Keep Calm, Carry On, Embrace The Suck

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Authored by Sven Henrich via,

Some thoughts on the current market situation: Awe-inspiring volatility in markets these days and headlines keep coming non stop.

It’s heaven for fans of volatility and action, but it’s also a very dangerous time for traders. The temptation is to chase every headline and every move.

$DJIA flies up over 1,000 points and drops another 1,000 the next day and then repeats. Just 2 weeks ago we were staring at 2-3 handle ranges on $SPX intra-day for hours on end.Things have changed for now, get used to it.

Bears are having a blast right now, just accept it:

Everybody can choose to approach these things as they wish, but my general view here is this:

The message: Keep calm and look at the larger technical picture and choose wisely when and where to get engaged.

For anyone that had positioned short into February last week was fantastic. Bulls that had their fun riding the Fed liquidity and either listened to the warning signs and got out or are trapped at much higher prices. That’s the nature of the beast and now we’re in a period of wide range chop:

I submit that nothing what we are seeing here currently is unusual, except it is more violent now with tons of uncertainty thrown in including the concern that central banks finally lose control.

I’ve described the situation as binary and it remains to this day. Central banks either will maintain control or they won’t. The virus situation impact will either be short and painful, or it will have longer term ramifications. Unknowable at this very moment.

But as you can see in the chart above we’ve had periods like this before, a bunch of back and forth while markets negotiate the price action that ultimately it either resolves higher or lower. Genius I know. But that’s just reality.

The key, from my perspective, is not to get chopped up in the wild back and forth, but rather be elective, identify potential patterns and levels and then act on them, but also not be stubborn about anything. Everything is a trade at the moment and being opportunistic helps.

My attitude here is to look for spots that look interesting, test out the levels and if they work (short or long) then ride the counter move and scale out along the way.

I showed an example from our subscriber feed on twitter yesterday (see thread), this one from the long side identifying the pivot price zone to come:

then highlighting the engagement zone:

And then we saw the violent reaction to the upside yesterday:

This pattern remains unconfirmed and looks to be in trouble as of this morning, but that was a massive rip to the upside yesterday as markets moved 4% higher in a day. And that’s the point: These markets are massively volatile at the moment and one has to pick one’s spots to get engaged in and then be flexible enough to also reduce risk and lock in gains on moves such as this.

When else will you get 3%-4% moves every day? The answer is very rarely.

At market extremes people tend to get very caught up of what could happen. Just a few weeks ago everybody was rising price targets everywhere and people were screaming buy buy buy. Now we see people getting ever more bearish and calling for ever lower price targets. Stop. It’s pointless making grandiose predictions right now and get caught up in them. Yes, anything can happen, and I also remain very much open to a structural bear case, having made it repeatedly on the way up and calling out the risks.

We are engaged in a massive battle for control here between central banks, the structural problems in the global economy and now a crisis that has popped on the scene out of the blue.

Markets may appear to be in panic mode right now, but that doesn’t mean we need to be. Rather our job is exactly the opposite. To keep calm and not lose sight of the bigger picture, and most importantly: Not lose sight of the technicals as they help guide us through this mess.

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