The third quarter is officially on the books and that means we are now finally entering the most profitable trading period of the year, at least statistically speaking. As with everything in life your mileage may vary. Since it’s the beginning of a new month this we should once again take step back and look at the characteristics of the ongoing market phase in terms of volatility, momentum, as well as market breadth.
I’m seeing an increasing amount of bearish sentiment here in the comment section as well as across the financial media. Which of course is no big surprise given that we are smack middle in the most negative leaning market phase of the year. However just because a door is open does not necessarily mean the bear is going to walk through it. Let’s not forget that equity indices just painted new record highs all seasonal bias to the contrary.
Labor Day is behind us which pretty much marks the end of the summer season and, fortunately for us, the time when many traders and investors return from hibernation. Even here at the evil lair I’m seeing a distinct uptick in new subscriptions after Labor Day and fortunately many of them happen to be familiar faces. Welcome back!
Considering that equities are still trading a bagel throw away from all time highs it was fascinating to observe a 28% rise in implied volatility over the past week. Now I concede that current levels are probably more in line with where the VIX should be given that we’re heading into a seasonally bearish market period of the year. August has acquired a bit of notoriety over the years due to a handful of negative outliers, however on average it is September and not August that you should be worried about (see Tuesday’s post on the subject).