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Random Thoughts: Volatility is the Opposite of Liquidity


It stands to reason that during periods of increased volatility, we should trade smaller inventory with less leverage.

  • See the Art Carnage in the metal equities. We sensed yesterday that there was some forced selling in the space and the action today (XAU -7%) seems to support that.

  • Indiscriminate selling is the textbook time to rescue babies from the bathwater.

  • I don't know where it ends (invisible catalysts are tough to game) but, with a long-term lens, I continue to believe that energy and metals will be relative secular winners.

  • BKX 101.50 remains an important level of lore for the "double bottom" crowd.

  • S&P 1375 (trendline) and 1363 (March lows) are other areas where the bovine will likely circle their spots.

  • I'm a contrarian by nature, which means that I like to sell hope and buy despair. I most certainly respect the considerable systematic risks -- we have for a long time.

  • I bought some inventory for a trade this morning with a stop below BKX 101.50. Not being a hero, just trying to use price to my advantage in the context of defined risk.

  • Be careful trading options as they're pumped up more than Hanz and Franz.

  • Franks and Beans? No, Banks and SOX. They've been trading relatively dry versus the rest of the universe and should lead the upside speed IF (big if) we reverse.

  • And yes, we're talking banks such as BAC, C, JPM, WFC and brokers such as BSC. NOT the new kids on the block, Blackstone (-6%) and Fortress (-6%).

  • Fortress, by the way, is now 52% off its high. We spoke about the difference between a good company and a good stock, particularly as it relates to the hedge fund game.

  • Man I'm busy--like shoveling water with a fork!

  • Remember that tomorrow's expiration will manifest today, which means increased volatility, both ways, as dealer re-hedge their short gamma.

  • Volatility is the opposite of liquidity. It stands to reason that during periods of increased volatility, we should trade smaller inventory with less leverage.

  • Over the last few weeks, we've been keeping close tabs on the Dollar-Yen. It's now starting to get loud in convention channels.So Bill Poole says the Fed will stand pat in the absence of a calamity? Such as, say, Countrywide tapping their entire $11.5 credit line? Or, maybe, systematic hedge fund failures? Credit seizures? Blood? Vermin? Locus? Darkness?

  • I mean, OK, I get that--I've always believed that the role of the FOMC was to buffer--not bully--the markets. But their presence has become entirely more proactive over the last five years, which helps explain the hole we now find ourselves in. But alas, I digress.

  • The Answer I really wanna know is this: Given Poole's admission that the FOMC won't cut unless there is a crisis, doesn't that defeat the very purpose of the cut? In other words, now the Fed is really trapped for if they cut, they are admitting to a "financial calamity."

  • "Under Armour (UA) is a horse that may get whipped up if the tone turns for the better, and I am also stalking Mastercard (MA), after its tagging of 123 again, which is 360 down from high." Professor Jeff Cooper on today's Buzz (11:35 AM) (position in MA).

  • Man, I would love to see "bid wanted" situations as a sure sign of capitulation (and fade (read: buy) into that).

  • My chief beef with that scenario, however, is that the DJIA is still up 2% for the year and I'm just having a hard time saying the word "capitulation" given that stat.

  • Television's JeffMacke® makes a good point. The only way a correction can be a correction (10%) is if people believe there's more to it than a correction. Follow?

  • And yes, the S&P and NDX have officially "corrected" 10%.

  • The trickiest part of today's trading environment? You gotta buy (sell) when you can rather than when you have to. If your try to sell red and buy green, you're chasing the tiger by the tail.

  • Why is crude down 5% with a hurricane looming? Asset class deflation vs. dollar devaluation. Old hat for ye faithful.

  • Given unforeseen crosscurrents due to liquidations, interventions and expirations, the need to practice discipline is perhaps more pertinent now than during anytime in the history of the 'Ville. Risk is two-sided and tensions are high.

  • Be a Minyan. Make us proud.


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