Spooky Market Action on Triple Witching Day

December 18 2022

Weekly Column with The Contrarian

It's been ten days since the market broke the bullish channel which had been forming from October 13th thru December 6th. This week we saw an accelerated move to the downside going into the Triple Witching Day.

Four times a year ( March, June, September, December ), contracts for Stock Options, Stock Index Options, and Stock Index Futures expire on the same day. During this Triple Witching Day you can see all types of extreme market movements as forces try to move the markets toward a desired price point on a settlement basis. The settlement price on this day will determine what contracts will expire worthless and what contract obligations need to be fulfilled. Investors that have " At The Money Options or In The Money Stock Options " will need full stock value or the actual stock on hand to deliver at settlement in their accounts, depending on their option obligations. The Stock Index Options and Index Future Contract settlement is based on the closing price of the Index. Index options and Future contracts are the cash settled.

Why is Triple Witching a big deal? Through the use of options and index trading investors are able to reduce market risk to the portfolio. At expiration, investor's need to reestablish their positions to protect the portfolio. They can do this by rolling out to the next triple witching date.

The Federal Reserve has raised interest rates seven times in 2022. Their goal is to have the Fed Funds Rates at 5% ( currently 4.25% to 4.50% ), Unemployment Rate 4.5% ( currently 3.7% ), and Core Inflation Rate at 2% ( currently 7.1% ). We are close to the first two objectives however, attaining a 2% core inflation rate will be very hard to do without throwing the economy into a recession. The Federal Reserve is clear about the economic risk, but is determined to crush out inflation. This determination is very bad for risk assets. We are seeing some inflation coming down like home prices and energy, but the harder task will be bringing down food inflation.

- COMMODITY CORNER -

S&P March ( bearish ) Support level - 3818.00, Resistance level - 3934.00

Gold February ( bullish ) Support level - $1780.00, Resistance level - $1,820.00

Bitcoin ( bearish ) Support level - $15,300.00, Resistance level - $18,000.00

Ethereum ( bearish ) Support level - $1000.00, Resistance level - $1,300.0

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Any views expressed in the below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.