Friday, October 3, 2014

Scary Moment

Yesterday, for the first time in quite a while, I had flashes of that last scary moment.  Yes, the flash crash.  It was a day I remember vividly, because I was long ES as the market was plunging the depths.  I took a hit that day, and that experience was seered into my brain.  Yesterday, in the middle of the day, after a weak day previously, it was normal to expect some chop and a bounce, but we got a chop and a plunge.  It was quite the vicious plunge because we went down about 10 straight points on ES within a few minutes.

I am sure there were a bunch of stop orders set off and risk management departments reducing risk exposure.  Oddly enough, the VIX didn't spike much.  In fact, the VIX has actually been lagging the last two days.  Previously it was acting quite strong, now, its acting quite weak relative to the S&P movements.  It does tell me that those who want put protection have mostly bought it, and aren't willing to pay up much for it any longer.  As I stated before, volatility has been overpriced for quite some time, and only recently has it actually paid off.

Nonfarm payrolls should be a non-issue, it hasn't really mattered for stocks for the past year or so.  ECB did what I expected of them, yet for some reason, a bunch of hopeful longs in Europe thought they would launch full blown QE.  That is not going to happen for a while.

We got the V bottom flush out that I was looking for, unfortunately it was a day later than expected.  However, the long side seems to always be forgiving to dip buyers.  I am waiting for higher prices to unload my long inventory, perhaps on Monday.


ArkhamB said...

So you took 30+ points of heat on your position and didn't budge?

Market Owl said...

I had a position size on where the thing could go 40 points against me and I would be fine. Now if we went down 100 points, a different story.

Those that budged were the ones that were overleveraged and puked out into the hole. Stops are killers of profitability in trading. Sure, it prevents a big loss on an outsized move, but for equities, it usually just leads to being shaken out at the wrong time. This is especially true if you are long and stopped out.