Are the Dog Days of Summer a Thing of the Past?
Jun 2nd, 2008 | By Rick Pendergraft | Category: Stock Market InvestingBeware; we have now entered the dog days of summer. Historically, stock market volume slows from Memorial Day until Labor Day. The slow summer months are believed to come about because traders go on vacation and the traditional stereotype is that most of Wall Street is playing on the beaches in the Hamptons.
Is this stereotype a thing of the past? I think it is.
Last summer, the volume on the New York Stock Exchange was higher in June, July, and August than it was in the three months prior or the three months after. The credit crisis was just coming to light and this spurred some of the additional activity, but not all of it.
With a huge percentage of trades being entered electronically these days, the brokers and floor traders are not needed as much as they were in the past.
The old adage on Wall Street that says you should “sell in May and go away” was based on the summer months being boring, but I don’t think you can do this anymore. Over the last few summers, there was plenty of movement and money to be made. Most of it was on the down side of the market, so if you don’t like playing the short side of the market it made it tough, but there is just as much opportunity to the downside as there is the upside.
Just like you change your wardrobe for the summer months, you might want to change your investment tools for the summer months as well. Don’t just pack away your trading like you do your winter clothes. Learn to play moves to the downside and use some different tools to make money.
Given the shift in sentiment over the last few months, I wouldn’t be surprised to see another bearish summer. The CBOE Equity Put/Call Ratio, and in particular its 21-day moving average are sitting at very low levels. The 21-day moving average is as low as it has been since the end of December, right before the S&P pulled back from 1,500 to 1,300 in just under a month.
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INTERNAL ENDORSEMENT
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From a technical perspective, I am torn when it comes to the outlook for the S&P. Looking at the weekly chart, we can see that the index is overbought and facing resistance from its 50-week moving average.
On the daily chart, the index is coming out of an oversold level and bouncing between its 50 and 200-day moving averages. The trend line connecting the highs from October and November is still in place, but there is some room for the index to bounce.
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Rick is currently the Editor-in-Chief of The ETF Options Trader and the Triple Wave Investor. At the age of 23, on the third options trade he had ever placed, Rick turned $1,800 into $22,000 in less than a week, when the company he bought became the target of a takeover. He admits it was a stroke of luck, but it was a memorable education as to the leverage that options can provide. He lives near Delray Beach, FL with his wife and three children.
