Quadruple Expiration and Rate Hike Puts Pressure on US Equity Markets
Today the Dow Jones Industrial Average closed down 367 points and the S&P futures closed down over 30 points. One of the factors leading to the heavy selling was today’s quadruple expiration. The quadruple expiration is when various stock index futures, stock index options, stock options, and single stock futures all expire on the same day. This occurs once every quarter on the third Friday of March, June, September, and December. Futures and options investors must close out of their positions on these days, often resulting in increased trading volume. At the end of the day at around 3:15 heavy selling came into the overall market.
Interest Rate Hike
It is also interesting that the market sold off as a result of the rate increase by the Federal Reserve. There are now talks that maybe the Federal Reserve acted too late into the cycle of economic growth we have had over the last seven years. Seven years is a very long time to hold interest rates at 0%. One of the Federal Reserve’s reasons for raising interest rates now is that they are confident that the economy is going to grow. They went from saying that they are data dependent a month ago to now saying that they have confidence in the economy. Overall I think the market is a little nervous about their reasoning for raising interest rates. The data the Federal Reserve had said they are dependent on is weak. GDP for the year is only at 2-2.25%. This is nowhere near the 4-5% GDP in times when the economy is booming and really growing.
Dow Jones Industrial Average
Now that this quadruple expiration is out of the way, I expect the overall market to reverse and push upwards over the next eight business days. There are only eight business days remaining until the end of the year. If I was a long term investor I would look to sell and be 100% in cash if the Dow Jones Industrial Average gets into the 17800-18400 range before the end of the year. Whether one owns individual stocks, mutual funds, and/or exchange traded funds I would look to sell. I believe there will be great opportunities for better entries in 2016.
Gold has made significant gains over the past two days, closing up about 15 dollars on Thursday and 16 dollars today. Gold has been holding above the big 1040 level that I have been talking about. There are now talks that the economy may not grow to the point which would warrant the Federal Reserve to raise rates every time they meet. If there is any interest rates hike in 2016 there are talks that it may not be until the late first or early second quarter. I do not even see that. I think this is causing gold to get a bid below the market. It is not like the Federal Reserve is going to raise rates every time they meet, which would put pressure on the commodity and cause it to selloff. At these levels I am more bullish than bearish but I am waiting for a better pattern to set up on the daily chart.
Crude oil traded below 35 dollars a barrel today. I stated I would look to get short oil if it got into the 39.50-41.50 range. Oil got up to the 37.50-37.80 level. The declines in crude oil along with the decrease in gasoline and heating oil prices are great for the consumer. I do not see any hope in crude oil, it may get a couple bounces along the way but I anticipate crude oil continuing to drift lower into 2016.