High Volatility

After the very choppy morning session, Mr. Market finally got it together to deliver some sweet relief.  I wanted to believe the big swings were over but I stuck to my rules choosing to wait for proof of support.   The Dow Futures moved from 250 points down to nearly flat in just one hour this morning.   Such high volatility can produce false signals and violent reversals.  I’m glad I have developed some discipline in my old age and decided now to chase yesterday.  Remember. just like the Grinch, Mr. Market can be a Mean One.

The VIX pulled back yesterday due to the late afternoon rally, but it still closed above a 30 handle.  That would suggest that there is still considerable fear and violent gaps and price reversals are very likely.  For the last couple years, the market was very forgiving, but for now, that has changed.  If your chaise or try to predict a bottom, a punishing lesson in discipline is now a possible result.

On the Calendar

The Economic Calendar has a parade of Fed Speakers to pontificate on interest rates.  Kaplan spoke at 6:00 AM, Dudley at 8:30 AM, Evans at 11:15 AM and Willams will finish the day at 5:30 PM.  The important report of the day is the 10:30 AM EIA Petroleum Status report.

On the Earnings Calendar, we have nearly 200 companies reporting today.  Combine a bunch of earnings with an emotional market, and anything is possible so stay on your toes.

Action Plan

At 6:00 AM Eastern the Dow Futures pointed about a 250 point gap down.  By 6:00 AM Futures had recovered to an almost even open which suggest there is still a lot of risk due to huge emotional volatility.  The relief rally was, of course, wonderful yesterday afternoon but keep in mind the VIX closed above a 30 handle.

I expect volatility to continue to produce fast price action and whipsaws.  False signals and head-fakes are very common.  Even the best of signals can quickly evaporate in this environment.  I continue to recommend extreme caution and remember the lows could see another test.  New and inexperienced traders should consider remaining on the sidelines until the price action slows back down.  If you do decide to trade, I suggest trading smaller than normal positions.  Don’t get caught up in the drama.  Stick to your rules and matain your discipline.

Trade Wisely,

Doug