27Mar12:34 pmEST

Ration Your Trades, Too

For most market players it is likely correct that when the VIX is, still, this elevated above 20 we should strive to blunt the frenetic pace of the price action and general vibe in the Wall Street air by reducing trading volume and/or position sizing. Although it may initially feel "fun," the reality is that these types of markets, sadly, mark the bitter end for many a trading portfolio with respect to the capital base. As a result, these violent overnight gaps in both directions become mere annoyances rather than fatal blows to capital. 

Regarding today's price action, since the opening thrust lower we have been frozen by an intraday stalemate between buyers and sellers with $185 on the QQQ ETF providing excellent context should we get an afternoon secondary wave of selling. 

Some of the "junk" names which led the rally earlier this week, such as CCL NCLH RCL cruise lines, are down in the 16-22% range on the session and in danger of rolling back over to retest recent weeks (which would be quite the drop given their sharp squeezes). Airlines, casinos, and restaurant stocks are also getting hit after their own squeezes this week, though not quite as much en masse as the cruise lines. 

Still, the randomness of the price action ought not come as too much of a surprise.

Why, you might ask?

Well, consider that the market is a function of emotions in aggregate at any given moment. If indecision regarding when the world's largest economic superpower will re-open after a multi-week lockdown, then we must accept the violent indecision in price fluctuations which, practically by definition, will feature random swings with little rhyme nor reason. 

From this market quagmire ought to emerge opportunities, though. As an example, Blue Apron seems headed to the Pink Sheets, but now APRN is back with a vengeance and is acting well again today. Meanwhile, massive, international brands like Disney were riding high on the hog until the pandemic emerged. Now, I expect DIS to struggle mightily in the coming years and likely be forced to slash ticket prices for their parks to try to lure reticent consumers back in to attain previous numbers of visitors. 

Overall, it seems too many market players and pundits alike have become so infatuated with whether Monday's lows on the indices are good lows that it may serve as a counterproductive distraction from analyzing whether the various stocks and sector are, in fact, improving below the surface. With the jury still out on that latter issue headed into the weekend, I will keep rationing my trades. 

Going Through the Cycle The Silent Invader (Westingh...


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