Now that we are in the middle of August, the media keeps talking about how it’s a “seasonally weak” period. And they’re right. The August stock market is historically weak, but it’s also one of my favorite months for reasons I’ll share below. First, let’s talk about why the month gets such a bad rap.
Why is the August stock market historically weak?
Even though there are no holidays in August, it’s typically the hottest time of the year (weather-wise) in the Northern Hemisphere. A lot of people are on vacation. Q2 earnings reports wind down. As a result, market action is often thin, and market performance is near the back of the pack.
History also shows that August is highly volatile, which then sets us up for (the historically) worst months of the year – September and October. Remember what happened in August 2015? Volatility spiked, and then the markets saw a massive drop. But that drop eventually led to a great buying opportunity.
The Fed also brings uncertainty into the mix. The Kansas City Fed holds their annual Jackson Hole meeting in August. During this meeting, new policy initiatives are often leaked. Because the leaked news usually leads to panic for both bulls and bears, the anticipation increases market volatility.
August is a stock picker’s market
So here’s why I like August – and I mentioned it above. August is a stock picker’s market. Some of my best trading opportunities have appeared in August. Who cares that August is historically crappy? It doesn’t matter what month it is. You can find opportunities if your eyes and ears are open.
Which brings me to this year. August 2017 follows on the heels of seven straight up-months for the SPX 500. That is nearly unprecedented! Sure, we may be due for a pause. The index rose 10.5% through July. When everyone screams, “Boo!” and runs, ignore them. Trade the market in front of you, regardless of the month or day.
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