For active traders who like to spend time buying and selling around seasonal events, the next few weeks are Market Timing Heaven. Friday is a Triple Witching day, the quarterly expiration of individual stock options, index options on the S&P 500, and index futures on the S&P 500. The week after September’s Triple Witching is notoriously volatile—probably even more so this time. following the Federal Open Market Committee meeting on Wednesday. The volatility is encapsulated in one of the more sustainable seasonal trades: sell Rosh Hashanah (which starts Friday at sunset this year), buy Yom Kippur (September 25). Traders sell their positions due to seasonal weakness at the start of Rosh Hoshanah, returning to the market after Yom Kippur. This traditional seasonal trading “matches quite well this year with the seasonal weakness in late September and the infamously treacherous week following quarterly options expiration,” Jeff Hirsch of the Stock Trader’s Almanac said in a recent post. There is modest statistical validity in this. Since 2000, the Dow Jones has fallen in 16 of those 25 years in the period between the two events, for an average decline of 0.5%, Hirsch said. The period from Yom Kippur to Passover, which begins on April 22, 2024, is traditionally an upward period, good for an average gain of 6.9%. Market timers also like to note that we are entering the last few weeks of the seasonally weakest period of the year (August-October), and the fourth quarter of an election year is traditionally strong. What does it all mean? It means that market timers who expect seasonal weakness in the coming weeks also expect seasonal strength in the fourth quarter. “A top is coming soon, then a sharp decline in late September,” said Tom McClellan of the McClellan Market Report. “Then we will have a new test bottom in early October, and then we will be back in the bullish period for seasonality.” Hirsch agrees, noting that any weakness “should be a great start to the fourth quarter rally ahead of the election.” Given the traditional headwinds from mid-September through October, traders do not appear to be concerned. The CBOE Volatility Index (VIX), a measure of expected volatility over the next 30 days, is currently at 12.8 – in the lowest quintile of 1990, according to Todd Sohn of Strategas.
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Sell Rosh Hashanah, buy Yom Kippur? What is the reason for this classic seasonal trade?
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