First with the scheduled and well known... This Friday is not only the 3rd Friday of the month, better known as options expiration, it is the end of Q3 and therefore instead of our usual options activity, we have Quadruple Witching. Quad Witching is when we have: Stock Options, Stock Index Futures, Stock Index Options and Single Stock Futures all expire on the same Friday instead of just the normal Stock Options. Usually I'd be looking at the options chain today and/or tomorrow to see where the likely "Max Pain" market pin would be, but with so many different asset class options all expiring this Friday, it makes it difficult.
In addition, this Friday also happens to be Standard and Poors routine maintenance and re-weighting of the S&P. From the S&P on page 10 under, "Index Maintenance"/"Rebalancing":
Share Updates. Changes in a company’s shares outstanding due to its acquisition of another public company are made as soon as reasonably possible. At S&P’s discretion, de minimis merger and acquisition share changes will be accumulated and implemented with the quarterly share rebalancing.
All other changes of less than 5% are accumulated and made quarterly on the third Friday of March, June, September, and December.
There's also a "Credit Default Swap" roll, that should primarily effect credit, HYG being on in particular (High Yield Corporate Credit).
In addition, while it use to be more of a yearly or semi-annual event, redemptions in Hedge Funds are more and more moving toward quarterly, at last check with 89% of Hedge Funds underperforming the S&P-500 on the year, it's more than likely that a number of hedge funds will need to or already have, raise capital to meet client redemptions. After all, if the Hedge Fund that charges a 1.5%-3% management fee of funds managed in addition to a standard 20% incentive fee, but as high as 50% (meaning if you have $1 mm dollars in a hedge fund account, they automatically take off the top $15-$30k per year and whatever profit they make, thy take between 20-50%), so for some, a simple Vanguard Fund tied to the SPX is a lot cheaper.
Of course as with any end of month and more so, end of quarter, there's the typical window dressing or as it was best described, "The Art of Looking Smart", in which hedge funds dump their losing positions for the quarter and pick up the quarter's big winners so when the next prospectus is delivered for new clients, it appears that this fund has picked all the right stocks, even if they only did so 4 days before the end of the quarter!
The last day for Window Dressing trades to go through because of the T+3 settlement rule is next Tuesday the 25th.
Now on to the mystical and I'll let UBS' Art Cashin take it from here. I'll just say that on one hand there's enough history and data out there that you can justify almost any position you want to take, but on the other hand, there are some strangely accurate market behaviors on certain days as the Trader's Almanac points out every day.
From Art...
The legendary trader W.D. Gann reportedly claimed that capital and commodity markets tend to top on or around September 22nd more oft than on any other day of the year. There is not apparent economic logic behind this reported observation, but the notion might very well have a certain appeal to astrologers, in as much as September 22nd happens to be the usual date of the Autumnal Equinox…the day that the earth crosses the Sun’s equator going south, and one of the two dates each year that the days and nights are of equal duration.
This is the day which, according to ancient lore, the Sun enters its “Fall,” thereby reversing for a time the rising animal spirits and other good things associated with Spring and Summer, and setting the stage for untoward events to unfold. Apparently this concept is so ancient it pre-dates even the oldest Mesopotamian culture.
Initially, we never took such notions seriously. This was despite the authority of W.D. Gann and even despite the research from the Department of Neuranatomy at Yale Medical School, which discovered that the human nervous system typically undergoes measurable perturbations during the late September time period (and in mid-March as well). However, subsequent to hearing of Gann’s proposed rule, and of Yale’s medical research, we have experienced firsthand the October Massacre of 1978; the October Massacre of 1987; the October Crashette of 1989; the 1997 Asian Collapse; the Long Term Capital rescue on September 23, 1998, etc. Also, remember the great Gold Boom of the 1970s, while bullion peaked on January 21, 1980, the Gold and Silver stocks made their all time bull market highs on September 22, 1980.
This day also saw the major peak of many oil stocks, which were enjoying a parallel bull market at the time. Also prior to the Great Crash of 1929, the last stock index to make its then all time peak… the Dow Jones Utility Average… did so on September 21, 1929. Even as far back as 1873, there was such a panic that the New York Stock Exchange voted, on September 21st to temporarily close its doors...
Besides stock market moves, numerous currency market moves also have keyed off this date. On September 21, 1931, for example, the British pound was devalued 28% overnight… from $4.84 to $3.50. Also, the now famous Plaza Accord of September 21, 1985, which started a dramatic run in currencies, occurred on the exact 54th anniversary of Britain’s leaving the gold standard. And recall a decade or so ago in 1992 when the French vote on the Maastricht European Exchange Rate Treaty was set for Sunday, September 20th. The British pound sterling collapsed a few days immediately previous to this vote… And finally, recall that the historic Gould-Fisk Gold Corner Panic” saw riot conditions as Gold peaked exactly on September 21st… the year was 1869.
The bottom line, Friday could have the makings of an exceptionally volatile day or perhaps all these events just cancel one and another out, who knows, but it is an extremely heavy day. Thankfully the US has no Macro-Economic Data on deck, just the F_E_D's Dennis Lockhart speaks at 12:40 p.m.
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