I want to be straight with you about what we’re dealing with in the markets. This isn’t a normal trading environment, and if you’ve been feeling like nothing is working quite right, you’re not imagining it.
Volume is extremely low, and that’s fundamentally changing how the market behaves. We’re in what I call the “Twilight Zone” — and we’re likely to remain here for about another week to week and a half.
When volume dries up like this, the normal indicators and relationships you rely on stop operating on all fours. Market internals and bonds can appear to move in opposite directions, adding another layer of confusion.
Remember, the correlation between the stock market and the bond market isn’t direct or exact. A move in bonds may influence equities without producing an immediate or proportional response, especially when participation is thin.
Why Late August Is Different
There’s a seasonal component at play right now that most traders don’t fully understand. Institutional traders typically return during the last week of August, not at the beginning of September as many people believe.
But retail traders tend to come back after the Labor Day holiday.
This creates an imbalanced market where the normal flow of participants just isn’t there yet. It also helps explain why familiar signals from bonds, market internals and individual stocks may not line up cleanly.
Seasonality is all around us, but it isn’t always tied to a company’s business cycle. Certain patterns repeat because people repeat the same habits — taking vacations, returning to their desks and reallocating capital around familiar points on the calendar.
Those collective behaviors can affect liquidity, volume and momentum.
If you trade momentum stocks or high flyers, this matters even more. Those names are often driven by retail participation, so they may take longer to get going than the broader market. Retail traders usually begin dipping their toes back into the water in early September, with activity becoming more reliable during the second week of the month.
The Bottom Line
I’m not going to sugarcoat it — this environment isn’t giving traders much to work with. Low volume, shifting participation and imperfect relationships between stocks and bonds can make otherwise dependable setups less reliable.
You have two choices…
Step aside entirely or dramatically reduce your position sizing and expectations. Don’t force trades in a market that isn’t cooperating. Sometimes the best trade is no trade at all.
The good news is that this is temporary. Give it another week to 10 days, and we should start seeing more normal conditions return. Patience now will pay off later.
I hope that helps!
Roger Scott
Roger Scott Trading
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