Home > Lessons from the trading floor > Coming out of the eye of the Storm

Coming out of the eye of the Storm

It looks like we came out of the eye of the storm and got hit by the tail of the storm. Friday, after the vote in Congress, proved to be the start of the only decision money managers were able to make: “sell” and ask questions later.


The end of September also brought the end of the quarter so plenty of redemptions occurred in the Hedge Fund as well as mutual funds as people got end of quarter reports. If you combine all these factors plus the long delay in getting the package passed, you get the traditional reaction of ‘too little too late”.


With the VIX above 50 fund managers are having a hard time justifying buying equities even if their models show value. In reality they may be forced to sell what they believe to be bargains due to redemptions in their funds. For now the market continues to see an expansion of volatility, which usually leads the markets to breaking to new lows and retesting them a few times before a bottom is formed.


The whole globe is undergoing a deleveraging of its financial institutions, which has resulted in a very tight credit market. For now that seems to be the biggest problem for the markets. Large Corporation are not able to fund day to day operations because banks are not lending to them, and they can’t sell short term commercial paper. Now banks are also not lending to each other, so a complete freeze in liquidity is impacting not only corporations and banks, but also individuals. There has been plenty of talk about people’s credit lines getting reduced and even cut, that in turns impacts the main street economy. These are the realities we are looking at.


For the intraday traders at Keystone these times have been full of opportunities as well as great days to learn. Traders have to be on their toes at all times due to the larger than normal reversals we have been seeing. This is perfect for learning a stocks’ range and how it can impact your risk tolerance. If the variance or range has increased a trader needs to either adjust size in order to control risk, or look for a stock that is more in line with your risk tolerance. A good trader adjusts to his or her market conditions. At Keystone we have consistently reminded traders of the different conditions we are trading in right now, traders need to be aware of the environment and recognize when not trading is a good option.



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