"Vol Is Not Going Away" - Trader Warns "Time For An Entirely Different Game Plan"

Apple crapped the bed last night after the close and spoiled the short-squeeze party but overnight jawboning (noise) suggesting progress on a US-China trade deal has prompted that to all be forgotten...

When we went to bed, assets showed little propensity to do anything with a reddish tinge. We wake up to screens that are awash in green and everything is awesome.

Now, as former fund manager and FX trader Richard Breslow notes, make a note of how assets responded. It’s a crib note for what to do as events develop. And should put paid to any arguments still floating around that a global supply chain under threat is a manageable and, measurable down to the basis point, economic event.

Via Bloomberg,

The moves today have been very impressive. Especially in Asia. But if you look at the intraday charts the speed of the moves pretty much means you either had the position or didn’t. There wasn’t any two-way business going on as the markets mostly repriced in a digital fashion. I can just imagine the witty repartee as clients called to ask where they got done on their stops.

This development does matter because it so clearly isolates one event from everything else going on in the world. Buying and selling plans need to be made at a different price than planned when you mapped out a post-non farm payroll or pre-midterm strategy. With the added complication of having to decide if you believe the world has indeed fundamentally changed.

  • No one is talking about the Mexico City airport or today’s horrid Italian manufacturing PMI.

  • Suddenly, the economic fundamentals in Turkey are of no import as the currency not only has made a new high for this move, but is putting some serious technical hurt on the shorts.

  • And I can’t find anyone this morning saying equity price action reminds them of 1987.

The offshore yuan has wiped out a month of steady gains for traders who had been comfortably short, certain that the stops at 7 were guaranteed to be triggered.

They now have to contend with USD/CNH breaking two levels of support -- the trend line at 6.89 and the 55-day moving average at 6.8840. Not to mention that the currency pair failed right at the 21-DMA when it was rallying before the news. You absolutely must keep your eye on how China trades in the immediate term. It’s too important not to be on your must-watch list and will drive many other trading memes.

When markets gap reprice like this, it’s best to give your technicals a little room to breath. With that in mind, the dollar index is back to testing support at 96. It’s a big level with chart points littered all around it. And whether it holds or not could very well define the low or high of the trading range until the next seminal news hits. The index has been very well correlated with USD/CNH.

Lots of assets seem to have headed straight back to previous breakout levels and you must check the charts to validate your working assumptions. Of note is the S&P 500 futures that got right back up to the 200-day moving average that was of such note on the way down. Made all the more relevant as the 21-DMA has chosen today to cross below that longer measure

One thing is for sure. These prices are not stable and volatility is not going away.