A Sudden Burst of Optimism that will Come Back Down to Earth

Volatility exploded today; and for once, we had a clear bearing on the direction of this increase in activity - bullish. For a simplistic explanation of this rise in speculative positioning, we could trace it back to the performance of the ISM manufacturing sector indicator (and many financial sources have). However, looking at the intraday price action and the intensified correlations, it would be disingenuous to simply write off its influence. Then again, if this burst in optimism were simply founded on this reading (and the Chinese uptick overnight); I would be exceptionally skeptical of its persistance as factory activity will do little to prop up the US and global economic slowdown. I wouldn't expect this reality to escape the masses for very long. On the other hand, I think today's rally was another effort at a correction to shake off the lethargy of previous congestion and perhaps a correction following the choppy losses of the past month.

Getting a handle on volatility, I have a better backdrop for my existing and potential positions. In the past 24 hours I have seen a lot of activity. First, my half-size AUDCAD short would finally be put out of its misery with the Aussie GDP reading and a break to the upside. Cutting the position size in half at a break last week was a good strategy move (gotta learn from your smart decisions as well as your mistakes). Further covering my underperfomers, both my EURUSD and GBPUSD shorts would shed profit. I'll be keeping my stop on both of these. These long-term positions are struggling as I had expected. On the other hand, my short-term opportunities are performing beautifully. Overnight, I updated a few setups on the Real Time News feed. I took a reduced-size USDCAD short position at 1.0650 and set out a stop of 1.0725. Thinking I would have time to build up if it started to reverse, it instead hits both my targets by mid-session US (1.0575 and 1.05). Another small size setup was a GBPAUD short from 1.72. A break of trend and a moving average would setup a good short that hit both targets in quick time 1.7130 and 1.7000.

I will continue looking for short-term setups as they have the best potential - especially on the possibility of a correction of this morning's volatility. On this front, I like another play of EURAUD's descending channel. I am long reduced size from 1.4090 and have a stop of 1.4035 with a first target of 1.42).