Some thoughts on the current market situation: Awe-inspiring volatility in markets these days and headlines keep coming non stop. It’s heaven for fans of volatility and action, but it’s also a very dangerous time for traders. The temptation is to chase every headline and every move.
$DJIA flies up over 1,000 points and drops another 1,000 the next day and then repeats. Just 2 weeks ago we were staring at 2-3 handle ranges on $SPX intra-day for hours on end.Things have changed for now, get used to it.
Bears are having a blast right now, just accept it:
Bears these days…. pic.twitter.com/X3n4aTNtg4
— Sven Henrich (@NorthmanTrader) March 5, 2020
Everybody can choose to approach these things as they wish, but my general view here is this:
People associate the headlines with the market action.
Yes, they clearly have an influence, but don’t lose sight of the technicals.
They are a great guide especially during highly volatile times.
My view fwiw: Don’t chase every move, but rather choose wisely when/where to engage.
— Sven Henrich (@NorthmanTrader) March 5, 2020
The message: Keep calm and look at the larger technical picture and choose wisely when and where to get engaged.
For anyone that had positioned short into February last week was fantastic. Bulls that had their fun riding the Fed liquidity and either listened to the warning signs and got out or are trapped at much higher prices. That’s the nature of the beast and now we’re in a period of wide range chop:
I submit that nothing what we are seeing here currently is unusual, except it is more violent now with tons of uncertainty thrown in including the concern that central banks finally lose control.
I’ve described the situation as binary and it remains to this day. Central banks either will maintain control or they won’t. The virus situation impact will either be short and painful, or it will have longer term ramifications. Unknowable at this very moment.
But as you can see in the chart above we’ve had periods like this before, a bunch of back and forth while markets negotiate the price action that ultimately it either resolves higher or lower. Genius I know. But that’s just reality.
The key, from my perspective, is not to get chopped up in the wild back and forth, but rather be elective, identify potential patterns and levels and then act on them, but also not be stubborn about anything. Everything is a trade at the moment and being opportunistic helps.
My attitude here is to look for spots that look interesting, test out the levels and if they work (short or long) then ride the counter move and scale out along the way.
I showed an example from our subscriber feed on twitter yesterday (see thread), this one from the long side identifying the pivot price zone to come:
then highlighting the engagement zone:
And then we saw the violent reaction to the upside yesterday:
This pattern remains unconfirmed and looks to be in trouble as of this morning, but that was a massive rip to the upside yesterday as markets moved 4% higher in a day. And that’s the point: These markets are massively volatile at the moment and one has to pick one’s spots to get engaged in and then be flexible enough to also reduce risk and lock in gains on moves such as this.
When else will you get 3%-4% moves every day? The answer is very rarely.
At market extremes people tend to get very caught up of what could happen. Just a few weeks ago everybody was rising price targets everywhere and people were screaming buy buy buy. Now we see people getting ever more bearish and calling for ever lower price targets. Stop. It’s pointless making grandiose predictions right now and get caught up in them. Yes, anything can happen, and I also remain very much open to a structural bear case, having made it repeatedly on the way up and calling out the risks.
We are in engaged in a massive battle for control here between central banks, the structural problems in the global economy and now a crisis that has popped on the scene out of the blue.
Markets may appear to be in panic mode right now, but that doesn’t mean we need to be. Rather our job is exactly the opposite. To keep calm and not lose sight of the bigger picture, and most importantly: Not lose sight of the technicals as they help guide us through this mess.
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The battle over SPX 3000 is rejoined as I type (18:15 GMT Thursday). My hunch is it will resolve to the upside for now – with a tradable bounce – but, if not, there may be an acceleration down.
Vast, continued, infusions of liquidity are having reducing effect. The central banks are clinging to control by their fingernails for now. I don’t think I like the alternative, those mighty wide SPX jaws are still giving me vertigo.
18:28 GMT I’ve gone with my hunch @ SPX 3025, bet (small) placed, fingers crossed, stop @ 3010 ‘cos I’m not too confident.
Thanks for remaining objective and calm, Sven. Very helpful in situations of societal and market turmoil
Has the societal turmoil started yet? I think there may be more of that coming (I’ll stop now, could go on for hours on it).
So, how did that trade work out? Moderately badly… but.
My excuse is cooking and eating dinner. Stopped out, got in again at 3015 with 2995 stop, that ended flat, meanwhile sold March VIX at 32.45 which dropped a tad into close, current situation on those 3 trades is flat. I’m leaving the remaining two on in the hope that the pattern of 100 SPX up, 100 down repeating continues for one day more at least.
That said, I didn’t like the feel of the close. Jaws, vertigo.
Echo what David has said! I enjoy following you on Twitter, Sven – wise commentary and plenty of LOL chuckles along the way!
Sven, two thoughts. Don’t file that complaint, think of your family and children, and we’d really miss you. What’s a backwards mood?.
I urge Sven to look at TNX. Long term. We might, just might, be setting a low in long rates. Can the credit cycle finally turn after 37 years. I don’t believe it can. I wonder what Sven’s magic lines say? I have figured there is another $100TN to keep things going but who knows?
The duck analogy comes to mind, appears calm above water but is kicking like hell under water.
Any chance the next time you are on CBNC, you can tell Kudlow to stop telling mom and pop investors to “buy the dip”? I understand Kudlow is a borne again optimist due to recovering via a 5 month rehab from coke and alcohol addiction long ago, yet he is really setting up the middle and lower class for total financial wipeout. It was bad enough to have the President sell the public to buy stocks last week, but you know such insane advice is coming from Kudlow. What Kudlow should be doing instead is talking the President into sending every American a $1,000 debit card that can only be used for purchases, not cash outs. Trickle down rate cuts will not work at this point, and only scares savers into hording money. Free money to the people could help with the animal spirits panic, as a lot of the panic is due to financial risks from the virus, not just the physical risks as note that about 70% of the public live pay check to pay check, so staying home from work for a month is not an option.
Good luck with all your investments!
P.S. To lighten the mood, do a search on articles today that suggest cash is spreading the coronavirus. Never spoil a good ole panic to manipulate the public into making a bad future choice, by say eliminating cash (as touching glass touch screens to access electronic money kiosks is of course virus proof…NOT). Just imagine what the damage central banks could inflict on the populace if/when they finally outlawed cash. Negative 5% rates on Wednesday, better spend all your cash today! One single currency for the entire world, yes that will be awesome! Of course having all electronic money will be a terrible dea if when a solar flare hits and turns off the electric grid for a few months, etc (Research Carrington Event of 1859 for insight into the solar flare that shorted out telegraph wires). Our leader’s ability to NOT predict unintended consequences is astonishing…and their ability to manipulate their subjects is legendary…