I plan to be out of the office skiing on Friday, so ahead of that day, I will position my trading account and portfolio accordingly this week.
As many of you are aware, Quadruple Witching occurs when stock options, index options, index futures, and single stock futures all expire on the same day.
Oodles of fun.
Weeks like this can often be, shall we say, volatile? But hey, we’re used to it! Case in point: so far this year, out of the 48 trading days, 31 have produced moves of + or – 1% in the Dow and the S&P 500. And, 21 out of the 31 “volatile” days in the market this year have been to the downside. (Do you sense a theme here?)
In all, 64.50% of the trading days this year have seen swings of + or – 1% in the major market indexes. And seeing as this week is Quadruple Witching, it is not likely to be any different.
The largest decline for a week like this was 6.72% in March 2001, when it used to be called Triple Witching (before the introduction of single stock futures). The largest gain for a week like this was in March 2003, in which was the S&P up 7.50%. That week marked an important turning point in the indicators. On March 17th 2003 the short term indicators began to reverse up from low levels and the NYSE Bullish Percent followed eventually followed on April 2nd. This was also shortly before relative strength switched over to favor stocks vs. bonds. That trend of favoring stocks lasted until November 2007.
Interestingly enough, research from Dorsey Wright shows that in March 2004 and March 2005, the week around Triple Witching was also a pivotal point in the markets with the NYSE Bullish Percent reversing down into O’s on March 16th 2004 and into O’s on March 23rd 2005. In 2007, we went into Quadruple Witching Week with all of the major Bullish Percents in O’s and Quadruple Witching week for that year (2007) was down 1.13%. Last year, Quadruple Witching finished the week on a positive note, up 3.61%. This year, we enter Quadruple Witching week having just seen the NYSE Bullish Percent, S&P 500 Bullish, and Nasdaq 100 Bullish Percent all reverse back into a column of X’s.
One strategy for quadruple witching is if you want to buy stock, put the order in a couple of points below the market. If you want to sell stock, enter the order for a couple of points above the market. You may get executed on both your buy and sell tickets, as the market gyrates to your limit order.
Any rallies in stocks that have given sell signals or have weakened, give you an opportunity to sell and raise cash or hedge those positions in some manner. Trade management is especially important in this market (when isn’t it?).
We have seen the first positive signs for this market in a long time , after last weeks four-day run. This all coming at a time when all of the major market indices remain oversold.
And while cash and fixed income remain in favor over the equity markets at this time, the Dow and S&P 500 have both given near term buy signals off a recent bottom. So, as this market continues to search for a bottom you can use the volatility to your advantage by selling your laggard stocks or funds on a rally, and using pullbacks as an opportunity to enter new positions, if you so dare.
Trade what is, in front of you, but if you’re like me, keep an eye on down the road. We’re not out of this mess by any means.
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