We are well into summer and Labor Day, like it or not, is fast approaching. August can be a particularly uncertain time in the markets. Many of the big players are playing or, perhaps, partying in the Hamptons or the south of France or anywhere but on the sidewalks of New York. Actually, it's not just the super heavyweights who are away. Many retail traders who still have jobs, income, and/or money are also enjoying their summer vacations in August. Those circumstances lead to some trading related thoughts during the so-called summer doldrums in the markets.
One effect of fewer players (especially when some of them are big fish) is that volume may be down relatively significantly from average. When volume is down there may often be less liquidity and, therefore, more volatility. We may want to be mindful of those possibilities as well as being aware that there may also be less corporate news. The heavy earnings season is nearly behind us and except for a few notables yet to announce earnings, the excitement that helps drive the market coming into and immediately following the announcements is past. Much of the anticipation or apprehension as the case may be regarding earnings is behind us. As a result there is some likelihood that the earnings excitement will not begin to build again until we approach the end of the third quarter.
I bring up these factors because they can have an important influence on what the market may do. If we are aware of specific possibilities that may affect our trading that may help give us an edge. If we are trading during and through the month of August it might be a good idea to have these factors in mind. Otherwise, we might just want to hang out the "Gone Fishin'" sign and wait until Labor Day to return to the fray.
I do continue to trade in August myself, but remain mindful of the specific conditions that are often present during the month. Those conditions can be helpful at times and may well offer some good entries to bullish plays on dips or sometimes to the sale of options during periods of high volatility.
For those who opt to go fishing, here's to tight lines!
by Bill Kraft, Editor
Copyright 2010, Makin' Hay, Inc.
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