The Science Behind the Stock Market Summer Slump

NEW YORK (MainStreet) — The summer tends to be a more lax time of the year, where the market isn't as volatile and investors aren't necessarily on their A-game. Most of the Wall Street tycoons are worried about their Hamptons plans, and the regular small investor is left out to dry. Although the prevailing wisdom advises to "sell in May, and go away," there are some ways to combat the slow market this August.

Due to low volatility, and more or less lower prices, small investors should be bullish. The September market is usually a more turbulent and volatile market, so many traders buy now and hold until the beginning of the fall. One of the techniques I use in a slow market is to trade stocks that have irregular price jumps from announcement and earnings. This volatility may not last forever, but for the younger generation with little in terms of liquid assets, it is difficult to profit from little to no movement in Fortune 500 names. This is a very risky venture, so when doing this technique, you need to have confidence in the company. If a stock takes a turn for the worst, you have to hold out and wait for a profit, or sell for a loss.

Now you may ask, "Why are the markets always slow or down during the summer?" Well, one of the biggest reasons is that there isn't much market-swaying information being released. The volatility in the summer is almost pure speculation. Everyone is getting ready for something to trade off of. Usually during the year, the market is overbought and the summer is its correction period before the market picks up again in October. The best time to take a position in the market is between May and October, because it is slow and usually hits its bearish bottom.

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