A Market Looking to Eat Your Lunch

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It is often said that the market is a brutal beast that makes it tough for you to become wealthy. However, during sustained uptrends quite the opposite is usually the case. In fact, there can be times when the market seems, if only for a bit, downright easy, like a cute little piggy bank dispensing tens of thousands of dollars to nice passerby’s. Unfortunately, that scenario has very little to do with the current market, and for much of 2011. Although we have seen sporadic periods of decent trading this year, by and large the going has been tough with plenty of headfakes in both directions.

Currently, the volatility index (VIX) is stubbornly holding just above 30. Generally speaking, when the VIX holds above 20, and especially 30, for a long period of time it makes swing trading far more difficult, and capital protection should be focused on more than capital appreciation. The increased volatility is usually a function of extreme uncertainty, and violent indecision tends to favor the bears, or at least it makes life that much more difficult for bulls. If anything, timeframes should be shortened considerably for trades. Even with the progress made by the bulls in recent weeks, the large gaps up and down seemingly at the beginning of every session keep me trading relatively light, buttressing positions with heavy cash.

We are doing well with some individual trades inside 12631, including the ERTS position I initiated yesterday, #TIMESTAMPED in our chat room (No McCOOLah). All in all, though, we are very likely going to need to see volatility abate in order for a sustained uptrend to have a chance.