With tomorrow unofficially being declared as “who gives a shit other than everyone on the planet” day in the Eurozone, one thing we can expect is a lot of money floating in and out of the market. Some of you know that I can be a fan when it comes to trading volatility: it's the impatience, speed and forecasting the trainwreck of human emotions that always get me.
While I plan for days like tomorrow with chunks of caution, I'll say that many of my actions are usually spur of the moment. Risk is lowered and phone gets turned off….locked and loaded, ready for dopamine. It is the only time I am allowed to come close to being a cowboy so I mine as well enjoy it. While it might sound like a rookie thing for me to say, I could care less…..this job rarely comes with glamorous enjoyments.
The ultimate question tomorrow will be: Can European leaders devise a plan that will adequately restore the market's confidence?
In other words, will we see a replay of the same old bag of tricks or can we expect a new European pyramid to take over Santorini?
Scenario 1: The move doesn't immediately make “sense” following a positive result…and by sense we mean the textbook definition
If an ultimately positive result for the Eurozone is immediately thrashed by sellers, the first reaction is to look for a place to line up on longs. Looking for levels of heavy touted order flow below the current trading price at the time in order to assess potential areas of entry for a longer term movement.
Scenario 2: It's just ugly
Don't look for much upside even on a “false” move. One hard push and its gametime. Selling is selling.
Scenario 3: Positive, unique result with far-reaching and beneficial outcome
Longs have been piled on over the past few weeks, and recent order flows have indicated stops above current levels without too much in the way of pressure from offers above. The road is generally pretty open to the upside, with targets back into the base of the last major consolidated range. The 1.4000 handle has been the only one contested, though I'm quick to be skeptical on that point. The 1.3940-1.3960 spike base has, as usual, been a formidable contender of resistance.
Scenario 4: Everyone is confused over what these leaders have actually devised
Whipsaw, into and out of heavy order flows, but I suspect a general direction is going to be declared at some point.
How long is this move going to last? That depends on the severity of the outcome. This meeting truly is the largest “coordinated effort” (and by that, we mean first time they have all gotten together, in strong fashion, to actually come up with a full plan covering the largest scope of this crisis), so the hype is present. It is also the one that has been presenting a much higher degree of speculation in terms of what is going to actually happen.
Scenario 5: Soft language or more stalling and everything is a wash
Pack up your stuff and do something productive
Trading volatility, I have a few rules:
1. Let the dust settle down and chill out before making any (genius or stupid) decisions
2. Lower risk so you can still go home a happy camper, if you do take a spankin'
3. Just do it. Intuition can be a powerful thing
4. Be patient after execution….”splash” beyond your levels is common if the market is racing. Comes with the turf.
5. If you're wrong, don't do anything that could possibly make it worse
Current touted flows a la MNI (but some of course will change for tomorrow):
And the JPM G7 Volatility Index, hankering for revival:
….and one final thing: if you can't figure it out, don't trade it. Soak it up and add it to your pile of behavioral charts. If the moussaka does happen to hit the fan it is not for the weak-hearted.