Patience is Rewarded – Is Now the Time to Buy The Dips?

Global US stock indices have started the week holding ground after several days of negative returns. Last week, futures in the Dow Jones Industrial Average posted four negative days in a row and a week on week return of -2.15%.

Source: IG

The September Effect

Billed “the worst month of the year” by finance news sites, September has on average recorded a fall of 0.5% in the S&P 500 index. That might not sound like a large number, but every other month of the year over the past 50 years has posted a positive return on average.

Friday’s Price Move in the Nasdaq

Events at Apple Inc. on Friday cemented the move into the red. Any temptation for investors to step in before the weekend and cause the markets to rally into the US close was blown away by the tech giant receiving bad news on a lawsuit.

The court case between Apple and Epic Games still has some way to run; however, Friday’s conclusion by Judge Yvonne Gonzales Rogers took 3.65% off the value of the world’s largest company. The news that Apple can no longer prohibit developers from providing links to non-Apple payment systems could leave a hole in the company’s balance sheet.

Source: IG

Reasons for Potential Upside From Here

With the S&P 500 currently down -1.08% on the month, the temptation now is to step back in and pick up risk-on assets at lower levels.

The trading volumes might support such a move. During last week’s sell-off, volume was in line with seasonal averages, so it was far from a market rout. Nor was the change in price levels a result of price distortion due to low trading volumes during quiet market conditions. After four down days, it looks like some hot air was released from a market that was overvalued on a lot of short-term metrics.

Apple’s court case was bad news for the markets everywhere. The firm is so widely held that the price slide in that one stock would have dragged performance down across millions of portfolios and things like that dampen the market mood. The firm does, though, still have a market capitalisation of more than $2Trn, and the court case was a known risk factor rather than a shock event. The court also offered some upside to Apple stockholders – Judge Rogers said that Apple was not monopolistic and that “success is not illegal”.

Source: IG

Has the September Effect already played out?

Patience could still be needed. Nasdaq futures on Monday morning were trading in line with the Daily 20 SMA. If it continues to hold that trajectory, then modest returns could be on the horizon. The treasury markets are often described as having the feeling of “picking up nickels whilst walking in front of a steam roller”. That adage could best explain the options available to equity traders this week. Modest returns while prices consolidate with whispers that an overdue crash could be around the corner.

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About the author: Justin Freeman

Justin is an active trader with more than 20-years’ industry experience of working for big banks and hedge funds. He has an inside knowledge of how the financial markets work, thanks to roles including trader on a $750m Event-Arbitrage desk and CRO and COO of hedge funds running a variety of strategies. From stat-arb and trend-following CTA to fixed-income relative value. Firm’s he has worked at include big banks like Citi, and prominent hedge funds including D. E. Shaw and Millennium Capital Management.

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