Lucy Van Pelt Market

At least once per year markets across the board for some reason flip into a sideways high volatility period I call Lucy Van Pelt mode. No matter what sectors you’re trading, no matter what symbols or what systems. You’re going to get stopped out. Not just once or twice or three times, but repeatedly and within a very short time period. Which is exactly what happened to me over the past few days. It’s frustrating but instead of getting upset I prefer to simply address the problem at hand. Which is me of course.

Quite simply I need to reduce my trading activities until conditions change for the better/easier. Nobody forces us to trade after all. And the longer markets remain in this whipsaw mode the less of a chance for a directional resolution. Of course that doesn’t mean we won’t see a further increase in volatility – I did already cover that yesterday. If you look at the hourly panel on the E-Mini then you’ll notice that our Bollingers are squeezed pretty tight. And that usually is a precursor to big moves near the horizon.

The issue at hand is that the long side still overwhelmingly has the odds and while I’ve written this post the E-Mini has already pushed higher into ES 2415. The short side is not an option and it’s a bit late to get exposed long for a second time which doesn’t leave me much of a choice. For now I’ll simply have to wait things out. By the way if you are still long and holding then congrats and do absolutely nothing – let it play out.

A short position here below the highs may appear juicy especially with the VIX so low. However there is little technical justification for short positions in equities right now plus there’s my complete lack of confidence in the bears’ ability to even marginally slow down this run-away train. Sure we may get one or two sell off sessions but yesterday’s instant reversal teaches us that it was either EOM rebalancing or simply a good old fashioned late stage shake out.

Besides my VIX momo chart above still shows us in easy time (see green sections) and that means the bulls are running the show until further notice, irrespective of opportunistic and quickly reversed stop runs.

SKEW:VIX tells a similar story – we are nowhere near a sell threshold. By the way I’m pretty elated to see how nicely this ratio nailed the previous medium term lows. The little remark I added to the chart as a general guideline however rings double true in conditions like the ones we are in right now. Throughout the past few years market lows have been a lot easier to anticipate than market tops. And lacking any convincing evidence to the contrary I have to continue looking up, all market rumors, political brinksmanship, or perma-bear predictions to the contrary.