Posted September 28, 2013 22:13
In the upcoming month, the most pressing issue will be the debt ceiling. Lawmakers will have to reach some sort of a deal by October 17th to avoid hitting the debt ceiling. The consequences of going over the debt ceiling will be catastrophic and will cause the United States to enter into a severe recession. October seems to be setting up to be extremely volatile as traders will be looking at every move Congress makes.
There is already evidence that the volatility will be at a much higher level this month as the VIX, which is the volatility based index (also known as a fear indicator), is above both the 50-day and 200-day moving averages. This means that traders expect there to be larger price swings over the next 30 days. The most common way to protect a portfolio is to buy SPY puts or buy VIX calls. I would highly recommend insuring your portfolio by placing one of the bearish bets mentioned, because in the unlikely event that the market has a significant correction, these bearish bets will help limit the downside and protect your portfolio.
There are some sectors that are more vulnerable to a pullback than others. The financials are the most vulnerable because they will be most affected by market volatility. Nevertheless, once the debt ceiling is resolved, I believe that the market will resume its trek back up and have a nice end-of-year rally. But I believe that if you are not fully invested in the market it would be smart to wait until November to buy stocks, especially ones most vulnerable to a broader market pullback.