Throughout the past week, late-day bids have consistently made their presence felt in the stock market. Despite some modest bids emerging in the past hour, the S&P 500 remains down by 26 points or 0.4%.
This pattern of strong bids towards the market’s close has been observed continuously. Observers are keen to see if this trend will continue.
Market Dynamics
We’re seeing a clear pattern where sellers control the morning but buyers consistently show up to defend the market into the close. Even with the S&P 500 hovering around 5520, this dip-buying shows there is capital waiting to be deployed on any sign of weakness. This resilience comes despite the August CPI report from a few weeks ago showing inflation ticking up slightly to 3.4%, which has kept some traders on edge.
For derivative traders, this price action suggests selling puts or put credit spreads on intraday dips could be a viable strategy in the coming weeks. The market has repeatedly shown support in the latter part of the trading day, making it risky to hold short positions into the close. With the VIX holding relatively low around 17, it’s an opportunity to collect premium on the assumption that this pattern of underlying support will continue.
However, we must remain aware that this is September, a month that has historically been challenging for equities. Looking back at market data from the past several decades, the “September Effect” often brings increased volatility and downward pressure. The current end-of-day strength is a positive sign, but it will be tested against this seasonal headwind.
Impacts of Economic Reports
The strong August jobs report released last Friday, which showed the economy added a healthy 210,000 jobs, is likely the main reason for this buyer confidence. This solid economic footing gives investors a reason to look past short-term inflation fears and Fed uncertainty. Therefore, using options to define risk, like buying call spreads, allows for participation in these late-day rallies while being protected from any sudden sentiment shifts.
