- New Trades -
(August 30, 2015)
Cough, cough! Has the dust settled yet? The stock market is moving in extremes with huge moves both directions. The fear gauge (a.k.a. the VIX) remains elevated at 26% after hitting a multi-year high at 53% on Monday morning. The VIX was less than 11% four weeks ago.
I warned readers last week that the market sell-off wasn't done yet and don't be a hero. The sell-off on Monday was excessive. Today I'm worried the market correction is not over yet.
Stocks have produced a huge bounce off their lows but that doesn't mean the market correction is over. In last week's market commentary we shared some historical data on market corrections. Normally a correction lasts 60 to 90 days. There are always exceptions but betting on the "V" bottom could be dangerous.
Historically the month of September and early October can be a rough time for the stock market. If we consider the uncertainty surrounding China and the Fed's decision to raise or not raise rates at their next meeting then stocks are unlikely to continue higher. At the very least I would expect the market to churn sideways until the FOMC meeting on September 16-17th.
If the Federal Reserve can convince the market that the U.S. economy is healthy enough to endure a rate increase in spite of the global economic slowdown, then I could see the market rally continuing. If the Fed fails to communicate this clearly enough then stocks are likely to trade flat to down.
With so much uncertainty in the market I am not suggesting new longer-term LEAPS trades at this time. Last week I suggested waiting for the dust to settle. It has not settled yet.
Be patient. There is always another entry point.