WASHINGTON, June 11, 2012 – Happy Monday, fellow market mavens! The Euro-rain in Spain fell amply on the plain over the weekend, with the EU agreeing to provide Spanish banks with €80B €100B €125B (the number seemed to change by the hour) to ease the pain in Spain.
Futures went manic, with Dow futures catapulting upwards of 250 points Sunday evening. Things have settled back to earth this morning. As of this writing (circa 9 a.m. EDT), Dow futures are up approximately 50 points, looking forward to a decent moment.
But this will be a tricky week, as it’s “Quadruple Witching Week,” meaning, to the lay investor, that just about every kind of short term bet, particularly options, will either have to be exercised or die a painful death on Friday. So, in addition to the ongoing “Groundhog Day” like Euro-nonsense, stocks themselves will be madly manipulated by the algos and the hedgies to trick or otherwise coerce smaller option holders to take actions that causing them to lose money on their positions.
Options, and many of their speculative brethren, always expire on the third Friday before the third Saturday of each month. But expirations involved each month are usually stock index futures, stock index options, and stock options are the only ones involved each and every month, making these monthly expirations known as “triple witching” days. But at the end of every quarter, single stock futures (SSF) contracts also expire—hence, “quadruple witching.” Hey, don’t blame us; we don’t invent the terms here.
At any rate, each triple witching week tends to gyrate wildly, most often in a positive direction even in bear markets. But it’s not always predictable, as you never know who holds what contract or how many and whether the contracts cover positions the fat cats need to protect.
In any event, this is pretty arcane stuff for the little investor like you and moi. So suffice it to say that trading during triple or, particularly, quadruple witching week can be tricky at best, deadly at worst. So if you still have positions on in this odious market, watch them carefully.
Which gets us back to that rain in Spain. Optimists immediately got bullish this weekend when the Euro-community bit the bullet and decided to back Spain in a marginally less debilitating way than it dealt with Greece, namely by shoring up Spanish banks rather than complicating matters by dealing directly with the Spanish government, treasury, and, of course, local legal matters involved therein.
Which gets us to why the futures rally seems to be in retreat this morning. Lest we forget about our friends on the sunny Aegean, Greek leftists duly noted and/or interpreted the terms given to Spain as much superior than those imposed on Greece. Ergo, the lefties are now advocating, essentially, for a complete renegotiation in their own terms. Which at least sound appealing to a beleaguered Greek electorate. Which could give those pesky, dreaded socialistas a leg up in the upcoming June 17 Greek elections. Which has started to scare the markets once again. Hence, the abrupt wind down in this weekend’s brief burst of irrational exuberance.
Market’s about to open, so we’re going to skedaddle and perhaps do some nimble trading this morning as things gyrate. Spain, and ultimately Greece, will continue to bloody our lonely bull this week, we suspect, so keep your hats on, your powder dry, and your hard-earned or hardly-saved dollars safe in either your mattresses or high-dividend utility stocks with friendly regulators. We’re still not really in a growth situation. Best thing we can do is keep our dollars safe (with virtually no inflation right now that can still be your mattress) or at least earning more interest than treasuries, which is why we like the utilities.
We figure that on a worst-case basis, the utilities will be the very last businesses in America to turn off the lights if all else fails. Although daily, both the EPA and the Communist-led Sierra Club are trying to change even this stolid algorithm.
In the meantime, think mattress, think utilities, and think regime change. Have a good one.
Disclaimer: The author of this column maintains several active trading and investment portfolios and owns residential and investment real estate.
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