Trader: “More Interest In Fading These Moves As Overdone”

Authored by Richard Breslow via Bloomberg,

Some days it’s best just to let things play out for a little while. Economic numbers that came out overnight haven’t hurt. Very dovish comments by a senior Bank of Japan official. Upbeat comments by the governor of the Reserve Bank of Australia. And then the big one, hopeful comments concerning potential progress in dealing with the virus outbreak. And the market has taken off. Given the impulsive, explosive, nature of the move, which came mid-morning during the London session, a fairly steady, mildly corrective day for risk was sent galloping higher. The reality is, you either had it or you didn’t.

There was no trading this move. Your only choices now are to go with it at what looks like very heady levels or fade it. An hour after the market got turned on its head, neither seemed like an easy and clear choice. Once the price action unfolds and news is digested it will be claimed to have been patently obvious.

Just listening to the chatter, however, there seems to be greater interest in treating the moves as overdone. There is not a great deal about the pressing of bets. Further indication that this caught traders by surprise and ill-positioned. Should the market give back some, or even all, of its newly found gains, resist the notion that it was motivated by profit-taking. These are likely to be new speculative positions. Which is fine, there is no intent to stop anyone from trading if they want to. But have stops in mind, so any squeezes are manageable.

Things seem to have settled down and moving into a holding pattern. European traders would now like to see how their North American colleagues react as they begin to settle in. They will have to evaluate for themselves the relative merits of the headlines and asset prices they went to sleep with and the new ones they have awoken to. That might be the best guide to what the next market gyration is likely to be.

You don’t need to deal only at extremes to make a really good trade – if it’s right. And so far, the price action is still warning of potential trend days. Meaning, letting it do something wrong first before counter-trading the move increases the likelihood of success. And if you were caught the wrong way around, it will be scant consolation, at least for the moment, if you think all this was an overreaction.

I was planning to write about some new developments on international trade being prepared by the U.S.. It’s a new development that the markets probably won’t like. Certainly not those overseas. Here we go again? But given where attention is likely going to be focused in trading rooms, it’s best to go with the famous adage, “tomorrow is another day”