website header 2

website header 2

Monday, May 22, 2017


“Well, of course … some things matter more than others!”

As my long time readers/clients know, the one thing that I have always stressed in trading is seeking out those markets with above average “intra-day” volatility; not just close-to-close, but how volatile is it when you spend 6, 7, or 8 hours trading it. And to that end, there is another ancillary corollary that is equally important that I have not talked or written about very much: “who is positioned where in respect to the market, specifically where is the collective speculative “chump” money versus the “smart” institutional money.

Now, don’t get me wrong, there are plenty of good retail spec traders who are not chumps; collectively though, the group is a pack of lemmings looking for a trend, and will consistently overstay their welcome until they get whacked. Ditto institutions, the only difference being when they screw up it can move markets very quickly and violently; we saw this in the stock indices in February when we had a melt up due to the gamma short hedge fund out of Wisconsin. So, the point is … “how are traders big & small positioned in the market? … Cuz when the boat gets too many people on one side it tends to want to capsize”!

I want to focus your attention on 2 charts [a little chart porn for your day] I saw over the weekend on ZH; 1) realized volatility of the SP500, and 2) VIX speculative short futures positions. Both should be a “wake up call” for anybody with either a portfolio of stocks or anybody that trades stock indices. The 2 charts directly below.

The first chart is the volatility of the SP500, which if you look closely hasn’t been this low for about 50 years; thank you Fed Twits. History strongly suggests, that even with the 800 pound gorilla in the room, they can’t “massage” volatility lower forever; the hubris of these Fed Pie Holes is astounding, but when you consider they are all Ivy League elitists who’ve never had a real job anywhere, have spent their entire lives basically in the faculty lounge pontificating Keynesian bullshit, why should it be a stretch to think they haven’t a clue what they are doing? Simply put, how does volatility get lower than this and there remains a viable market? Hint: It doesn’t.

Second chart shows us the record short positions of speculative futures accounts in VIX futures. EXIT QUESTION: “Who is left to sell for this easy money”?

All of this, of course, begs the obvious questions of what it’s gonna take to get these short futures positions unwound, and what happens when everybody hits the exit gate at the same time to cover approximately 1,400,000 futures contracts? Remember, these are “short speculative futures positions”, not the open interest; all it’s gonna take is something to send the VIX over the 14 – 16 area, and if you’ve never seen a tsunami of panic before, wait until you see volatility spike and over a million futures contracts get liquidated. Simply put, this is a disaster waiting to happen … and happen it will, we just don’t know A) what the “spark” will be, or B) when.

From what I just said, let’s approach this from the other side … namely, what does this mean for the Dow30 going forward and how it trades. As I’ve said before, it’s all about the setup … how the market opens [higher / lower], 50% retracement level, what does it do during the “Chicago Noon hour”, and lastly can traders squeeze the wrong side of the trade to panic on the close. It’s easy to avoid the bloodbath that is coming at some point; 1) don’t buy the first break on a lower opening, 2) don’t buy if the Dow30 gets below -300 on the Day, and 3) don’t buy breaks in price after 2 P.M. ESDT or EST. You do these 3 things, and no matter the financial destruction that takes place when it happens, and you’ll be all right.

Turning to today’s market … here we go again with the “wee hours” pre market rally 2- 3 hours before the open, where stocks drift higher on “vapor”; can’t do Mr. Jack Squat all night, but now that the world hasn’t ended [waiting for the WaPo & NYT fake news “hit pieces” on anonymous sources to appear] with no fresh news, time to bid stocks higher before the crowd shows up. Or, it’s simply the SNB at lunch time in Zurich deciding to raise bids in key bellweather stocks to see “what’s out there”.

Here we are a few minutes before the open @ 9:30 ESDT, and the Dow30 is very near the high … so what else is new, as the “Chipmunks” [institutions that will be buying on the open cuz no price is too high to buy stocks] look to ramp it on the open … cuz fun-derr-mentals … that is until of course, the WaPo and/or NYT latest “hit piece” of fake news which they are known for these days [“objective” journalism don’tchaknow] hits the market and let’s us know Trump is literally Hitler [again].

First trade of the day came and went quick due to the fact I got hosed with some slippage on the buy fill; I don’t like that much, so in those circumstances I usually treat it as scalp trade cuz I don’t like my entry price. Liquidating the trade was OK … got my price I was looking for … but in these opening minutes when the “Chipmunks” are doing very large blocks via market orders, the price of the indices can move very fast.

And once again, for like the umpteenth time, stocks ignore pretty much every development in the world and simply go up; thank you SNB, cuz when you’re using printed money you created last night, no price is too expensive relative to what your goals are, which is hegemony of corporate globalism while at the same time hopefully cheapening the Swiss Franc.

About an hour and a half into this clusterfark, and I really don’t like the trading action; 3 days in a row off of that bottom, and it’s open higher and go higher, and yet today we are only a handful of points away from the open low of the new York session. Unless this stuff gets in gear, if they start breaking it in the P.M., it could get real interesting on the downside. Late A.M. and the Dow30 is now weaker than the SP500; if the “blue chips” falter, what kind of selling pressure can be generated?

Noon hour in New York, and this has turned into a joke … I dunno, has the VIX ever been at a “6” handle before … this keeps up and we’ll see one. Outside of that opening 20 minutes of utter institutional stupidity, there has been zero interest in trading; right now we’re about a dozen points under my liquidation from the first few minutes and more than a few M1 candlesticks have ranges of 1 – 3 points; truly pathetic. I guess we just open every day and slowly drift higher into eternity with SNB bids and God knows who else buying stocks with CNTRL-P “funny money” distorting anything and everything. “Oh goody, the SP500 is back in the 2390’s again, where it was stuck for like 3 weeks in the worst trading environment in 50 years … good times”.

The afternoon has not been kind … the market looked like it was starting to move … and then serious chop mode set in… 3 trades, 3 losses, down a little less than 1% … and quite frankly, the way the market is now today, it is almost untradeable … this shit is impossible; it spends 45 minutes in a 3 point range and then in 15 seconds it goes down 15 points, only to rinse and repeat about 5 more times since the open … mind numbing nothingness for hours on end and then … BOOM! … a 10 – 15+ point explosion one way or the other in seconds followed by more mind numbing nothingness until institutions either get “buy happy” or “sell sad” and puke … there is literally nothing in between those 2 scenarios.

I’ll have the PAMM spreadsheet up later tonight; as of this moment Microsoft Excel isn’t loading properly. I’ll mess with it and get it fixed and get the spreadsheet up when I figure it out. And just for the record, I don’t think I’ve ever seen a market have less than a 0.01% move, up or down, after the New York open give or take about 15 minutes to the close … ever … like I said, VIX with a “6” handle? Customers getting killed, dealer scumbag LP’s happy as hell, cuz when you consider the market is going nowhere, the spread, their commission, and then their added “usage tax for scumbags” via slippage, what’s not to like?

Just to show you how bad it is, directly below is the M1 of the SP500 [the lead stock indices futures market]; can you see entire minutes going by with no change in the bid with less than an hour to go in trading? This is one of the busiest times of day, yet take a look at this again … gaps everywhere. How the hell is anybody supposed to get a read on prices when prices “gap & jump” with no continuity? And quite frankly, it’s just as bad in the Dow30, and it’s one of the maddening things I’m dealing with in trading. Simply put, if this stuff doesn’t improve, I’ll stop trading it and just sit until it improves, cuz it makes absolutely no sense getting chopped up with miniscule price changes and the market goes nowhere. I don’t like losing money, and this type of action has got “money loser” written all over it; there simply is no way to control risk and at the same time make any money.

Time for the beach … the dog and I are outta here … until tomorrow. You have no idea how frustrated I am with this shit.

Have a great day everybody!




No comments:

Post a Comment