What are the Dog Days of Summer?

We hear the phrase “The Dog Days of Summer” and it conjures up images of sultry summer days where everyone “lays around like a dog” trying to survive the hot and humid temperatures. While that may (or may not) be true, the origins of the saying really refer to the fact that the Dog Star (Sirius) is rising through the summer sky during this period.

It has been hot this summer, and the market’s reaction has been to slowly melt up. It has been a news driven summer, to be sure! As we can see over the past couple of months in the SPY ETF, it hasn’t worked out too well for the shorts:

summer SPY

source: OptionsHouse

Other than the post-Brexit reaction we had in June with a swift and furious sell-off (which was followed by a swift rebound) the markets have slowly been incrementally higher. Through July and into August the markets have been mostly quiet while they drifted upward. But we have had significant moves in individual names in reaction to their earnings reports. It has not been too uncommon to see big names make 5-10% moves, which is significant.

What is the moral of this story? As the old adage goes, “Never short a dull market”. Also it is important to pay attention to the earnings cycle and be aware of when individual names will be reporting so you don’t get surprised by an unexpected announcement.

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