Scary market

C

Cutten

I have to say, I traded through 9/11 in Europe when the Dax fell almost 20% in a couple of hours and New York didn't even open, people thought WWIII might be starting, but this market is actually more scary. Right now I have 98% cash, and 2% in some Oct and Nov puts at ridiculous strikes (700-800), that's it. We saw co-ordinated cuts, the market pops 60 ES points on globex, and just a couple of hours later it erases the entire gain.

I had thought the lows were in early this week - all the pieces were in place for a normal low. The only condition that wasn't in place was the one you only see in a true crash i.e. we had not yet had a 1987 style mega-crash/capitulation on historic volume, where disorderly trading takes over, you see execution delays, fucked up quotes and people thinking the whole system is bust. On 9/11 there was a point where there were no bids in the European market for a few seconds, bid/offer spreads on the Eurostoxx were 30 points (1%) wide and it was trading 20-30 points at a clip. I have a bad feeling we might need to see similar today/this week before it's all done. If that happens, we could actually see a repeat of 1987 - S&P down 20-30% in one day, to 700-800.

As I said, I have no real conviction in my views right now, I also got things badly wrong yesterday, hence the ultra-defensive positioning. Survival is my main priority, but I think a little bit in long puts is worthwhile, and at the very least, have a plan in place for if we see a true historic meltdown.

One last thing - if this *does* happen, then there's a tactic you might want to use. During market crashes, John Templeton used to place orders at prices ridiculously below the current quote e.g. $1 for a $10 stock. I don't have a clue what is going to happen in the next day or two, but I think it might be worth placing a few "submarine orders" good-til-cancelled on your favourite blue chips & solid stocks right now. Just make sure they are at truly ridiculous prices, and don't do it on any stocks that could conceivably go bankrupt.

That's me checking out - see you at the closing bell.
 
Would trades like those get busted these days, though? I thought they're fond of busting all trades within a certain price range. I agree, scary market this morning, seems like thinly veiled panic.
 
I remember the price action on Bear Stearns day. The ES leaped down many points at a time to find the next bid. It was a pure freefall. I haven't seen price action like that since but I sure won't forget it. So far we have seen orderly selling. Once it becomes disorderly we're going into the abyss. Be careful out there.....
 
I love the market right now - the currencies that is. :)
No time for being scary pants... but applying your risk exposure to the market conditions - and playing it safe.

Strong volatility means that technicals are useless, and you need to shorten timeframe for detailed trades.
Also - a lower risk exposure and longer timeframe also works if you are very well informed and understand the economics.
Low risk and little leverage means you can withstand the volatility - or else you need very short timeframes for the volatility.
 
I believe the Fed annoucing they will became the financial system clearing house and guarantee interbank lending and other transactions is probabily imminent. That should prevent a crash
 
Well we had a big opening gap down and a strong rally from that. This could develop either into a huge rally or a reversal and a huge crash, but is unlikely to just range around.

How to tell which? I think the important thing is look how the market reacts on pullbacks and bounces. For example the market has bounced hard so far, if it holds a higher low and then breaks the recent highs, then that would be the first bullish sign. A pattern of higher highs and higher lows developing would increase the odds that we've bottomed and will see a big rally day.

If this bounce is just another failed rally attempt, then we should see the market start making a pattern of failed breakouts, lower highs, and lower lows.

If a true crash is on, then it next has to break the opening lows. If it goes significantly below there, then there is no support and with the current mood, market tone, and fundamentals, there is a serious possibility of meltdown.

The first day after 9/11 in 2001, the S&P gapped lower, rallied up a fair bit, then turned down, broke the opening lows, and after that it was carnage. So if that happens today, be very careful.

It's exciting times, that's for sure.
 
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