Statistically, the week after the September Quadruple Witching is a down week, but that became a much larger reality after Volkswagen admitted that it cheated on emissions testing. After struggling to sell cars in the U.S. for many years, the company made a turnaround in 1997 when it reintroduced the Beetle. For many years the company struggled to compete with the Japanese and U.S. automakers, but the last decade has been marked by a series of weak launches of new vehicles. After VW sales dropped 7% in the United States in 2013, it left the company’s market share to just over 2%, and Winterkorn was replaced as CEO of Volkswagen Group of America by Michael Horn, who currently holds that position.
There are a lot of variables when it comes to trading the S&P futures, and the overall stock markets, but when news that VW had lied about its emissions hit the wires, it was clearly something that caught the markets off guard. Yesterday, VW’s stock was down more than 20% at one point as world markets were thrown off, and automakers in the U.S. suffered from declines throughout the day.
With this kind of news there always seems to be a web of truth tangled up that, as it unwinds over time, more disturbing facts are found. Back in 2010 when Toyota had to pay $1.1 billion dollars in damage settlement, and the company’s president & CEO Akio Toyoda had to testify before congress, the stock lost nearly 20% in a couple weeks, and after falling further, it failed to completely rebound for almost 3 years.
On the Volkswagen news early Tuesday morning, European markets began to sink, and the ESZ15 lost 30 handles in 4 hours. The S&P tried to recover early in the U.S. cash session, trading from a low of 1925.75 up to 1936.75, before the floor collapsed and the index traded down to 1917.75, finding a low there and bouncing into the close, trading back up above 1930.
It’s currently 6:45 am CT and the S&P futures sit at unchanged after dropping more than 19 handles early during the Asian session, and having bounced back during the Euro session to positive territory, finding a high at 1941.75, up a tick shy of 10 handles for the day, and 31 handles from the globex low.
We warned traders about the possibility of increased volatility in the beginning of July when the PitBull warned us about a big pick up on vol going into the last week of July into the third week of August. Then China started heating up and in came the 1,100 point DOW drop on Monday August 24th. The selling abated a bit going into the S&P 500 futures ‘roll over’ during the month of the September Quadruple Witching. After that, we also warned people that the week after the September expiration was down 21 out of the last 25 years, and that happened to be the week VW came clean knocking down the DAX 4% in one day and pushing the S&P down over 1%. In the end, we do not pretend to know it all, but what we can say is historical patterns matter.
In Asia, 10 out of 11 markets closed lower (Shanghai Comp. -2.19%), and in Europe 8 out of 12 markets are trading higher this morning. Today’s economic calendar starts with the MBA Mortgage Applications, PMI Manufacturing Index, EIA Petroleum Status Report, Atlanta Federal Reserve Bank President Dennis Lockhart speaks, and a 5 Yr-Note Auction.
“Sell on Rosh Hashanah, and buy on Yom Kippur”
Heading into this year, selling Rosh Hashanah, and buying end of day Yom Kippur would have worked 16 of the last 25 years. While this year saw some buying shortly after the Jewish holiday the indexes ultimately retraced before Yom Kippur. The stats for buying Yom Kippur are somewhat mixed but overall positive. One week after the beginning of the holiday, the S&P 500 is up 14 of the last 25 years, and one month later it closes higher 16 of the last 25 years. While these numbers are far from overwhelming, they do represent a solid lean of historic sentimentality.
Our View: The S&P again went up too fast and went down too fast. That is how it works right now. That said, everyone got too bearish the last few days, and after being down 19 handles in Globex last night, the futures are up 8.75 handles at 1949.75 this morning. It’s my feeling that we trade back down and bounce today, which coincides with the old Jewish adage about selling on Rosh Hashanah, and buying on Yom Kippur. Our view, sell the early rallies and buy weakness. No one ever said the remaining 6 days of trading in the 3Q would all be down.
As always; please use protective buy and sell stops when trading futures and options.
- In Asia 10 out of 11 markets closed lower : Shanghai Comp. -2.19%, Hang Seng -2.26%, Nikkei -1.96%
- In Europe 8 out of 12 markets are trading higher : CAC +0.68%, DAX +0.65%, FTSE +1.30% at 6:30 am CT
- Fair Value: S&P -10.19, NASDAQ -13.60, Dow -107.94
- Total Volume: 1.98mil ESZ and 9.2k SPZ
- Economic calendar : MBA Mortgage Applications, PMI Manufacturing Index, EIA Petroleum Status Report, Atlanta Federal Reserve Bank President Dennis Lockhart speaks, 5 Yr-Note Auction.[s_static_display]
No responses yet