Former trader Richard Breslow is out with his final missive of the week and it’s a good news/ bad news affair.
Let’s start with the bad news (because that’s what we tend to do here at HR and there’s no need to break with precedent on Friday):
- the news flow is terrible and there’s a palpable sense of panic
Of course the bullish among you will scoff at that because although we have indeed seen some red this month, we’re sill sitting near all-time highs in equities and post-crisis tights in credit spreads. So maybe “panic” is needlessly hyperbolic.
But remember, it’s all relative these days. You can’t simply continue to persist in this idea that because we’re near all-time highs, nothing short of an outright catastrophe can be described in dire terms. If that’s your position, then what good is analysis? As long as there’s not a 25% one-day decline, then all’s well? I’m not sure that’s a useful way to think about markets.
Now here’s the good news from Breslow:
- markets are acting orderly which, in no uncertain terms, means you can get out of Dodge if you need to
More below…
Via Bloomberg
The news flow has certainly been ugly. And like a disease, it seems to be contagious. In recent weeks we’ve seen worrying symptoms in just about every region around the world. And there’s a commonality in the inability to have any empathy for the other side of these varied conflicts. Wholly justified in some cases and malevolent in others. Which shows you, I’m just as prone to it as others. This manifestation of intransigence magnifies the uncertainty of it all. Which makes it all the more scary.
- Yet, bizarrely enough, while markets have most assuredly taken note, the response so far has been remarkably orderly. If you’ve been on the wrong side of things, your stops (you did decide on where they’d be, didn’t you?) got done with normal and minimal slippage. And it doesn’t matter the asset. Trading has been orderly and continuous, even in markets that are trying to reverse trends. Including around price points that were obvious resting spots for stop-loss orders
- Whether getting in or being taken out, what traders need in order to have any confidence or composure is markets where the next price after two is either one or three. Then all you need to worry about is your risk management judgement
- The reason events like the Swiss ceiling removal will remain in the lore of foreign exchange markets isn’t really the enormous size of the move — it was the gaps. It’s also why so many people are quick to check the end of weekend Wellington opening to see if they are going to need proxy hedge pronto or can go back to the game
- Yesterday’s move in the S&P 500 was big, but only by current standards. Is it the beginning of a huge trend reversal? I’ve no idea. But even if you used the 55-day moving average pivot as your get-out trigger, there was plenty of trading and liquidity along the way. It was a classic market-profile trend day, not the static, gap, static moves we’ve become accustomed to and hate
- It was also quite interesting that volumes were close to, but nevertheless below, what they’ve been running at since the last meaningful move in May. How today’s volume compares to yesterday could possibly be a useful indicator of how things play out in the short run (I’ll let you know next week) as you would historically expect if this was the beginning of a panic, rather than some welcome two-way movement, to see higher volumes on successive days
- If we do start lower, it’s important to ask yourself what are the safe haven ports to head toward? They’re not as simple to identify as it’s made out and have as much to do with positioning and likely impact on relative rates as any notion of being out of the line of fire
- When I read the news, I’m willing to feel some panic. But so far the markets have taken all of this with admirable aplomb
