Frustrated and Reflective

How does it feel position/swing trading the action out there? Daily triple digit reversals, market speed starting to force participants’ hands, spurring reactions to reactions to overreactions. Throwing on longs and baskets of longs only to be stopped out the next day, only to reenter the following day, etc… Shortening of time frames to 1-2 day holds. Scouring charts and scans for setups to yield sustained directional movement (can’t position/swing trade without sustained directional movement). For me, having a short bias on the month of May  since mid-April, shared some compelling short market entries and individual setups, and thus far have underperformed by shorting some of the wrong stuff; commence chop. Note to self: choose better short setups, or better yet, short the damn index.

So how do we view recent price action going forward? Here are some lingering reflections to consider:

• Monday, in hindsight, was a gift to sidelined participants waiting to get short (that few, if any, took advantage of). Did participants chase this Tuesday move down to initiate shorts? The midday reversal in the Russell was ugly.
• If the indices are selling like this with oil trading up, what will the market do when oil trades down? We know the correlation between the two has been high of late but not today. What happens when Canadian fires and Nigerian supply disruptions disappear from the headlines? Crude is overbought staring at $50. Folks seem convinced we tag the $50 mark before any sort of retracement. Kind of makes me think we come up short of the mark. Given the crude ascent, tomorrow’s inventory number will need to be flawless to maintain this run. What about the correlation between $UUP and $USO?
• Note the nature of this price action on this multi-week pullback in the indices. Following the mid-February through April thrust higher, what does the slow motion start to this pullback do to market participants? It causes those who are long to hold through the seemingly benign price action, watching in slow motion the drip-bleed. Longs are slowly walked down, fairly unphased, and lulled into holding or even adding to longs. Recently, speed and volatility has started to budge. At some point, the severity of pain escalates to increasingly filter out participants, and release that supply/volume that held on through the early slow phase of this pullback. Within this logic, there’s a flush lurking that’s used to purge the remaining clingers before resetting the bottoming/accumulation process. Looks like this plunge will be through the neckline of the head-and-shoulders patterns developing on the indices. Increased speed and volatility will release that supply into the market, remove longs from their shares, and lead to lower prices.
• When the narrative deems necessary, ever-present headline risk warrants credence through market price validation; otherwise, no one would pay attention. Look at how Fed heads’ jabbering affected trade today.
• Last thought/question: Who has more to lose at this juncture, bulls or bears? The camp with more to lose and caught leaning, will get poleaxed.

Conclusion: Better prices are coming. Stay nimble.