David Fuller's view

There are four reasons why these are very choppy markets on an intraday basis: 1) Institutional investors are wary because many US shares are trading at higher valuations following 2013’s outstanding gains; 2) There is a huge amount of liquidity sloshing around in the financial system; 3) High-frequency trading (HFT) is responsible for most of the volume; 4) QE tapering is underway. 

This creates a more dangerous environment for leveraged traders, as I have said before.  However, volatility can assist experienced, calm and unleveraged investors who attempt to profit from it with a buy-low-sell-high strategy in quality shares.

I am mostly a long-term investor these days, but I have traded for nearly 50 years, starting as a minnow in the mid-1960s.  I traded quite actively for a number of decades, as veteran subscribers may recall, including well into 2012.  Thereafter, I mostly ceased trading for personal reasons, including time, energy and concern that the risks really had increased due to HFT.  These included not just intraday volatility but also the occasional market meltdown, although I was fortunate not to be caught in any of those, mainly due to luck.  However, I am easing my way back into trading, on a small basis, partly because I enjoy it.  Trading is an interesting and challenging discipline.  Also, in the UK spread-bet trading is tax free.  The flip side, of course, is that spread-bet losses cannot be offset against capital gains from investments.   

Returning to the three small profits taken early this afternoon (GMT), Wall Street futures were rallying in pre-market activity this morning prior to the weak US Durable Goods report which temporarily wiped out those gains before a favourable Consumer Confidence Index figure pushed the market higher once again.  On noting the first report, I felt that I should not look that ‘gift horse in the mouth’ and closed my three remaining hedge short positions – one in the NDX 100 Index and two in the S&P 500 Index.  Accordingly, I covered the March NDX short at 3483.1 against Monday’s short sale at 3490.  Additionally, I covered my two March S&P shorts at 1778.13 and 1778.88 against their short sales at 1801.7 on 20^th December.  These prices include all spread-bet dealing costs.  I would like to see a few orderly days to the upside because unless I am very wrong about the overall outlook, that would present another opportunity to open hedge shorts against the probability of a further correction.