The quarterly expiration of index futures, index options, stock futures and stock options cause big swings in the stock market. When options and futures contracts expire then traders can either “roll” the contracts to next one, buy or sell the underlying security or let contracts expire worthless. If traders decide to buy/sell underlying stocks then it adds up to the volatility and volume.

These days many traders act before the expiration Friday so the impact is reduced on the expiration day but is spread over more days. The confluence of summer months and quadruple witching, the expiration in June has more pronounced bearish undercurrent. Earlier, we outlined our expiration week in June. Now, let’s will take a look at the expiration Friday.

Mixed Performance On June Expiration Day

The market does not show a discernible bullish or bearish bias on the expiration day.

• Since 1990, Dow has been up 58% of times but it lost more on a down day then it gained on an up day. The net result is an average loss of -0.21% on the June expiration day. Since 2000, Dow was up only 50% of times but the average loss increased to -0.34%
• S&P 500 fared similarly. Since 1990, it was up only 62% but the net result was still a loss, averaging -0.09% Since 2000, S&P was up 57% but the average loss increased to -0.18%
• NASDAQ Composite was up 54% of times since 1990 and the average gain was +0.01%. It has been up 50% of times since 2000 but the result turned to an average loss of -0.11%
• Russell 200 has slightly bullish tendencies on June expiration Friday. Since1990, it have been up 62% of times with average gain of +0.08%. Since 2000, Russell was up 71% of times for an average gain of +0.19%

Bearish Pressures On Monday After June Expiration Day

Market looks differently on the Monday after quad-witching day in June and has a distinct bearish tone.

• Since 1990, Dow Jones Industrial Averages has been down 71% of times on Monday’s after expiration day for an average loss of -0.4%. Since 2000, the down ratio is same but the average loss is trimmed to -0.28%
•  S&P 500, on the other hand, has been down only 58% of times since 1990 for an average loss of -0.38%. The numbers change to 64% down days and -0.37% average loss for 2000-2013 period.
• NASDAQ Composite is no different. Since 1990, it was down 67% of times on Monday’s after June expiration for an average loss of -0.26%. For 2000-2013, NASDAQ was down 71% of times and produced an average loss of -0.39%
•  Small Caps have bigger bearish tendencies. Russell 2000 was down 71% of times since 1990 and lost -0.55% on average. The numbers improve for 2000-2013 time period. During this period Russell 2K was down 79% of times for an average loss of -0.78%

What It Holds For Today

Markets have been going up and ignoring all the calls from various quarters for a pullback. Apart from monetary, fundamental and technical tailwinds, the pull of the psychological numbers of 17000 for Dow and 1700 for S&P 500 is also a big factor. So the chances of this quadruple witching Friday being an up market day are significant.

Let’s analyze what happens on Monday if the expiration Friday is up or a down day.

• Since 1990, Dow has been up 14 times on Friday. Out of those 14 times, it has been down 11 times on Monday or 79% of times with and average loss of -0.9%. A down Friday has been followed up by a down Monday 60% of times
• For S&P 500, an up Friday was followed by a down Monday 67% of times with an average loss of -1.2%. A down Friday was followed by a down Monday only 44% of times
• NASDAQ followed an up Friday with 54% of down Mondays and the average loss was -1.0%. However, the up Monday following an up Friday gained on an average 1.7%. The down Friday was followed up by a down Monday 82% of times having an average loss of -1.3%
• An up Friday for Russell was followed up by a down Monday 60% of times with average loss of -1.1%. A down Friday, for Russell, was followed up by a down Monday 89% of times with -1.2% average loss

Streaks

Market is on a good winning streak. Dow Jones, S&P 500 and Russell 2000 have eked out 5 up days. NASDAQ’s streak was broken in the last session. If today ends up an up day then the winning streak for the three indexes will extend to six-days.

Since 2013, a winning streak of s-x-days was followed up another up day only once for Dow and Russell 2000 in three attempts respectively and four out of five times for S&P 500.

Our analysis of price action around June expiration day throw up some interesting seasonal trading ideas. Russell 2000, NASDAQ and Dow Jones have better odds for a trade on the short side. The holding period would be very small.