During 4 of the trading days last week, we saw wild and disjointed swings in the indices over short periods of time. While some traders were able to exploit the environment, many got chopped around pretty good. The instability subsided last Friday and also yesterday we saw relatively orderly action.
To me, these large swings in either direction over short periods are symptomatic of sentiment instability and make for a difficult trading environment for those who have made their trading plans to suit more normal trading conditions.
With the AM sell off and news coming out of Europe this morning and throughout the day, I am keeping a close eye on the index ETF’s ($SPY $QQQ $IWM especially) and for price indicating the return of such mood swings. So far the action has remained orderly (as of 10:20am et)
I am looking out for signs of a return of the wide swings over short periods of time (ex: 1% or greater in a 5 minute candle), which would signal a return to an unstable sentiment environment over the near term.
The awareness of being in one or the other environment (stable or unstable) can then guide risk management.
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