A Movie on Re-Run.
Return of The Vol.
Now that I don’t have to write the daily recaps I’m free to really talk about things that I like and given that we’re in a traders market with wide ranges, I really like that!
I wrote this piece yesterday: Everybody Panic. 2.0
In short, I gave some insights to trading markets like this from 18 years of doing this hence the title of this post: A movie on re-run.
Because that’s what it is. If you’re new to markets or rather only look at the markets through one perspective it’s hard to see the forest through the trees. By that I mean as a traditional “trader” who uses patterns to trade (which most who start out do) you tend to only see things at the ground level.
Price levels, support/resistance - bull flags, bear flags and so on…that all works for scalping and day trading but not for position trading or seeing the forest through the trees.
The move on Nasdaq from the lows yesterday to today was just about $1,000. That is serious shit - we in turn dropped nearly $400 in the last hour of trading on Nasdaq and just about -$100 points on SP500.
I posted this in Issue 30 of the report this week. The Nasdaq made a stand at that area to rally +$1000 and then it failed just shy of that zone above.
This was all expected because this is usually how it goes once you understand this is a movie on re-run, so to speak. You never know if the areas are going to stick (meaning rally/sell) but at least you know where to look and if you know where to look ahead of time you can put together idea generation ahead of time.
That line above in that box on the bottom: “VXX reversion lower” - when vol dies out (and it always does) it creates a trade. How you express that view is endless but there’s a trade there and tens of millions were, and still are, to be made from it.
What I also said in the paragraph was: “The failure to treat this as another day would be to leave a lot of money on the table” - Legitimate professional traders know this, they thrive on this and money is made.
There’s a futures trader in my community who thrives on this and many like him do - why? Because it’s a time to size up and hold for larger moves - see above.
It’s not the time to trade small if you want to be aggressive with the ranges.
Last night I explained the idea of range/vol expansion, whether that helps you or not is only for you to decide - it matters to me because like I said, this is all a movie on re-run once you do it long enough you then know how to size, trade and what to expect.
The VIX had the largest single day move ever then it collapsed just as fast. I talked about that in the report Sunday, reversion on that product which in turn releases risk assets (equities higher) - which in turn drops the Yen - in what order, doesn’t matter but they’re all connected.
And a failure to see that is a failure to understand the puzzle that are the markets.
I asked the question today to a group of friends in the business: “At what point do we just admit that market structure has more to do with how asset prices trade rather than the actual valuation of companies and currencies?”
Below was one of the replies - I’ll be interviewing him Thursday btw to talk about his 40-year career in the business as a $4 billion advisor.
But vol is not really my speciality: this guy Chris on Twitter is and his the CIO of a fund that only trades vol.
He can explain it better than me but I understand it from the level that it applies to what I need it for: trading the ranges aggressively with index futures, index ETFs and single-stock names that are higher beta.
That’s strategy. Whether you realize it or not - that’s what it is.
And I say this because I am well aware of the idea that retail trading relies on that everything is purely technical analysis - most of it regurgitated bullshit.
That strategy of range/vol expansion sets expectations and as I said Sunday in the report:
The second sentence: - I used Momentum Monitor names (which are high beta and correlated to stock indices) to trade the move.
Names like TSM 0.00%↑ which was up +17% from yesterday or names like NVDA 0.00%↑ which was up +$18% from the lows.
This market is extreme but it’s during times like this where understanding the why behind the move allows for a lot of money to be made. And don’t get me wrong, sell-offs also provide better long-term entries as well - in fact, I bought TM 0.00%↑ for the fund and a few others that I won’t share here.
However, if you can dial in the idea of why the moves happen you can then trade them and hopefully find yourself with P&L to show for it v. the standard market-calls that don’t do much.
Dan
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