Time to take advantage of the rise in volatility
The markets finally heard what they’ve
agonized over for months on end: the Fed’s plan for future interest rates.
Bernanke made it crystal clear that the old regime is dead, and a new sheriff is
in town. Gone are the periods of endless rate hikes and cuts, now replaced by a
new approach poised to be flexible, dynamic and reactionary.
The Fed cannot be counted on to keep grinding
away like a freightliner. Rate hikes may pause and continue without warning. We
could see rate hikes, brief pause, brief lowering and then reversal to continued
hikes again. Who knows? Bernanke made it perfectly clear that no one will know
or be able to predict.
How will that affect economic reports in the
future? Do you think they will have less immediate impact than before, or will
the emotional knee-jerkers ram price action several times harder past every econ
event? Will volatility remain at decade lows, or will the three-year market
malaise return to more normal levels of ranges, volatility and trends?
ES
emini
(+$50 per index point)
S&P 500 futures swung all over the map before
settling into a sideways roll thru the afternoon. By my count there were (very
conservatively) +22 index points’ potential profit to be had between the bells.
No trader should expect to capture them all, but +8pts to +12pts or better can
be easy inside a day just like this.
ER
emini
(+$100 per index point)
Russell 2000 futures swung even wider than the
ES… more than +30 index points of potential profits were signaled inside this
sole session alone. Even 1/3 of that captured made for one heck of a day. No
question about it, just a wonderful day to trade!
ES (+$50 per index point)
Big picture shows increasing volatility as the
index churns sideways. This behavior is usually a precursor to price action
going down. The S&P could easily correct -100 or even -200 index points from
here in the medium future ahead. New highs sustained are possible, but the
pattern in this daily chart is one of great instability and weakness overall.
As for myself, I’m indifferent as to what
directional move comes next. We can make tons of money on a rally or decline of
great magnitude. The downside is always easier and more profitable to trade for
futures players, not so for stock traders but certainly true for us. Whatever
the market decides to do is fine by me, I’m totally objective with no dog in the
hunt for which trend move comes next.
ER
(+$100 per index point)
Big spider-doji candle of indecision in the
small caps, too. Go-go bulls are not sure what to do with the Fed’s announcement
of interest-rate roulette rather than deliberate, confirmed periods of raises
and cuts. We’ll see how the small caps digest & deal with this unexpected
paradigm they are forced to factor in for the future.
Summation
Thursday’s trading session sure offered something for everyone. There are only
two valid reasons for any emini trader not to have made money yesterday:
#1 – Traders are new to the market and/or a
valid method that are still in the learning stage. Absolutely nothing wrong with
that… markets will still be going long after all of us have retired. No rush
to wade in before one is 100% ready & prepared.
#2 – Traders are clinging to the wrong method –
system – approach. If the current trading tactics you use did not offer
significant profit potential long, short or both yesterday, that approach is
worthless junk. Discard it immediately and proceed with something that does
work… your financial future depends upon it.
Days like yesterday were commonplace from years
2000 thru 2002, and will grace our presence on a frequent basis soon. The future
outlook may resemble 1994 as some have opined, or stock markets may just as
likely repeat the pattern from April 2000 thru April 2003 right from here. No
one knows… especially since your Fed notified you yesterday that all bets are
off in the future.
For all we know, this summer season may very
well resemble July 2002 in price movement. I for one sure hope so… a month
that incredibly sweet to trade eminis thru would let us take the rest of this
year off as an extended vacation. Volatility cannot remain near decade lows
forever: there must come a time of opposite extremes to balance the market
equation. Many if not most of today’s current traders have no idea how to trade
thru sessions like yesterday… but they will learn soon enough.
Viva la volatility!
Trade To Win
Austin P
(Online video clip tutorials… open access)
Austin Passamonte is a full-time professional trader who specializes in E-mini stock index futures, equity
options and commodity markets. Mr. Passamonte’s trading approach uses proprietary chart patterns found on an
intraday basis. Austin trades privately in the Finger Lakes region of New York.