The recent volatility in the markets has been phenomenal. This apparent surge in volatility truly indicates to me how fragile the economy is at this point. Many traders believed the FOMC in its latest meeting should have cut rates to help the very sluggish housing sector and the mortgage industry’s present credit crunch. The recent avalanche in the stock indices and metals certainly has the trading industry spooked, and has caused them to make the required adjustments to protect their portfolios. Many traders are sitting on the sidelines, perhaps looking for further support that may come from the Federal Reserve.
Traders have seemingly been liquidating positions in various commodities and transferring monies into other assets such as their stock market accounts to cover margins. This selling pressure has caused a domino affect in many markets, including the precious metals and grains to name a couple.
The professional Gold trading community has seen this type of volatility before and hopefully has learned to adapt to this type of market condition. Most experienced traders recognize a herd mentality when they see one…markets involving portfolio, public, and hedge funds all trying to liquidate positions at once creating an avalanche affect on prices during which experienced traders back away from buying. When floor traders and other professional traders are unwilling to confidently bid or make tight markets, the avalanche will continue until a support level is found.
As a trader you desire volatility and volume. However the recent volatility requires hedged positions and the willingness to take profits when presented. I have a feeling the volatility will be around until the FOMC cuts rates. Those who read my blog will tell you I have been concerned about the foreclosures and suffering housing sector for the past six months.
I have a limited supply of FREE option strategies booklets if anyone is interested.
There is a risk of loss trading futures and futures options.