September has been a historically lousy month for stocks. According to data from the past four years, the Cboe Volatility Index (VIX) has risen every September since 2021. As such, it is important to adjust how you invest this month to ensure you benefit from this volatility.
Analysts’ Forecast For September
Analysts forecast that historical market volatility in September will persist in 2024, especially given the upcoming US jobs report on Friday. It will gauge how fast or slow the Fed could cut rates as US elections loom. Traders expect the Fed to begin cutting rates this month, with a 25% or 50-basis point cut.
JP Morgan Chase & Co. analysts forecast that the equity market rally might stall even after the rate cut. According to analyst Mislav Matejka, a rate cut would be in response to a slowdown in growth. Coupled with the historical volatility in September, it would present another obstacle to the ongoing rally.
According to Credit Agricole CIB’s Valentin Marino, the jobs data could point to a cooling down of the US jobs market, forcing traders to adjust their forecast for rate cuts. Marino forecast that the dollar could see some gains once the markets realize the Fed is taking a cautious approach.
How To Invest In A Highly Volatile Environment
With September being the most volatile month on the stock market, historically, there are measures you can take to benefit from this trend for potentially huge gains.
Invest In Stock Trending with The Market
In a highly volatile market, trending stock could see the rate of the trend rise. To invest successfully, you should look for stocks already heading in the market’s direction for an opportunity for gains faster than during quiet markets. However, it comes with a potential increase in risk.
Find stocks that have been trending higher but have not accelerated. For short sellers, look for stocks already in decline but whose price has not fallen off the cliff.
Buy The Breakout
In a quiet market, a stock could break out to the outside and lose momentum before drifting and falling back to the breakout level. However, a breakout could be followed by a huge run to higher prices in a highly volatile market.
Utilize Short-Term Strategies
In a volatile market, profits can vanish and become losses quite fast. As such, one should opt for a short-term strategy in this environment. The strategy can entail setting specific profit targets, selling part of it at the first sign of a profit-taking opportunity, and holding the rest of the position for some potential gains.
One way to set your entry and exit points is to use overbought/oversold indicators such as the RSI and sell when they signal overbought. Your trailing stop should be activated sooner than usual in a volatile environment. Alternatively, you should use tighter trailer stops.
Stay Alert This September
As a trader, market movements are always an opportunity to make profits. However, when volatility is higher than usual, it will require paying closer attention and adjusting your strategy. The goal is to be prepared and take steps to ensure you are on the right path to profitability.
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