FT has been trading full time from home for two years, with nothing but four kids and a beach to distract him .
He fills his spare time with weight training and rugby, though more coaching than playing these days.
FT mostly trades the forex markets and although he plays FTSE on occasions his bread and butter market is £$.
He likes to think that his technique is evolving but still hasn’t the temperament or money to back the big calls. He prefers to trade between 1 and 3 times a day, aiming to take regular small gains, but feels part of the evolution is in not dealing if the conditions don’t feel right.
VIX Fear Index Boosting Equities
Hi folks,
Hands up who stayed up for last night’s vote? I’d committed to a 12.30 vote, but the threatened 2-3 o’clock in the morning sent me packing. In the event going to bed was a good move as all the action had been in the run up. Today I’ve tried to address the balance of my bearish ranting with a chart that’s getting a few traders all bulled up. And look at that Dollar go; it’s screwing commodities something rotten.
I’ve got a lot of faults (just ask the missus) and one of them is that I always overrun my bearish view. I’m still bearish, despite the likely prospect of the bailout vote being seconded tomorrow, and that’s why I’m trying to give more time to the bullish view at the moment. There’s a lot of clever people out there; they can see the economic situation as well. So I want to see what’s making them buy equities. And here’s one reason a few traders have been getting excited:
This is a chart of the Chicago Board Options Exchange (CBOE) Volatility Index (the VIX). The VIX is known as the ‘fear index’; it’s a measure of volatility and usually reaches extreme highs when we’re scared witless about how far equities will fall. The bit that’s getting a few people worked up is that historically the VIX doesn’t stay at 40 for long. The last time was in 2002 when we were in the final throes of the ‘dot.com bubble’. This was the point where the UK’s actuaries were forcing pension funds to switch their equities into fixed interest. Check out the chart below:
The last time the VIX was above 40 the S&P 500 was around 800; since then it rallied 750 points (it’s now given back 400 of those) and the move started pretty much when fear was at its highest. Now, to me Monday’s panic sell-off didn’t feel like the capitulation move, possibly because it was after hours so the big institutions didn’t get involved. I’ve got the experience (or handicap) of remembering the 2003 capitulation in the UK (yes, we were behind America with that as well) and at that time fund managers were panicking about all equities, not just banks.
Anyway, I’m still bearish, but it’s food for thought. So come on, what’s the general feeling out there? A few traders regularly post their views, but it would be good to hear from a few more bulls. The open positions on the Home page suggest a lot of you are happy running the long bet, so let’s hear the arguments in favour.
Another of my faults is that I type slowly; FTSE’s off over 100 points since I started!
Happy Trading
October 2nd, 2008 at 4:15 pm
hmmm. well, I’ve been - trying to be - bullish for weeks but it’s not done me much good…in all of this volatility as Gazza P pointed out a few weeks back perhaps the safest thing is to stay with the trend…if you can find it through the intraday noise. I’m still bullish on some equities - particularly some of the financials and some retailers. Not at all bullish on resource stocks though. Because of the resource stock weighting in the indices, together with the weakness in the financials, it’s hard to take an overall bullish position. Having said that some of my long positions in specialist equities haven’t completely been killed in the last few weeks. And if consensus says that we’ll get a relief rally after the vote on Friday (assuming the vote passes….) the economic realities will remain bleak. BUT it’s hard to see where else the money will go except into equities - I can’t see a lot of people wanting to take out long commodity bets given how badly the commodities have done in the last few months. And my big theme for at least the last three/four months has been to short the commodities. Once input prices ease, and demand slows, businesses have to restructure but there are also some opportunities I think. Interesting how the market reacted to Marks and Sparks trading figures today - it wasn’t quite as bad as everyone predicted, so they went up a lot…
Off out now to celebrate my four figure win in gold! Just left a small gold short running, have closed out the rest.
October 2nd, 2008 at 4:21 pm
cheers for that Flash, enjoy the celebrations mate.
October 2nd, 2008 at 4:53 pm
Yep, I like to keep an eye on the VIX and have a permanent tab open on stockcharts.com for this. What it’s telling me at the moment is that I don’t want to be opening any shorts and that I shouldn’t be feeling too queasy about my Oct puts written at 4000, 4300 and 4400, plus 1010 on the S&P.
I have another tab showing the McClellan Oscillator that is giving a similar message at sub -500 (in fact almost -750). When this turns up it will be a signal to go long, or at least to write a bunch more puts.
Here’s a slightly off beat view on the major currencies. I’ve got a holding in BH Macro and every quarter they offer an opportunity to switch between their dollar, sterling and euro fund. They’ve just released the conversions requested for the latest round (which will actually take place in the next few days). This shows
700K shares switched from € to $ vs 9380 the other way
1.4M shares switched from € to £ vs 2 (yes, that’s two) going into the €.
Pretty clear message coming through there then.
October 2nd, 2008 at 4:57 pm
And, in a typical piece of BBC economic journalism, both the World at one and PM have today run stories about investors flooding into gold to escape the turmoil elsewhere. On the day the gold price drops 4%.
Flash, you couldn’t ask for a better sell signal than the BBC saying evveryone is buying.
October 3rd, 2008 at 11:51 pm
Hi FT
my gut feel is that the DOW will go sub 10,000 before xmas - but will finish the year above that level - however for 2009 I think we will see some very nasty levels once the slow down bites no idea what will be the bottom probably about 1000/2000 points from today - long term i am thinking the financial’s that survive could become good longs on a major capitulation day- so I would be going long on JP Morgan/Bank of America
cheers S
October 3rd, 2008 at 10:43 am
Interesting perspective for me; I was pretty cynical of last night’s Dow sell off (”this is what you’ll get if you vote the wrong way”), so I used the sell off to close out my shorts. This morning, being flat, but with some sold puts, the market feels lousy. I guess it’s just nerves ahead of the vote. Spoke to a good mate in the City this morning and that just refreshes the bearish view over the longer period. But for now, tie me to the mast and don’t let me deal….
October 3rd, 2008 at 11:23 am
I’m long the dow but with 300 pt margin (!!!!) given how jittery things are likely to be this afternoon with payrolls. Wachovia/Wells fargo merger news seems to have brightened the mood a bit. I expect another gold sell-off if the vote comes good, but not particularly looking forward to 1.30pm. Financials up a lot this morning - resources stocks down.
October 3rd, 2008 at 11:39 am
noticable that the jerky mark up didn’t last long after bank news. I guess it’s holding in there, but i’ll wait for payrolls before doing anything.
October 3rd, 2008 at 12:21 pm
No accident that this vote is late on a Friday — they have the whole weekend to spin the fallback position before markets reopen. And you’ve got to believe they’ve done some serious “wargaming” on the Nay scenario.
Not a good weekend to run open positions over — although an at the money option straddle could work on the basis that the open on Monday could well be significantly higher or significantly lower but not something in between.
October 3rd, 2008 at 12:40 pm
Pretty muted reaction to some horrible payroll data - but I suppose no ‘worse’ than expected
October 3rd, 2008 at 12:45 pm
apparently the 50/- worse was ‘close to forecast’, which says more about the lower ranking on today’s news board.
Ken,it’s a long shot, but there’s a very outside cance that the Europeans agree on what action to take tomorrow. Nah, I don’t know why I even said that.
October 3rd, 2008 at 1:07 pm
If the EU summit goes to form then it will conclude with release of a statement describing a position of complete agreement.
Swiftly followed by the press conferences, in which each country’s representative will give completely contradictory interpretations of the statement and the actions that country will take, as they play up to their home audience.
Better off watching the rugby.
October 3rd, 2008 at 1:21 pm
you could - if you were a naive optimist like me - imagine a scenario where the bailout vote goes through, the europeans announce a ’stimulus’ package, swiftly followed within weeks by some rate cuts, and liquidity would return and the world might look like a better place. certainly the banks would have more guarantees underneath their toxic decks rather than being holed in the water and going down fast. That would give some breathing space to renegotiate some of their corporate business and makes some large cap stocks look moderately priced.
Amazingly the indices seem to be holding up - gold and oil on the way down, again.
That doesn’t mean that things won’t get worse - it’s just that I don’t think anyone’s looked at the potential upside of disinflation - overheads suddenly become more managable, even if demand is anaemic. Question is, will anyone have any cash left to produce or consume anything after this bout of extreme destruction? Consensus is that housing markets are utterly doomed but my call would be that there could be some sort of housing recovery underway in the US by the end of next year…
Certainly some trading opportunities in a bounce - I’m trying to position myself for the next 3 months - but may get absolutely caned in the process. Hence very small stakes and very, very wide stops!
October 3rd, 2008 at 1:23 pm
and as I type this I see gold is collapsing again. I stand by my predicton of $720 by the year end!
October 3rd, 2008 at 1:30 pm
Yep, the gold market’s still treating you well Flash.
I’ve been trading for quite a while now and I still haven’t mastered stops. I guess a wide stop in small size is OK, but I find the market has a stop sensor and seems to none in on the stop whereever it is. A wide stop on equity markets would likely have been triggered for a nasty loss recently.
still, you’ve got a few gains to play with from recent trades so congrats on that.
Just heard vote likely between 5-6 tonight. We’ll see….
October 3rd, 2008 at 1:41 pm
I agree about stops - the market has a nasty habit of sniffing them out, wherever you put them! What I’ve been doing over the last week is tentatively adding v small long positions in individual equities but leaving 15 - 25% of margin - expensive but the volatility is so extreme. The idea is to try to hold these for 3- 6 months. If I get a sudden move or I change my view I don’t wait for the stop to be triggered, but the idea is not to be stopped out before I’ve taken the decision to do so. But you need deep pockets for this - lucky I’ve done OK this year….!
Way up this week, despite all the volatility! So I’m sticking to the ‘naive optimist’ theme for now. As I actually do have time to keep an eye on the screen today. I think the risk/reward of getting some bold trades on in this market could just be worth it. However………………..
October 3rd, 2008 at 1:42 pm
Gold just reversed course…aargh!!!