Wednesday Notes - A Telling VIX

4:15pm First, a very happy birthday to my wife Debra, who as I mentioned when I locked in the 2008 trailing stop in December, has been a lifeline for me over the years. And after having spent the last 20 years raising two kids, including one Type-1 diabetic, and also surviving a massive appendix rupture a few years ago, she has some of her own key personal goals this year. I've told her that 2009 will be her Bamboo year, and last year's results are in part allowing her time to focus on herself for the first time in two decades. That alone was worth all of the painstaking focus throughout '08.

OK, now to the markets. The VIX was the story of the day, and today provided yet more proof of its intraday power as shorting for anything other than extreme scalps in the morning was a sure ticket to frustration as the downtrending VIX (see attached chart; click to enlarge) was supporting a continued ES price climb. Until just after 1:30pm ET of course, as it turned upward and supported the ES tank. And while a trending VIX doesn't guarantee price movement in the opposite direction -- a stretched VIX can snap back just like price charts -- it sure as hell provides a caution sign in terms of trading against it for reversals.

At this end, I traded fairly well, although I had to adjust to the extent of the early PM drop as I started buying wholesale on the approach toward 830 on the extreme TICK reading and had to scamper to adjust to the plummet to 827.50. And while I could have traded that particular sequence better, the subsequent short sequences on pullbacks more than offset the "scamper" sequence. And after closing my final trade at 3:07pm, the rest of the day was a snoozer with no clear signals and I did well not to try to force things.

On the last point, keep in mind I do often fade trends on extreme emotional price and TICK movement for very brief sequences, and such provided much of the 2008 take. Yet one has to of course manage risk carefully with size and have clear signals. Gaining the spread also helps minimize risk. And it's not a reversal trade. Further, as last year's single-day October draw showed, extreme can become more extreme.

Having said that though, the much overused and misunderstood "trend is your friend" concept should probably be replaced with a more relevant "wholesale opportunities are your friend" notion. For how many times have you traded with the trend and generated a loss due to poor entry points, a shorter-than-expected continuation, or getting caught up in the emotion of the move?? Happens all the time. And while I of course prefer to trade with the trend currently in play, such is another missing chapter from most Trading books.

Bottom line is someone has to be willing to step to the plate and provide liquidity when people are bailing in mass, and do you think we do it intending to lose money over the long run? As with anything in life, timing is everything. 'Nuff said.

Anyway, I've updated the scorecard to the left for today's results, and now it's off to the most important event of the day ... a birthday celebration.

I'll post and respond to comments later tonight.