June 19, 2020 8:09am

Quadruple witching and re-balancing of Russell indexes ends the week

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Dow futures are UP +1.03% (+268 points), S&P futures are UP +0.93% (+29 points) and NASDAQ futures are UP +0.85% (+85 points)

 

U.S. stock futures were higher following a report that China will increase buying of U.S. soybeans, corn and ethanol in line with a phase one trade deal, which got delayed by the pandemic;

E.U. markets advanced as investors monitor increasing coronavirus cases in various countries with the pan-European Stoxx 600 climbing +0.4% in early trade;

Asia Pacific stocks were higher as investors also monitored the recent uptick in coronavirus cases in some countries with the MSCI Asia ex-Japan index rising +0.53%.

 

Data docket: Germany’s statistics office on Friday reported a 2.2% annual fall in inflation for May and a 0.4% decline from the previous month, slightly below expectations. Australia’s preliminary retail trade figures released Friday by the country’s Bureau of Statistics showed retail turnover rising 16.3% in May on a seasonally adjusted basis.

 

Henry’omics:

Pre-open futures were higher as many wanted to end the week on a high note!

Parsing the title, quadruple witching Fridays offset existing futures and options contracts

Over the course of a quadruple witching day, transactions involving large blocks of contracts can create price movements that may also … provide arbitrageurs the opportunity to profit on temporary price distortions.

The Dow, S&P 500 and Nasdaq headed into Friday’s session on pace for their fourth (4th) weekly gain in five (5) weeks.

For the week leading into quadruple witching Friday, the S&P 500 was up 2.4% while the Nasdaq was up 3%, and the Dow was up 1.9%.

Maintaining my statement, “Keep the market life preservers on to float in the choppy (trading) seas.

 

Thursday’s night post’s title: “volatility rages as Friday’s quadruple witching period could further a continuing jerky market path including the rebalancing of Russell indexes which concludes on June 26

  • The NASDAQ closed UP +32.52 points (+0.33%);
  • The IBB closed up +0.50% and XBI also closed up +1.07%
  • Thursday opened positive and closed positive;
  • Sector volume continued LOW with 4 out of the 20-upside having higher than the 3-month average volume and 3 out of the 13-downside having higher than the 3-month average volume;
  • Thursday’s percentage (%) of the 20-upside were +0.27% (VCEL) to +17.52% (MDXG) while the 13-downside ranged from -0.16% (RGNX) to -13.18% (SGMO); 

Q2:

  • June registered 7 positive and 7 negative closes
  • May registered 9 negative, 11 positive closes and 1 holiday.
  • April registered 10 negative, 11 positive closes and 1 holiday.

Q1:

  • March registered 11 negative, 10 positive closes and 1 neutral close.
  • February registered 9 negative, 9 positive closes, 3 vacation days and 1 holiday.
  • January registered 9 negative, 10 positive closes and 2 holidays.

 

Companies in my headlights – It’s your decision; I provide an idea and context

This morning’s cue, leave well enough alone – some equities will shake, many will rattle and a few will roll!

As I have stated these past weeks and months – “Skim if you can trim, buy if it will fly and sell if compelled!” And always maintain a perspective and know “how to get out of Dodge” – (a metaphor)!

 

The BOTTOM LINE:  Quad witching usually peak on Wednesday or Thursday of expiration week.

Although, last week’s volatility shock might have resulted in oversize options volumes a week ahead of the expiration dates.

It remains to be seen … how today’s reality will play out? My issue is uncertainty about equity valuations in the face of upcoming earning’s season that are certain to be weaker as the quarter ends.

There is little evidence that quadruple witching leads to increased profitability since market gains are usually modest.

 

Opinions expressed are those of the author and are subject to change, and not intended to be a forecast of future events, a guarantee of future results, nor investment advice.

Whether information or intelligence is good, bad or somewhere in between; I put into context what is relevant and useful for investors.  All investments are subject to risks. Investors should consider investment objectives.

Henry McCusker, the editor and publisher of RegMed Investors does not hold or have positions in securities referred to in this publication.