Tuesday, May 4, 2010

This Time Feels Different

Today's selloff felt very different than previous selloffs we saw thru out the one year rally. I am not sure what it is but i feel like most traders turned very pessimistic with the Dow Jones/SPX only down 3% off their highs. The spikes in the VIX have been enormous. I am not sure what it is but this selloff 'feels' different to me. I personally think that the selloff has a little more to go to the downside before a tradeable bottom can be played but we will see smaller bounces along the way surely.
These are truly fascinating times in the life of a trader. Times like these is how trading becomes an art and less of a science. Trading markets is a very dynamic business. It is always changing and no one strategy stands to succeed for ever. One always needs to be evaluating and reevaluating his strategies and looking to adapt to current market action.

There is still room to go to the downside before we see a true flush out takes place in my opinion. There will be bounces strong and not so strong along the way surely. Gotta be very nimble.

You will see the VIX chart which is a good measure of fear in the market place. You can see how fear ramped up quite a bit in the past few days with the indexes are only down about 3% off their highs. This is very fascinating to me because usually this kind of spikes in fear and negativity is seen near market bottoms(not tops).

You will also see a chart of the UUP(US dollar index) and as you will see it broke out today and technically when US dollar rallies like this, then this will put pressure on commodities. Commodity stocks have been laggards thru out the entire rally pretty much as TECH stocks, Small caps and Transports lead this rally higher. Personally, i think the US dollar will continue to gain strength especially given the European troubles.
These are truly interesting times!!Will the bear market resume? Will this be another buying opportunity like the one we saw in Febuary?

All i know is: The nimble trader wins!


Anonymous said...

The last 3 days were crazy. Down 150, up 150, down 200. I had no idea it would go like that. I just know the down volume has been larger than the up volume so that can't be good. Let see what tomorrow brings!

Anonymous said...

It looks less like a top if you look at the situation in global stock markets, not just the US. Australia and Europe have been quite badly hit in the last few weeks.

Blue said...

What would be funny is if:

Feb 5th = Bottom
May 5th = Bottom

Viva, Cinco de Mayo!

I'm still 100% cash and take it one scalp trade at a time.

p.s. I got sponsored and I'm gearing up for the Series 7 and 66. I'm going the Financial Planning route for a while along with my personal trading.

gamingthemarket said...

The Fed has to raise the prime rate. Before they do international banks have to delever. The leverage in interest rate swaps dwarfs what AIG did with mortgage swaps. Many contracts are 1000 to 1. I think this type of distribution is what's going on.

Stewie said...

Hi Blue,

So you are going to be a financial planner! that's good man. But be ready to lengthen your holding time frames. No more watching 15 minute charts! haha.

good luck bro.

Stewie said...

hi GTM, nice to hear from you again as well.
The recent market action smells of a major top in equities and my gut feeling says we will see shades of 2008 type action return to the markets. Volatility is making a comeback!!

gamingthemarket said...

I totally agree. My hunch is the interest rate swap market is responsible for this crash. What happened with mortgage backed securities is happening with currencies. As soon as I understand it better I'll write an in-depth article.

Stocks like NFLX running outside three deviations on their entire price history was making me question everything I've learned about linear regression and mean reversion trading. It's comforting to see reality again.

NASDAQ would not let retail traders exit FAZ on Thurs. during the last 1.5 hours. That was really disturbing. FAZ did 165M shares that day, but no bids? I'm done trading ETFs. Another reason I think the swap market was involved.

This is a slightly different animal now.

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