Overnight markets were hit quite hard with the Nikkei down more than 4%. US markets were able to regain some of the losses occuring during Monday’s session as volume fell considerably across the board. Today’s lack of buying conviction does not come as a surprise as many traders are licking their wounds after getting punched in the gut Monday. Today’s positive close does start the follow-through day count at one. Given the data intensive week anything is possible for a newly confirmed rally to occur. This market is far from out of the woods and while we are in a downtrend things can change course. Be prepared with a sound process to take advantage of the opportunities that lay ahead.
An interesting move today was from VIX and its tracking ETFs. Just looking at the data VXX and others do not do a good job of tracking the VIX. Considering the VIX mean reverts the constant churn of the VXX decays the value of VXX and other long volatility ETFs. One only has to take a look at a chart of the VXX and see over time the ETF decays in value. However, recently we have seen the tracking index stay ahead of the VIX. Most notably today when the VIX was down roughtly 13% VXX was only down 2.44%. Typically the opposite occurs where the VXX severly underperofrms. What does this mean? Nothing, just a notable observation while we are in a downtrend and until our situation changes the direction of the market is all we care about.
As this downtrend unfolds we’ll continue to proceed with our time tested process. There is no need to go ahead and make wholesale changes to what we know works. Stay the course and stick with Big Wave Trading. Shred this market.
