Something very unusual is happening this month - and it could mean
that we'll be in for some extreme market volatility over the next
We are nearing the end of the first full week of September and so
far the indices have managed to lose 2.6 percent. Of course, this
is on top of a 6.6 percent decline in August. Investors are fearful
and rightfully so.
The 2.6 percent loss during the first three trading days is
actually the second worst start in September in the S&P 500's
There have only been 5 other occurrences where the S&P 500 has
lost more than 3 percent during the first three trading sessions of
September and according to analyst Jason Goepfert that has spelled
trouble for the benchmark index going forward.
He states that all 5 instances witnessed additional declines of
over 9 percent during September and every one closed lower by the
end of the month at least 5.8 percent.
Here are the years courtesy of
As you can see the S&P 500 does not fare well after a weak
beginning to September. And even if the month starts out on a good
foot, September remains the worst performing month of the year for
the S&P 500 with an average decline of 0.67%.
So given all of the seasonally historical woes that the market is
faced with in September how can we, as investors, take advantage if
we think the market lives up to its historical billing?
There are several ways to approach the aforementioned question.
One of the obvious ways and one that our commodities guru Kevin
McElroy recommends is to buy
Market Vectors Gold Miners ETF (
, and it's little brother
Market Vectors Junior Gold Miners ETF (
"The ETF offers a simple way to get diversification in the sector,
and you'll save money on transaction fees by buying the ETF instead
of the individual companies, and they actually have a pretty low
annual expense ratio of just and 0.54%."
Another way, and one that I think is more applicable given the
short-term duration of the weakness, is selling a vertical call
spread. Yesterday, our Chief Options Strategist, Andrew Crowder
mentioned an way to play the historical weakness.
He suggested the following:
- Sell to open IWM Oct11 80 call
- Buy to open IWM Oct11 82 call for a total net credit of
The trade allows
iShares Russell 2000 (
to move lower, sideways or even
14.2 percent higher
over the next 42 days (October 15 is options expiration). As long
as IWM closes below $80 at or before options expiration the trade
will make approximately 10.5 percent.
If you think IWM moves 10.5 percent higher or to $76.85 over the
next 42 days, it would be best just to buy the underlying ETF IWM.
If not, then the above income trade would be the one of the best
ways to play the suggested weakness.
So there you have it. If you believe that the September lives up t
its historical billing and weakness continues to reside as the
month progress then you can't go wrong with above investments.