September volatility is in full swing this week after an extended weekend. All major indexes are down, from the S&P 500 (SPX):
...to the Dow Jones (DJI):
...the Russell 2000 (RUT):
...and the NASDAQ 100 (NDX):
Tech is the least scathed at the moment, as the tech giants did fairly well on Tuesday, although they have taken a hit on Wednesday.
Small- and mid-caps, as represented by the Russell 2000, were doing well on Tuesday morning but ended the day down, and that direction has continued through Wednesday.
The Dow Jones is within throwing distance of its quarterly moving average, which has generally provided fairly strong support in the past.
The S&P 500, however, is nowhere near its strongest support at the 50-day moving average. Instead, it is still just above its monthly moving average. If we see a pullback through the monthly moving average, then it may be time to expect a retracement all the way back down to the 50. But for now, it looks as though the monthly moving average will hold.
I’ve been talking a lot lately about how September is the worst month for the stock market, statistically. Because of that, expect volatility to increase and expect the market to drop again before it’s over.
Speaking of volatility, here’s a handy little graph provided by vixcentral.com:
What this shows is the last price of various VIX futures contracts with expirations in coming months. For those of you that don’t know, the VIX is the “Volatility Index” and it measures 30-day forward implied volatility for the S&P 500 on an annualized basis. This curve shown in the graph above is what the futures market expects volatility to be in the coming months.
So here we can clearly see that the market is expecting volatility to rise throughout the rest of 2021. This is important data when you are running a portfolio! It is critical to know when to be fearful and when to be greedy. Right now, the market is fearful as there is a broad sell-off happening across all sectors. But, sell-offs like this can be some of the best buying opportunities. That being said, keep your greed in check and remember to protect your downside.
Even though down days may present great buying opportunities, I still expect that we will be in for a bumpy ride throughout the rest of September and even through the rest of the year. As such, it is even more important to follow your trading plan carefully. Conduct proper analysis, structure your trades in an efficient manner, and manage your risk wisely. Doing these will ensure that you can come out ahead in any market condition.
Given the risk to either side, I’m not looking to initiate any new positions today. I will wait to see what happens with the Fed announcement and, more importantly, how the market responds. I’d suggest that you do the same.