August could be hot fro trading this year
The received wisdom is that August is a quiet month for trading. The reality is that August can be one of the most volatile trading months of the year. According to Bloomberg's Market's Live blog the Cboe volatality index has gone yo an average of 11.7% in August over the past 15 years.
Why the spike in volatility?
Well, it is for the same reason that you sometimes get large price swings on the Sunday open. Liquidity drops, volatility rises. This lack of liquidity in the markets can result in large price jumps as the price moves into liquidity voids and skids through.Take a look at the chart below to see the volatility increase.
What does this mean?
Well, it means that we can watch out for larger than expected moves. One chart to watch is the gold chart. Many analysts see a pullback for gold in the near term, but the break and close beyond the weekly resistance level last week signals another run for higher prices. So, a move higher in gold could combine with the thin liquidity of August and have a race to $2300 on the cards sooner than anyone expected. Worth bearing in mind at least.
