Friday Option Expiration and Rebalance Goes out Like a Lamb
Friday Option Expiration and Rebalance Goes out Like a Lamb
Ihave seen many surprising monthly option expirations and when combines with Index re balances can lead to volatility. Not today on this Friday, and not with the WorldCup and US Open Golf coverage dominating TV and most likely the traders around the US.
Stocks drifted higher Friday after a rise in gold lifted shares of minerals companies. The Dow Jones industrial average rose about 14 points in afternoon trading after posting its first three-day gain since April. Broader indexes edged higher.
The price of gold settled at a record for a second straight day. That lifted shares of mining companies like Barrick Gold Corp. and Newmont Mining Corp. The stocks rose about 3 percent.
Corporate news brought out some buyers. CVS Caremark Corp. and Walgreen Co. ended a contract dispute that threatened to hurt profits. Without the deal, thousands of Walgreen customers could have had to find somewhere else to fill prescription drugs. The companies didn't release details of the agreement. CVS shares rose 3 percent, while Walgreen climbed 3.5 percent.
Friday was a quarterly "quadruple witching" day, or the simultaneous expiration of four kinds of options and futures contracts. That brought heavy trading volume and price swings. The week that follows the June expiration is often a losing one for investors. The Dow has posted a loss during that week for the past 11 years, according to the Stock Trader's Almanac.
The Dow is on track for its second straight weekly gain. Before that, the Dow had been down for three weeks. Investors have been trying to determine whether the stock market's "correction" is over. A correction is generally considered a drop of 10-20 percent from a recent peak. The Dow is up 6.3 percent from its lowest close of the year on June 7 but it's still down 6.9 percent from its 2010 high on April 26.
"I don't know that we're totally through the correction," said Stu Schweitzer, global markets strategist at J.P. Morgan's Private Bank in New York. "I do expect markets to remain quite volatile all through the rest of this year but I still expect that we're going to end the year higher."
In late afternoon trading, the Dow rose 13.90, or 0.1 percent, to 10,448.07. The broader Standard & Poor's 500 index rose 0.50, or 0.04 percent, to 1,116.54, after rising the past two days. The NASDAQ composite index slipped 1.22, or 0.05 percent, to 2,305.94.
Bond prices slipped, pushing interest rates higher. The yield on the benchmark 10-year Treasury note rose to 3.22 percent from 3.20 percent late Thursday.
The dollar was mixed against other major currencies, while the euro fell to $1.2363.
Crude oil rose 39 cents to settle at $77.18 per barrel on the New York Mercantile Exchange.
Randy Frederick, director of trading and derivatives at Charles Schwab, said the market's bounce from its recent lows has come too quickly. He said professional traders are building up positions in investments that would cushion their losses if the market fell again.
"Not that we're going into this big ugly bear market but to go back down to the lows that we were at just a few weeks ago, I think, seems very possible based on what I see," Frederick said. "I see a reason to be a little cautious right now."
The coming week brings readings on home sales and consumer sentiment. The Federal Reserve also will meet on interest rates.
Gold settled up $1,258.30 an ounce, a gain of $9.60. Barrick Gold rose $1.47, or 3.3 percent, to $46.29, and Newmont Mining climbed $1.90, or 3.2 percent, to $61.58.
CVS rose 95 cents, or 3 percent, to $32.79, while Walgreen advanced $1.03, or 3.5 percent, to $30.30.
Advancing stocks narrowly outpaced those that fell on the New York Stock Exchange, where volume came to 1 billion shares, compared with 700 million traded at the same point Thursday.
The Russell 2000 index of smaller companies fell 0.77, or 0.1 percent, to 665.08.
Britain's FTSE 100 and Germany's DAX index each slipped about 0.1 percent, while France's CAC-40 rose 0.1 percent. Japan's Nikkei stock average was essentially flat.
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Disclosure: no positions
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