Geeks of Finance: Massive Reversal. The Market Is About to Trap Everyone
After rallying nearly 10% in three weeks, the stock market is back near all-time highs. Traders remain bullish, even moving into September, historically one of the most challenging months for the market.
Could this year be different? Following a selloff in early August that got into correction territory, it’s certainly possible. However, it’s also possible that stocks still face a seasonal pullback. Traders should be prepared for either prospect.
The chance of a pullback is reflected somewhat looking at the fundamental data. Concerns about a slowing labor force, which drove markets lower a few weeks ago, haven’t changed. Neither have concerns about the level of leverage in financial markets.
Stocks are encouraged by rate cuts, with the first one likely after the Federal Reserve’s next meeting on September 18.
Meanwhile, options data reveals that investors remain bullish. Gamma exposure suggests that traders remain bullish on the markets over the next two months.
In other words, the market is likely to trend higher over time based on the actual positioning of trader right now. Consequently, seasonality may not play as much of a factor as expected this year. Investors simply bought the market drop strongly, and traders expect that trend to continue.
That trend could shift if economic data shifts, so traders should continue to look at gamma exposure on the stock market and on top-traded stocks.