Wide and Loose

I can't fight this feeling any longer
And yet I'm still afraid to let it flow
--REO Speedwagon

'Wide and loose.' That's the term my friend Don likes to use when describing the volatile action during selloffs. You can sure see it in the tape right now, with S&Ps moving in 1% clips.

The major contributor to increased volatility is leverage. When prices are going up, leverage is calm and happy to go with the flow. When prices go down, leverage gets nervous. And then it gets scared.

Leverage usually thinks it can get out near the top, when prices are high. But with so many levered participants, it should be readily apparent that all leverage can't possibly cash out on top. After a few fortunate sellers leave early, prices start falling.

Selling begets selling. And the action becomes wide and loose.

position in SPX