Equities closed September solidly in the red, as was suggested by our monthly statistics that I posted here early in the month. Of course nothing is ever chiseled in stone in the world of trading. But the odds are the odds, and until my crystal ball is back from the shop that’s what we’ll have to content with.
Recently I’ve talked a lot about implied volatility, mean reversion, linear regression, and other exotic topics. But there comes the time when you simply need to take a step back, clear your mind, and just look at the situation from a very straight-forward and practical perspective. So let’s channel our inner Steve Jobs (yup fan boy here – bite me) and look at some basic price charts:
Barely two weeks ago when Bitcoin was trading at $53K I got a few messages from people telling me they should have bought the dip and of course now they had a bad case of FOMO-21.
Last week I posted a veritable PhD dissertation on the VXX (j/k) which, despite my efforts to spiff it up with my notorious teutonic humor, remained relatively unnoticed. With retail gobbling up put positions with both hands as usual, it appears the most important volatility event of the quarter once again has been largely ignored. Fortunately a handful of intrepid IV aficionados (a.k.a. option traders) managed to take full advantage of the situation.
The VXX ranks amongst the top most hated ETFs of all time and it has retained its bottom of the barrel reputation since its introduction in 2009. It is despised for many reasons but mainly because it’s a terrible investment on a long term basis due to its factory installed value leakage. This is courtesy of the fact that it’s tied to the value of the SPVXSTR index, which in turn tracks a pair of VIX futures contracts.
I just finished an RPQ video on what the crypto market is up to (upvote and subscribe!) and shifting my attention over to stocks I can’t help but notice that there increasingly appear to be some similarities. Interesting times make for interesting market correlations I suppose.
I’m going to give you the quick and dirty on what matters this Friday. Price always matters of course but since we’re heading into a quadruple witching after two weeks of sideways churn institutional traders are now faced with a dilemma.
If this market is freaking you out a little right now you are in very good company. Yes I’m talking about myself of course but my lack of modesty comes with a disclaimer: Unlike most of the muppets drawing lines on charts I have evidence to back it up whereas the retail brigade is eternally focused on the rear view mirror, a.k.a. historical price or volatility.
One single overarching characteristic that separates seasoned traders from all of the noobs and spectators is that they have grown to be a lot less reactive to market events. This applies equally to large and sudden moves to the up- or downside. The market has a knack for pressing our collective buttons but once you’ve been around the block a few times you start to see a pattern and like a seasoned poker player you begin to recognize a few tell-tale signs that monkey business may be afoot.
Convict Scott here. Alt season is upon us, praise all the various Gods. I’m generally happy with 20%-30% a year in my “real trading”… but 20%-30% a week is absolutely possible during alt season. So how do we know it’s time to bank some serious coin?