The Quad Witch Price Action

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This week in the United States is the time of the quarterly quad witching when futures contracts, futures options, stock options, and single stock futures contracts expire. As September starts to approach the monthly close, there will be a rebalancing of portfolio positions by large fund managers.

The markets began to see the effects of this rebalancing yesterday as the Dow Jones Industrial Average, which had lagged behind as the only equity index not to reach all-time highs this summer, was the outperformer. It is currently up 325 points from Tuesday’s close.

Meanwhile, the small-cap Russell 2000 dropped yesterday more than 1% in just two hours and the Nasdaq dropped 75 handles in about an hour. Throughout all of this price action yesterday, the S&P 500 barely moved.

Overnight, most Asian stock markets were modestly higher, while stocks in Europe experienced a moderate amount of green across the board as the U.S. index futures are modestly higher. Today features several items on the economic calendar but the only one that is notable is the existing home sales figure. Meanwhile, tomorrow has a very quiet calendar.

We expect to see more of the same mixed price action. In the short term, whether you are a bull or a bear will depend on which equity index future you are watching. Through this week we will keep an eye on the four U.S. majors, and when we buy, we want to buy strength and when we short we want to short the weakest market as this type of mixed up price action could continue through this week’s expiration.

Next week begins with a quiet calendar early in the week but the focus is on Wednesday’s FOMC release which we will update our view at that time. For now, in the large-cap S&P 500, there is a new all-time high this morning and we prefer to continue to buy dips above 2900 while favoring the Russell or Nasdaq for shorting.

Today’s Economic Calendar:

  • Weekly Bill Settlement
  • Durable Goods Orders 8:30 AM ET
  • GDP 8:30 AM ET
  • International Trade in Goods 8:30 AM ET
  • Jobless Claims 8:30 AM ET
  • Corporate Profits 8:30 AM ET
  • Retail Inventories [Advance] 8:30 AM ET
  • Wholesale Inventories [Advance] 8:30 AM ET
  • Pending Home Sales Index 10:00 AM ET
  • EIA Natural Gas Report 10:30 AM ET
  • Kansas City Fed Manufacturing Index 11:00 AM ET
  • 3-Month Bill Announcement 11:00 AM ET
  • 6-Month Bill Announcement 11:00 AM ET
  • 7-Yr Note Auction 1:00 PM ET
  • Farm Prices 3:00 PM ET
  • Fed Balance Sheet 4:30 PM ET
  • Money Supply 4:30 PM ET


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