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Lately I’ve been sharing various trading strategies, approaches, and even my own daily trading schedule… but in today’s update, we’re going to take an even deeper look into the markets to determine what we should expect to see this month.
So, where are the markets headed this September?
The S&P
The S&P is neutral and for the past four weeks – we haven’t seen or done anything. In fact, if we take a look at where we were in September of last year… we’re near the same levels right now!
And as a result – just in my trading, I’m starting to scale down in size.
For instance, let’s say that I usually trade 1,000 shares… well now, I’m only trading 500. Or maybe I normally trade 100 options… now it’s 50.
The Russell 2000 IWM ETF
However, I want to look at another asset class to give us an idea of where we can go.
Let’s take a look at the Russell 2000 IWM ETF – which consists of small caps, mostly financials and energy.
On the other end of the spectrum, the Russell 2000 is below the 200-day moving average or in other words… it’s bearish.
For example, let’s say that I want to go long. Well, the smart move would be for me to avoid energy and financial stocks… but why?
Bonds.
More often than not, bonds are inverse to financials and as of right now… bonds are on the high and considered to be a safety asset class.
TLT 20-Year Treasury ETF
Next, let’s take a quick look at another safety asset class – the TLT 20-Year Treasury ETF.
Again… there’s money flowing into bonds – that’s bearish for equities.
This gives us more confirmation that money is flowing into safety asset classes… which means if you want to buy stocks – because stocks are considered a risky asset class, especially small caps, then we want to be extremely selective on names that aren’t market dependent.
What this means is that you can still pick your stocks, you can still have opportunities in the stock market, you can still buy stocks or go long… you just have to look for stocks that aren’t dependent on market action or that are trading in their own environment.
Look for volume to confirm the trend and scale down your size… or if you’re an options trader, you can look to sell premium – like a bull call put credit spread, an iron condor, or an iron fly to collect premium while the market’s neutral.
We’re in a headline driven market and at any point of time, that can change… So, I’m staying on my toes and preparing for the next move in the market.
That’s all for now,
Lance Ippolito
The Future of Wealth