Goodbye Summer, Hello Autumn – Volatility…

Summer is over and so is the busy season for theme parks. If you’re still itching for a ride on

Summer is over and so is the busy season for theme parks. If you’re still itching for a ride on a roller coaster you can do so from the comforts of your home or office by watching or trading the S&P 500.

For the better part of a month the markets have done their best Jekyll and Hyde impersonation and since October began the swings have been their most dramatic.

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This should come as no surprise to seasoned traders. October is historically the most volatile month for the equities market. The Great Crash of 1929, “Black Friday” in 1987, and even “Bloody Friday” during the Credit Crunch Crisis of 2008 all occurred during the month of October.

Here is a snap shot of the S&P 500 during the first six trading sessions of this October:

October 1st: down 26.13

October 2nd: up .01

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October 3rd: up 21.73

October 6th: down 3.08

October 7th: down 29.72

October 8th: up 33.79

After four moves of over 20 points or better in the last six sessions the end result is a loss of 3.4 points on the S&P. The market has gone nowhere but the chart of the VIX looks to be putting in an upward trend. I think we’ll continue to see volatility rise independent of market direction.

It’s no great mystery that the market has been volatile lately. The hard part is understanding how to take advantage of the highly volatile, yet directionless market. As usual the trend is your friend. There is a misconception that a trend is synonymous with a strong, continuous move in one direction. A trend is anything that continues to occur, which in this case is a lack of follow through for the S&P, and why we feel there are trading opportunities on both sides.

Until proven otherwise, I would recommend taking the opposite side of any large (20 points or more) move in the S&P at the close of that session for a one or two session trade. As I type ,the S&P is down 15 points on the heels of yesterdays 33.79 point up move. Until the market puts two big days, in either direction, I would continue to take advantage of a market that can’t seem to choose a direction but continues to provide large swings and thus opportunity.

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