Dipping My Toe In

I was rather stunned to see quite a bit of bearish talk again during yesterday’s session. Someone even started wave counting down insisting on large scale resolution lower with the current sell off only representing the first leg. Well, as usual I hate to be the wet blanket at the party but I can’t help but ask: How often have we been there in the past eight years?

Sure, maybe this time it will be different – it’s August after all and market’s always crash in August, right?

WRONG! I just dug up some of Volar’s pertinent statistics which clearly show that, on average, August is a pretty mixed month. Here’s a rolling 2 week return measured by a ratio of Sharpe/Stdev. August in comparison with September looks pretty mild.

Here’s are the months of the S&P which are positive on average on a rolling 2-week basis, measured since 1950. Once again week 31 and the following ones this month seem pretty summer like.

The trading range in August is above the median but nothing compared with October or January.

Average return is flat – seems like September or February (and June) is usually when bad things happen.

This chart only goes to 2011 but clearly shows that the neutral months, again on average, are May or August. So if you’re looking for big downside you may be a month too early here.

From a pure price perspective I consider this a worthy long opportunity with 1/2R exposure. We have little context here and it’s mid summer, which makes it easier to bang the tape around a little. And that means we need to be extra paranoid when it comes to stepping into traps.

The Zero Lite yesterday wasn’t very enthusiastic about the sell off and painted a bit of a bullish divergence all day. Which however needs to play out right now here and today. If prices settle down here I will pull the plug in expectation of further downside and a revisit of the 2100 mark. Yes, I know how you feel: “PLEASE – NOT AGAIN!!”

Alright, one more chart for my intrepid subs:

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