End of Month Volatility Leads to Madness


Simpler Trading Team

Sep 02nd 2022  .  3 min read

At the opening bell on Monday morning, there was a cover pop, as expected. Cover pops happen when a substantial volume of selling and exhaustion appears, allowing the bulls to temporarily move the market in their direction. This cover pop lasted for the first hour before finally being neutralized by selling pressure. Price action on Monday could still be attributed to the market digesting Federal Reserve (Fed) Chairman Jerome Powell’s speech at the Jackson Hole symposium on Friday.

As the session opened on Tuesday, bears rushed in to make their move. It did not take long before they took control of the market, pushing it downward. There was a brief period when the bulls tried to reverse course, but the bears held firm. One indication of panic selling can come from the Volatility Index (VIX). As the VIX was steadily increasing, SPY broke the 4,100 level, leading to heavy selling and a spike in the VIX

As the selling continued, the VIX proved to be a critical index to watch. 

On the last day of the month, both the S&P 500 and Nasdaq futures were trading positive, heading into the open. Throughout the night, both indexes made a positive movement with little resistance from the bears. That was the case for most of the night until running into the 50-day simple moving average (SMA). This is where heavy selling took place for the first time this week. The notability of this level and the reaction to this level were significant at the end of the week.

Once the market had reached the psychological level of 3900 on the first day of September, the bulls had taken back control of the market. The losses on the day were notable but not big enough to stop the bulls from overcoming them. The tide changed, and the bulls took the momentum back quickly, putting in a strong base before the last hour of the day. This base ultimately led to the first and only positive close for the S&P 500 of the week.

The market was looking good on Friday, making positive gains and returning to the 50-day SMA. Then a news catalyst hit as the market was consolidating near the high of the day, at the 50-day SMA. Russia announced it would suspend the Nord Stream gas pipeline to Europe indefinitely. This news is significant because of the impact that this will have on the oil industry and the economy. This announcement sent the market tumbling towards 3,900 on the S&P 500 futures, ending the week on a red note.

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