Traders that are able to adapt to the ever changing market conditions are poised for profits.
A year ago, equity traders were chanting for volatility in the markets. Their prayers have been answered. For the past month, hundred point swings in the Dow Jones Industrial Average have become commonplace and key S&P 500 levels continue to break and hold.
The bearish sentiment that was closing in on the market has all but evaporated and most traders are looking to ride the bullish momentum into the end of the year.
“Funny how quickly sentiment changes in today’s markets,” Sean McLaughlin, independent trader and editor at StockTwits, told Markets Media. “Just over 10 trading days ago traders were stocking dry goods as they awaited the collapse of modern finance. Today, we look at markets that are dancing around being positive for the year.”
But McLaughlin warns that the volatility that has permeated the marketplace for several weeks is set to diminish as the VIX retreats from its current levels.
“Short term odds favor a pullback, or at least a muted resting period after such a pronounced bounce off yearly lows,” said McLaughlin. “And with VIX starting to show signs of retreating, signs point to a market that is tired of volatility and seeks to find a comfortable level and pace.”
“Of course, anything is possible and the best stance for all market participants in this environment is to practice restraint, play steady defense, and wait for setups to prove themselves before wading in,” noted McLaughlin.
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With Eugene Kanevsky, James Redbourn, and Joanna Wong, CLSA