"Triple Witching" Expiration on Tap as Quarterly Opex Rolls In

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I know this is short notice, but my friend Rich Miller, AKA Handelstats, is doing a webinar this morning on quarterly expirations. From Rich:

Join us this morning for the quarterly September expiration. If you are interested in how SOQ settlement works in the ES and NQ and you want to learn about the quarterly spread trade, join us for the discussion right here.

Our View

Crude oil (CL) settled at $90.69, up $2.17 and hitting a 10-month high. As previously laid out, this was our first target area, while the next upside area is $94.00, 98.00 then $104. Goldman said something about $120.00 by year-end, which I think is doubtful.

The YM closed up 368 points or 1.05% at 35,286, the NQ closed up 0.80% at 15,677.25 and the RTY closed up 28.20 points or 1.52% at 1,888.60.

These are all significant gains, but I want to point something out. While many thought the index markets were going down over the last two weeks, I never got negative. Yes, I did talk about higher crude prices impacting the stock market, but the ES was back-and-filling above 4500 for over two weeks and the lower volumes set up a “thin to win scenario.”

I work hard to point out the trading rules we use — like the Thursday/Friday low the week before the monthly expiration or how markets tend to rally early in the day and early in the week in a bear market. The one I mistakenly forgot to post was one of the PitBull’s; one that you should definitely add to your trading tool box.

PitBull says they always make the markets good on big stock offering days...that they don't let the markets go down.

The Arm IPO was set to be massive, with the offering valuing the company at more than $50 billion on a fully diluted basis. Arm priced its offering at $51 a share late Wednesday, raising $4.87 billion and putting the company at a $55.5 billion valuation. It opened at $56.10 a share and ran as high as $66.28.

A strong showing from a big IPO is just good business for the market and the exchanges.

Our Lean

The UAW went on strike last night and the ES dropped 10 points, but is still up 4 points this morning while the NQ dropped over 70 points and is 15 lower.

Separately, some $4 trillion of derivatives linked to stocks, index options and futures will expire on Friday. The so-called ‘triple witching’ event coincides with a re-balancing of indices, such as the S&P 500 SPX.

Our Lean: Buy the early pullbacks and sell the rallies.

The levels we are watching today are 4560, 4570-72 and 4589. On the downside, I’m watching 4540, 4502, 4494, 4492 and 4460.

MiM and Daily Recap

The ES traded up to 4547.75 at 9:23 a.m. and opened Thursday's regular session at 4542. After the open, the ES hovered around the VWAP from the 4450 area down to 4434 until 9:52, broke down to 4528 at 10:21 and then slingshot up to the 4451. From there, it dropped down to 4541.50 and then rallied back up to a new high at 4556.50 at 12:15, pulled back to the 4550.50 area, rallied up to 4558.25, sold off down to the 4550.50 level at 2:33 and then jumped up to 4562 at 3:07 as the early imbalance showed $41 million to buy.

Aside from the early sell-off, this was a non-stop buy program/short squeeze. After the high, the ES pulled back to the 4553.25 level at 3:31 and traded 4555.50 as the 3:50 cash imbalance showed $2.55 billion to buy and traded 4555 on the 4:00 cash close. After 4:00, the ES traded up to 4561.75 and settled at 4557.75 on the 5:00 futures close, up 37.75 points or 0.79% on the day.

In the end, the rally was planned out on Wednesday afternoon when they rallied near the end of day. In terms of the ES’s overall tone, it was firm all day. In terms of the ES’s overall volume, it was steady: 289k traded on Globex and 1.134 million traded on the day session for a grand total of 1.423 million contracts.

Technical Edge

• NYSE Breadth: 79% Upside Volume

• Nasdaq Breadth: 62% Upside Volume

• Advance/Decline: 79% Advance

• VIX: ~$12.75

ES — December Contracts

Held 4500 and cleared this week’s high of 4543.50. Now, we look to see if the ES can hold the levels it retook (like ~4540).

• Upside Levels: 4560-62, 4570-72, 4589

• Downside levels: 4540-43, 4502, 4494, 4492 and 4460

CL

A small rejection from the ~$91 area, AKA the 50% retrace or the “halfback.” Like the View said, that $97.50 to $98 area could still be in play. If we dip, let’s see if buyers step in around $88.

• Upside Levels: $94, $98 and $104

• Downside levels: $87.50 to $88, $84.50

Guest Feature

From my friend Jeff Hirsch from Stock Trader's Almanac

Sell Rosh Hashanah Buy Yom Kippur Sets Up

Sell Rosh Hashanah, Buy Yom Kippur is aligning quite well this year with late September seasonal weakness and the notoriously treacherous week after quarterly options expiration, AKA Triple Witching. It’s a few days before FOMC with a market jittery on hotter inflation data.

Rosh Hashanah lands on Saturday 9/16 this year so our stats us the close the day before. This is right at the mid-month peak of the typical September pattern. Yom Kippur falls on 9/25 which is the 16th trading day of the month, right around the seasonal monthly low point.

The thesis is that folks sell positions on Rosh Hashanah the first of the Days of Awe to rid themselves of financial commitments and then return to the market after Yom Kippur, the Day of Atonement. It is no coincidence that this coincides with the seasonal September/October weakness.

The market has been tracking the 4-year cycle and seasonal trends to a T this year and the past 3. So, this should make a great entry for the Q4 pre-election year rally.

Open Positions

1. JPM — Many are long from $143-145. This is a longer term swing. Trimmed $153s, then $157.50+ on 7/24.

   1. Down to ½ position vs. Break-even stop. Can make small, ~10% position trim if we see $160+

   2. If worried about a larger correction, can sell/trim north of $150 and look to re-establish lower (if we get it).

2. XOM — Long from the monthly-up area at $108.50 — Trimmed ¼ at $112.50+ and ¼ at $115+. Now we have another ¼ peeled off at ~$118. If we see ~$120, can consider a final exit or hold for a longer-term swing. Up to you.

   1. Break-even or better stops

Economic Calendar

Disclaimer: Charts and analysis are for discussion and education purposes only. I am not a financial advisor, do not give financial advice and am not recommending the buying or selling of any security.

Remember: Not all setups will trigger. Not all setups will be profitable. Not all setups should be taken. These are simply the setups that I have put together for years on my own and what I watch as part of my own “game plan” coming into each day. Good luck!