Pass the Test
Posted on Sunday, September 19th, 2021
That was a very uneventful and workman like week. We had our nose to the grindstone as the end of the quarter approaches. (It also rained all week so there was no client golf.) All of the kids were busy with their schoolwork and Diane is busy preparing for her brother to come to town. This week was also a Triple Witch Week in the markets. A what?? Triple Witches are the four days in the calendar year that feature the expiration of four different option indices. (It used to be three. Save the emails.) In my former life as a clerk on the floor of the NYSE I would have such anxiety before those Fridays. Diane still gets the chills when I mention Triple Witching. They would buy us breakfast sandwiches, we would get there early to prepare and the orders would start flowing in 2 hours before the market even opened! Triple Witches tend to have HUGE volume spikes. It was my job, as a clerk, to get the count right all while my boss screamed at me to hurry up. It was a bit nerve wracking to say the least.
While the volume was and still is quite large on Triple Witches the volatility is usually pretty subdued. The thing to watch out for is what happens next week. About 50-60% of options expired on Friday. That means that the market has been reset and has the potential for volatility to jump. It is kind of like leaving the barn door open and the wild stallion loose. As far as the market is concerned the barn door is open for Monday morning. Will the stallion notice that the door is open or will stay in his stall? We will know much more by Monday afternoon.
It is getting to be late September but it still doesn’t feel like everyone is back at (school) their trading desks. As you probably know September is the worst month for stock market returns. September has averaged a loss of 0.5% for the S&P 500 since 1950. We are down just over 2% as I write. So, September has been about what we would expect. While the debt ceilings negotiations have the potential to roil markets, this week might be the bears best bet as the options market is reset.
In our quarterly letter back in July we hinted that those talking up the return of inflation would get their conviction tested and they have. The whole summer has been a hot mess for the energy market as it lagged the broader market and tech in particular. Energy and tech are on opposite sides of the coin. If interest rates are going up tech is the loser while energy will be the winner. If interest rates are going lower – the opposite is true. Energy was the only sector that finished positive last week. Yields on debt look to be headed higher. That speaks to the “back to work” stocks working and inflation rising. The commodity sector has taken it on the chin for years. This could be their turn. Energy and inflation may have passed the test. No blog next week as we write our quarterly letter.
I think we aspire less to foresee the future and more to be a great contingency planner… you can respond very fast to what’s happening because you thought through all the possibilities, – Lloyd Blankfein
A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty. – Winston Churchill
To learn more about us and Blackthorn Asset Management LLC visit our website at www.BlackthornAsset.com .
Disclosure: This blog is informational and is not a recommendation to buy or sell anything. If you are thinking about investing consider the risk. Everyone’s financial situation is different. Consult your financial advisor.