Based solely on the volume of SPY and DIA, today set another record for being the lowest volume of the year.
There are some more sophisticated explanations for the dry up in volume. For those that follow the Zerohedge blog, the author argues that a potential liquidity crisis is coming to the market. The volume dry up would be compatible with that conclusion.
Perhaps the low volume can be explained as indecision. Perhaps everyone is waiting to see what earnings look like. Perhaps it is a sign that the run up is running on fumes and that it is about out of gas save a catalyst.
With all of this in mind, be prepared for a big move. I think from the indecision will flow a substantial move, a return of volume and volatility. Put another way, I can’t imagine being heavily long or short right here because the flood gates could open up at anytime and anytime is likely sooner rather than later. If volume stays low when earnings start rolling in (which is unlikely), that will be noteworthy in itself.
I’m trying to respect the view of some traders I respect that gold is a good long right here. When I look at the short term chart, all I see is a break of support at $88. I’m just playing the line at $88 with a stop between $88-$89. We got close to my stop today, and I shorted some more GLD. From a technical perspective, does anyone see GLD as a long play (short term)?
I got stopped out of my FXI short today. I’ll be watching this has a potential long play. I’m still skeptical but if the volume comes back and the market is moving upward this might be a place to get in.
NetEase (NTES) is good looking China play.
This just broke out above its all time high. Volume also looks good. RSI is over 70 which means there should be a good chance to get into this closer to $27 on a pullback.
My apologies that I keep mentioning DBB, but the base metals were humming again today on strong volume. Wish I was in it.
Perhaps the run on the hard metals is linked to a sickly looking dollar chart.
Today’s trades:
- Added more short SPY. My SPY short is now shorted at an average price of $81. It is a huge position for me. Note I am very much hedged. I need a lot of SPY to counter against a high beta junk longs that move 4-5x the market at times. I really like shorting SPY at 850. First, the 850 zone itself has been a magnet for price and is a decent spot to short against and manage risk. Second, I like the resistance at 880. So even if you miss at 850, there is a good chance of the wall holding at 880. Even if the market ultimately goes higher, there is a good shot at these levels of the market testing 800 and working off some of the momentum (a cover some short opportunity) before it goes higher.
- Got stopped out of FXI
- Rather than shorting more to achieve my desired delta, I sold off GNW and ALU.
- I was trimming my junk longs all day. If the market turns south, my junk longs will get murdered. I’m making sure that when the music stops, I’ve already got my profit on these guys. In fact, I’m starting to get to the point that my junk long portfolio is becoming obsolete. If the market does continue to rally, I would expect my new buys to be higher quality names and setups. For me, the junk long strategy has been great and I’m hoping that I’ll get to use this strategy for a while longer. If the market goes back down again, I could potentially reload some of these that I trimmed and of course add other junk longs. I’ve noticed that recently I have not had the opportunity to add any new junk longs.
