We have mostly decided to wait things out and only play momentum ideas where we see opportunity. I wanted to touch base and let you know why we are taking this stance.
Keeping the powder dry and waiting for a better trending market is often the best choice. Nobody wants to get in and trade more than I do but this is not a time to put risk on the table.
There are several reasons below but simply put I have to be comfortable entering and staying with a trade:
- Volatility – normally a trader’s friend, this is reflecting the mass uncertainty over macro issues. The tail is wagging the dog here and until that switches then fear will be priced in. A VIX hovering near 40% indicates high fear. We are in a world that is moving and changing directions fast.
- Jagged markets – Gaps up, gaps down. This is the mark of a casino environment. I like trading casinos but am not comfortable trading IN a casino. The gaps mean you literally have to guess right on news flow. That is no way to play and have conviction. The charts tell the story for me only.
- News – From Europe to Asia are dominating the headlines each day. Macro issues are clouding better judgment of investors and traders, no longer will good company news trump all other. Each day news changes – intraday!
- Inflation – Precious metals have recently been in a tailspin but may start to turn higher. Why? The effects of a bold move by Europe to clip their problems could be ultra inflationary. Another macro issue that is nearly impossible to game.
- Volume – It is quite clear the institutional players are waiting this out. The biggest volume days are down days – institutional distribution – it makes little sense to put big capital at risk without much certainty.
- Quick turns – Our style is not to daytrade. That is not a bad thing but to change styles without testing is a recipe for disaster. I would prefer to wait and be a bit late rather than step get into a trade that goes awry quickly.
This market requires a clear head and fresh thinking each day. Sometimes we need to be in cash – which is a decision and a position (we currently have two positions on).
With so many tripwires out there (just look at last week if you were long or this week if short) the best action is to wait and not attempt to catch knives.
