I was off the desk today travelling and visiting with family, but checked in several times to see how our traders were doing. It was an exciting day in the market. It is the type of day you typically see only a handful of times each year and as a short term trader you dream about being able to “crush it” on such days. Of course that is easier said then done.

These are the words I wrote to the head of our systems trading desk at 3:12PM right before that final 1.70 down move.

We are starting to see early signs of improved market conditions during the past 4 trading days. Haven’t seen anything like this for many many months.

Of course “improved” market conditions from my perspective is the SPY moving more than 70 cents intraday! I am directionally agnostic as a trader. If a stock is weak I will get short. If strong then get long. I am part of a small subset of a small subset of traders who prefer higher volatility so that we can capture bigger moves in less time in both directions. I am not looking to “step aside” when volatility increases. I am looking to be even more selectively aggressive. This means that more setups will trigger in stocks/indexes and I want to be in them but understand that I may have to exit more quickly. I may not have time to bid/offer and build a position and instead may just have to blast in and out.

In the next week or so we will probably get a pretty good idea of whether today’s sell off will lead to a shift to higher volatility. Lets take a look at how trading conditions changed following 3 down moves in the market in the past two years. I know there are traders on our desk chomping at the bit right now thinking about August 2011. But I am skeptical that we will see anything like that level of volatility in the weeks ahead.

The first down move in August 2011 led to eight weeks of high volatility after the first down move bottomed. The macro backdrop was Europe imploding and a slowdown in the US economy.

The second down move in May 2012 was triggered initially by the release of the April jobs report. The down move was fast and furious with no retracements for safer short entries but we did have a pickup in June/July that offered good trading opportunities.

The third down move in November of 2012 was followed by no increase in volatility and what I termed back in December as the “New Normal”.  A prolonged period of low volatility despite the constant bombardment of negative macro headlines. We basically had zero GDP growth during the 4th quarter and earnings projections for 2013 are not good.

Today was the start of the fourth down move. This assumes that in the next four days we don’t erase what we saw today. The macro backdrop is Europe still is a mess but the jobs picture and housing market have improved in the US. We have the February jobs report on Friday so the market’s reaction to that number will give us some good information to work with.

Steven Spencer is the co-founder of SMB Capital and SMB University and has traded professionally for 17 years. His email is [email protected].

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