One glimpse at the pumps and dumps in Small Caps over the last few weeks and it is clear that volatility is back.

But as former fund manager Richard Breslow notes, for all the much anticipated fun of having volatility back, it has proven to be a really tricky time to trade.

It isn’t that this is the bad kind instead of the good. Which is a sort of euphemism for not really having a handle on what is going on.

But, frankly, no one can be faulted for looking at this environment and struggling to keep up with the narrative thread.

 

So rather than trying to shoehorn a coherent and all-encompassing explanation of current price action, this is one of those times where you may just need to go with the flow. Even if at times those flows seem wholly at odds with each other.

Via Bloomberg,

This is a trading not an investing market. Very few of us are having great thoughts that facilitate making money now. Open mindedness and flexibility are usually valuable traits in investing. Never more so than now. Wishing things to be so won’t change the numbers. And guessing where things are headed over the long haul is interesting but not more than that.To add insult to injury for those struggling to find their groove, put together what people are bemoaning and it comes down to: what they want to trade isn’t moving, what should be going down is creeping higher and what should be going up finds itself trying to scale a greased pole.

This is all oddly, if annoyingly, appropriate.

Forget for the moment the major geopolitical issues, investors are tying themselves into all sorts of analytical knots over issues that should be a trader’s bread and butter. I read an excellent article last night that successfully argued that the European economy was going gangbusters even as it is markedly slowing. That reform within the EU is gaining speed while things are hopelessly deadlocked. That the ECB needs to be preemptive in its normalization efforts but should let things run hot so it all doesn’t crash and burn. And it all made perfect sense.

Strangely enough, my favorite chart at the moment is EUR/USD, even as the cross is being roundly cursed for refusing to move. But it isn’t moving in the context of being absolutely trapped for the best part of the last three months between the 50% and 61.8% retracement levels of the big move down from the 2014 high to the 2017 low. What a story it will weave when it breaks out and you won’t get a better proxy for where the dollar overall is likely headed. In the meantime there’s a 3.5% band to play back and forth.

The dollar index is turning into a real heart breaker, looking serially constructive or moribund and sucking people into trades with seemingly malicious intent. Lessen the noise, there’s too much of it. The dollar writ large is unlikely to make a move and leave the euro standing still.

The S&P 500 has sprinkled gray hairs around many a trader’s head. But the reality is it has been doing an impressive job of trying to prove that whenever the dust seems to settle down the grind move continues to be higher. Watch how it trades into resistance just above 2700. That will give a hint if this is corrective or getting painfully interesting.

As for my personal bete noire, 10-year Treasuries need to get moving or face a renewed exploration of levels I expected not to see again. A move back below 2.80% will not be of indifference to bears. On the other hand 2.90% is an equally decent pivot. You can’t cut it tighter than that, but that’s bonds for you.

There is one thing to take comfort in. The counterparty to your last trade doesn’t know something that you don’t.