No Rest For The Weary

There has been no rest for the weary since we embarked into a new market phase back on January 26th of last year. In fact if you look at the tape ahead of that date and what followed then you probably agree that the contrast could not be more stark. On the left we see a low volatility bull market while on the right we have a high volatility bear or sideways market.

Which is nothing unusual per se as bull markets either run out of buyers via an exhaustion spike or just quietly roll over. Either way a lot of participants get caught with their pants down. And that of course is the general idea.

In response we had to adjust our trading activity significantly since this sudden shift and thus far I think we have coped extremely well. Plus may I propose that ripping the bandaid off quickly far outweighs the alternative, as slow roll overs are capable of luring in a large number of (mostly retail) frogs into the boiling pit looming below.

However it took more than eight months for implied volatility to respond in kind, which speaks to the level of complacency that had permeated investor sentiment over the preceding decade.

The median line I drew on the VIX presents us a clear perspective of investor sentiment ahead and after October 4th 2018. It also shows us that a drop < VIX 16 will be required in order for the bulls to avoid the medium term consequence of a secular bear market.

The Fed seems to finally have seen the light and has begun jawboning about the possibility of a rate reduction should their economic projections warrant it. What makes matters worse however is that market participants increasingly view Chairman Jerome Powell as a pragmatist who simply is reactive as opposed to forward planning like his preceding academics like Greenspan, Bernanke, and even Yellen .

There’s nothing necessarily wrong with that approach, in fact on a continuous basis I would prefer it. After all have we not all been complaining about the Fed goosing equity markets since the 2008 crisis? But understand that over the medium term a reactive Fed without a clearly defined outlook will continue to roil equity markets.

I remain highly skeptical as to the medium term viability of my long campaign, but refuse to make any changes to an ongoing campaign. When in doubt turn off your brain and let your winners run.

Crude was another example of just that. That long entry was tough to take but thus far has paid off very well. I continue to trail a respectable distance away a few ticks below the recent spike low.

Gold hasn’t budget since yesterday and my campaign obviously remains as is.

Quite frankly I don’t want to be lead into over thinking matters as the entry was solid and the medium to long term picture is looking supportive of continuation higher. That does of course not mean it’s procedural.

In order to assure survival as a trader it is tantamount to continuously reflect on the realization that we as human beings are incapable of predicting the future, and exponentially less so as we advance our time horizon forward.

Don’t be a sucker and simply trade the tape in front of you. In fact the less you obsess about future outcome of price action, the better will be your results. That (and the profits you will be collecting) you can take to the bank.

Losing is part of the game and you need to accept this as your daily reality. Soybeans is a textbook example. Everything looked perfect for a push higher, at least via my lens, but it suddenly tripped and fell off the plate.

I don’t know why it did and neither do I care. It’s not something I could have anticipated and it’s going to happen again. Which is why stop orders exist in the first place.

Enjoy your weekend.

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