Quadruple Witching Friday - Buying the Open Risky

George Brooks |

George Brooks Stock MarketToday: A technical rally fueled by a few positives. Overhead supple starts at DJIA 12,075 (S&P 500: 1285). Market still probing for a “comfort” level where known and potential negatives are discounted.

Time is needed, as well as reassurance that the economic recovery is intact and especially that Congress will raise the debt ceiling and avert a default on certain U.S. obligations. This is unlikely, but fears orchestrated by the news media can pummel stock prices further.

Part of the strong open may be due to “Quadruple Witching” Friday option expire adjustments, not bullishness, ergo RISK in “buying the open.”

Brooksie’s Daily Stock Market blog: An edge before the market opens.

Friday, June 17, 2011 9:23 am EDT

DJIA: 11,961.52
S&P 500: 1267.64
Nasdaq Comp.: 2623.70
Russell 2000: 781.54

A few positives have surfaced, enabling the market to open higher today. Yesterday’s report of a bump in housing starts and building permits and a slight decline in jobless claims combine with a 10 o’clock report of an expected increase in the U.S. Leading (economic) Indicators to lift pressure on stocks. Consumer Confidence (9:55 am) is expected to be a ho-hummer.

The situation in Greece seems to change on an hourly basis, most recently for the positive.

Technically, a bounce isn’t out of the question. Bearishness is a bit excessive, certainly from the standpoint of investment advisory publishers. The American Association of Individual Investors (AAII) reports that an overwhelming number of services are bearish with 43% bearish and 29% bullish.

Wait a minute. We are supposed to be bullish because they are bearish ? How can they stay in business if they are wrong at market extremes ? Well, most are smarter than that. The logic is that if so many are bearish, most of their selling (presumably others, as well) has been done, ergo selling pressure is lessening allowing buying pressures to enter and move the market back up.

It is a contrary indicator intended to highlight “extremes” in sentiment, and human emotions are major factor in valuations of stocks.

Don’t buy it ? Check a graph of the variations in price/earnings ratios. (www.multpl.com)

Ah, and today is “Quadruple Witching” Friday ! This occurs on the 3rd Friday in January, March, June and September and involves the simultaneous expiration of four options and futures contracts – stock index options and futures, stock options and single stock futures.

It can be a day of volatility, which can be followed by the same early in the following week. It is tough to quantify, since traders now tend to make adjustments in advance of Friday’s expire. Nevertheless, today’s “action” may reflect Quadruple Witching adjustments more so than a new bullish investor sentiment.

George Brooks
sensiblesleuth@gmail.com

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The writer of Brooksie’s Daily Stock Market blog, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk

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