this was one of the core reasons why a number of his name including NBIS, SNDK etc were up massively today, more than most other names.

A big fund blowing up has historically been a signal of a potential bottom, capitulation. A similar event obviously in very recent memory was the blow up of FTX in 2022, and the fact that that marked a bottom in crypto.

So the Leopold news is actually pretty much bullish.

One thing to note, before we get onto the data around the question of bottoming and what my course of action is here, is just how fierce the rally was in AI names today. Names up 20-30%, MEME ETF up 18%. It was a giant short squeeze, but the thing to note is how much these high beta names can move in this environment after being beaten down into the ground and below. The index was up 1.9%. But individual names in the portfolio were up 10-20 or even 30%.

SO when I quoted this data in premarket on the market maker dealer positioning, it should give you serious hope of a very strong recovery. Much more than we have seen thus far.

This is the data again for those who missed it:

https://preview.redd.it/oeltdkixyjgh1.png?width=1400&format=png&auto=webp&s=abd0a57613d64660fb3f125558198c7ecdca9cd1

3 consecutive closes under $1B in gamma, so basically yes, sparse dealer positioning.

This is the 5th time since July 2024 (as far back as his data went) that we have seen dealer positioning so sparse.

The does often precede volatile price action and whether or not we see a drawdown after this kind of dealer positioning hits is pretty much a coin flip.

So

Mar 31, 2025: -11.2%

Mar 11, 2025: -10.6% (same event)

Mar 5, 2026: -7.1%

Nov 20, 2025: no drawdown (+5.5% up instead)

Aug 5, 2024: none - it fired ON the crash low (+8.9% up)

However, what is notable is that in every case, the 3 month return was extremely positive. A median return of 10% on the index.

And that is a 10% from when the signal hit, which is yesterday, rather than a 10% from where we bottom.

So whether we bottomed here or go lower again, we can expect a sharp rally way beyond where we are now.

Even if that is not 10%, but instead 6-8%, that still brings us to new ATH. A 2% rally today led to a massive rip in momentum names. It really then should not be hard to see these names running 50-100% from their lows to significantly recover our books.

This morning I think I was quite clear that I wasn't sure a bottom was in. And I am presenting the data here, but ultimately I think I still haven't reached a convicted view either way, but the lack of follow through yesterday on the breakdown out of the channel was obviously a positive.

And more than just a positive in price. What it has created is reduced delta to downside.

That makes the chances of continuation tick higher and whilst it doesn't take further downside off the table entirely, it does make it more unlikely.

So hopefully we can string a few more sessions together of upside.

My order flow guy described the price action today as baity, and opened some puts against QQQ into August expiry (21/08), but noted that the seller was not really present on the tape today and this was mostly a pre-emptive move.

He said he would only add to it if the tape agrees with follow through to the downside. Thus far we haven't got that.

So whilst I tailed the puts with QQQ 670P this morning into August expiry, currently down from 12.17 to 10.37, so down 14% on that put position which was 2-3% size, I don't think I will be adding to puts right now.

I don't want to be so aggressive with the puts chasing downside, which was a protective strategy, that it mitigates the upside of a potential recovery, because the data looks incrementally better for continuation right now.

The August expiry gives us time that if the market starts to roll they can still print as a protection, but I want to give the market some room to run a bit higher and just keep an eye on teh data.

I closed and trimmed overnight puts this morning, so currently I have running:

ARKK P70 into September expiry, avg cost of 3.50, currently trading at 3. Size 5% of the book (using profits from previous put trades)

And QQQ 670P into August expiry, 2-3% size.

At this juncture, I do not plan on adding more.

Now, whether or not this is a definitive bottom is quite hard to say due to the overhead supply, but also due to the fact that we didn't get any of the usual signs of bottoming that we got in the previous March bottoms.

We didnt get a big vix spike, or a big spike on selling volume.

But we did get the blow up of Leopold and SMH reaching oversold conditions.

So a few more sessions is probably required to see where we stand on a definitive bottom.

But I am very conscious of the mistakes I made in march, and I am also very aware of many similarities in the charts.

Look at SMH here for instance:

https://preview.redd.it/i2804f1zyjgh1.png?width=1400&format=png&auto=webp&s=f42ed74b1ea774524fb5461d99b51a9453290713

See this undercut of the 100d and rally, and the exact same pattern has formed here.

Pair that with the dealer data around very strong gains 3 months out (10% on the index), and the fact that SMH is very oversold, with Kospi at around 5k, and it is obvious to me that more upside is very likely, whether this is an exact bottom or not.

So where I made the mistake in march not trusting the bounce, and trimming into it to leave myself bare for when the rally ensued, I will leave all the positions running in full. I have held them through this downturn, so whether we are a bottom here or if we run a little lower and then bottom, the bounce back will be violent and I will let that play out.

The positions will recover.

if we do materialise that this is not a bottom (still possible), I will continue to use hedges to try to play the interim downside until the true bottom forms, which we can't be far out from based on SMH data that I shared however you look at it.

Regarding buying, I haven't bought much at all, but I am already with enough exposure in the open positions that I should benefit immensely from a prolonged rally into October. DCA is still advised, and if we get a definitive bottom signal in the order flow, I Willa dd to the long positions. That may be higher up from here in momentum names, which I wrote about intraday.

On teh downside, the momentum led the sell off, and only 20% into its sell off did the order flow on the index agree that selling was likely. We may see momentum 20% into its recovery before the order flow on the index agrees that we are into a recovery.

if we look at Aion Analysis platform here, they have a strong rally here. That is still my base case, whether we are at a definitive bottom or not.

So not selling into that early like I did in March.

https://preview.redd.it/9a1xpr60zjgh1.png?width=1400&format=png&auto=webp&s=9a11454c7a0c897649175c2c017058c6f9464008

There is much upside in the stocks even after today's rally. Like these names re 40-50% down. They rallied today 10-20%. That's still like 50% upside easy and the names are still cheap. So buy as you see fit, according to your risk tolerance and desire to catch and act bottom. DCA is still best way to it I think rather than all in. And I would focus on the names that sold off hardest rather than relative strength, as we saw in march that once the market bottomed, the names that sold off bounced the hardest, whilst photonics which showed relative strength through March decline was basically flat.

The same thing probably happens again here.

It makes sense to me that with semis running so hard today, and Smasung's strong earnings yesterday, KOSPI should deliver strong returns tonight. So likely strong gap up overnight again. And we had positive AMZN Capex etc.

So fundamental picture is good. The rally today has reduced downside delta, and made continuation more likely. WE Arne't necessarily in the clear, but I am not going to second guess and sell into anything as there is a lot of upside still to come which I will play for.

I will still hold those 2 put positions, but won't be adding to them right now as continuation chances are increasing.

DCA still best way forward for deploying until the order flow tape on the index agrees. We aren't there yet.

But yes a constructive day, and much more to come over the next few months for sure, whether we are at an exact bottom now or not.

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