The S & P 500 fell about 2% in August, which was the second worst monthly performance of the year, behind only the huge hit the market took in May. So is anyone breathing a little easier now that August is behind us? I can say, I'M NOT! September is historically one of the worst months of the year for the stock market, and with the same issues we have been dealing with still looming large, I think we are going to be in for another roller-coaster month.
The same two things that have driven the market all year, are still playing out, and we have not really made any new headway into either. And of course those two things are:
1) Will the FED cut rates again at their September meeting, which is just a few weeks away?
2) Will we see any sort of calmness and resolution to the trade war with China?
Let's talk about the FED first. At the last cut there were plenty of FED governors that dissented, and over the last few weeks, it's seems as if their is no clear path for what Jerome Powell should do. Of course Trump will non stop tweet at him, and call him names, which only makes the decision all the more difficult, since he can't seem to be playing into the presidents hand. The economy has slowed a bit, but it still strong, especially compared to the rest of the world. Powell has stated again that the FED will look to the data and the data only before making a decision on if to cut rates again in a few weeks. Expect the market to swing as the data gets released over the this month, and this starts with the August employment report which gets released on Friday, and the manufacturing reading which gets released on Tuesday.
And now the real issue - The Trade War. Never before have I seen such a market that can change 500+ points in a few minutes on a tweet. Its hard to get a reading on the market, when in the blink of an eye, Trump could tweet about US companies pulling out of China, and the market tumbles 700 points in an instance, or then he changes his mind the next day, and says talks are still on, and the market goes up 350 points. I'm going to save everyone the trouble of trying to figure this out. We all have no clue what's going to happen with Trump's trade war. It seems like he would not want the market to tumble after he bashes China since he needs to get re-elected, which is then why he tweets about Powell and then calls for a rate cut immediately, and blames the FED on the market's downturn. Its amazing how the market can recover and tread higher during tweet silence. If you are curious, do some digging into the times in between trade tweets, and see how the market settles in after a few days and calms down, then Trump out of the blue decides to wreck the market and does and early morning tweet. This is basically what played out in August and what made it so impossible to understand the next move.
So what to do?
Well all this means there will definitely be one thing that happens in September.. Volatility! I know it's been awhile since my last post, but if you followed me on that last trade, buying the VIX calls at .40, you made out like a bandit! Those calls skyrocketed at over $4.00 each after a few days of Trump Tweets! I wish I bought more, but I only bought 15 call contracts for $600, but was about to sell them in only a few days for over $5,000. Not bad!! The power of options! If you have not traded an option before, each contract gives you the option to buy 100 shares of the underlying security. So for example, each call option I bought of the VIX was $40. (100 chares @.40each). that's how it works, so in essence I bought the option to purchase 1,500 shares of the VIX at 19, and it costs me $600.
I will be looking for more VIX trades in September for sure, and will keep you posted when I make a trade.
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