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Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Stock Market Volatility Likely to Slow

Stock-Markets / Stock Markets 2015 Jul 16, 2015 - 08:33 PM GMT

By: Richard_Cox

Stock-Markets

When we look at the historical trends of the market, some interesting trends start to emerge.  It can be said that historical averages are not always applicable to what is likely to happen in any given market situation but the fundamentals and technicals are currently aligning in ways that suggests the historical trends in stocks are likely to continue for the next few months.  For stocks, this ultimately means a period of prolonged sideways trading that is likely to persist either until the summer months have finished or until the Federal Reserve actually makes it clear that interest rates will be rising according to a specific timetable.


When we look at the long-term charts, we can see that sideways trading conditions tend to prevail over the summer months.  This is generally because there is a major reduction in the buy and sell orders that are generally needed in order to create forceful price trends.  It is true that the reduced liquidity can lead to sharp moves in market prices but, more often than not, this is not the dominant scenario.  So if we continue to see reluctance by voting members at the Federal Reserve to establish a firm scheduled for raising interest rates, market assets like the S&P 500 are going to have a very difficult time gaining momentum in either direction.

Recent reports from Mocaz.com show order flow activity that largely supports this thesis, so there is even enough evidence for many technical traders at this stage that current price conditions are likely to prevail.  Most of this year, we can see that sideways consolidation patterns have been in place for most of this year so it is a good idea at this stage to consider using no-touch options that can benefit the most from these types of conditions.  It should be understood that it is very difficult for short-term traders to post any real gains if there is not strong momentum in the market, and this makes options strategies much more attractive in the current environment.   Those looking to play against the chance of volatility in stocks will also have less work to do in terms of which price levels to use when executing trades.  In lieu of this, traders can set price levels 1% above and below the current price level in order to implemented no-touch options strategies.  This type of approach can give traders an edge and bring the potential for greater gains when compared to traditional investment strategies, and these are methods that should be kept in mind as long as current market conditions persist.

By Richard Cox

© 2015 Richard Cox - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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