Some of the worst market action has occurred during September – and that’s not an exaggeration. Statistically, it is the worst performer of all twelve months.
Fresh in our minds, of course, is the 2008 global financial crisis. Though the markets started showing cracks early in the year, this week marks the seventh anniversary of the crash. It was a sobering time for every investor; no stock was left unscathed by precipitous drop in the indices. The selling was so intense that the volatility index (VIX) climbed over 90% for the first time ever (some say the 1987 crash would have had a reading of 150, but the VIX was not in play back then).
For what it’s worth, September is often a time for re-allocation, earnings revisions and an outlook on future market action. However, 2015 has been one huge challenge, and with the current chart setups, there is no easy path. I call sideways action bearish, and since late spring, this market has been under severe distribution, though it has not always been reflected in the indices. This market continues to trend in a bearish fashion, as it has all year long.
August was the worst month for traders in years, so think of September as the month when we get a handle on the market’s path. A down month in September likely cements the bearish argument even further, and that’s okay! All markets run in cycles.
Some view October as the worst month, since the most severe stock market crashes have occurred then. Historically, that is correct, but when markets crash and prices are “washed out,” the door is often opened to new bull market trends. The catastrophic drops in 1929 and 1987 were low marks and were not tested again (there were other crashes, but they were not as pronounced). So, while we could see some wild price action over the coming weeks, it could bode well for the long term future.
The end of a bull market tends to utterly confuse everyone, and most traders miss out on making money in the bear market because they were too late to get on board – and then it is over before you realized it was happening. Some will just sit tight, and others will buy the dip, a trick that won’t work any longer.
The bottom line: Let the action play out, stay lean and mean, don’t overtrade and wait for the right opportunity. Most importantly, don’t be the first one in the pool. Let others take a stab at it while you wait for your fat pitch.