Quadruple Witching Friday Could Add Volatility, Retail Remains In Focus

The Dow Jones Industrial Average looks to be set to have its first up week in three weeks despite the major stock indices futures contracts trading slightly negative Friday morning. The S&P 500 has been lower seven of the nine previous trading sessions. Despite a relatively volatile week, the major indices didn’t move much from Monday to Friday.

However, today could be interesting from a volatility point of view given that it is “quadruple witching,” the Friday each quarter when contracts for stock index futures, stock index options, stock options, and single-stock futures all expire. The CBOE Market Volatility Index (VIX) is slightly off its lows and VIX futures are relatively unchanged in pre-market trading.

We could see choppy trading especially around the open and close, so you might want to exercise some caution if you plan on trading today. Coming off a volatile week, many traders may have already closed out of their positions which could actually reduce Friday’s volatility between the open and close. Traders that still have options contracts may need to clean up their positions to avoid pin risk.

The Michigan consumer sentiment survey comes out just after the open. It may be an interesting report after a week that focused so much on retail. However, it may be hard to tell what kind of effect it will have on trading because of the expected movement around “witching”.

Retailers are getting creative when it comes to helping consumers find ways to pay for their products. It used to be your mom would put your husky jeans on layaway and the store would hold them until she could pay them off. But today there are various ways to “pay as you go” or “buy now and pay later” without using a credit card and these trends have led to several mergers.

On Wednesday I noted that Goldman Sachs (NYSE:GS) is acquiring GreenSky (NASDAQ:GSKY), which offers pay as you go home improvement loans. In August, Square (NYSE:SQ) agreed to buy installment-payment system Afterpay (ASX:APT) Last week PayPal (NASDAQ:PYPL) announced plans to buy Japanese installment-payment company Paidy.

These companies offer different and cheaper avenues for consumers which is why they’re becoming increasingly popular. In fact, Macy’s (NYSE:M), Bed Bath & Beyond (NASDAQ:BBBY) and Amazon (NASDAQ:AMZN) are all offering their own instalment programs. These programs allow the consumer to take their jeans or other items home and pay when they can.

The trend in offering instalment plans has grown and has the potential to help consumers get through the upcoming holiday shopping season. Affirm (NASDAQ:AFRM) closed 7.13% higher on Thursday as Business Wire highlighted the company’s positioning to help holiday shoppers stay on budget.

DJUSRT And S&P 500 Combined Daily Chart.

DJUSRT And S&P 500 Combined Daily Chart.

CHART OF THE DAY: RETAIL IS RELATIVE. The Dow Jones U.S. Retail Index ($DJUSRT–candlestick) has underperformed the S&P 500 (SPX) over the past year according to the relative strength indicator (RS). The RS (not to be confused with the RSI) compares the prices of the retail index to the price of the SPX. The downtrending nature of the RS line seems to indicate that the retail index is weaker or underperforming the SPX. Data source: S&P Dow Jones Indices. Chart source: The thinkorswim(R) platform. For illustrative purposes only. Past performance does not guarantee future results.

Trapper Keepers: Despite the weak performance, back to school shopping appeared stronger than expected as indicated by the surprise in retail sales. Many schools and college campuses are opening which helped sales in the big-box stores like Walmart (NYSE:WMT) and Target (NYSE:TGT). Back to school shopping is probably one of those tasks that help people regain some feelings of normalcy.

Many brick-and-mortar retailers have been hurt by the pandemic but appear to have been given a boost by Thursday’s report. Nordstrom (NYSE:JWN), Dillards (NYSE:DDS), Gap (NYSE:GPS) and Kohls (NYSE:KSS) all rallied on the news. However, until consumers no longer feel trapped in their homes, retailers will have to rely heavily on their ability to pull in online shoppers. But, even then, it may be difficult for retailers to get products to consumers because of the broken supply chain.

Stranded At Sea: Speaking of the supply chain, Business Insider reported on Tuesday that a swell of cargo ships was stuck off the coast of California. The count of 56 ships set a record. Normally, zero to one ship is waiting to be unloaded.

Consumers continue to focus on buying products over services which is doubling and tripling the load size of the ships–resulting in longer unloading times. Many forecasters were hoping that Covid policies would relax and consumers would turn their attention to services instead of products which could provide much needed supply chain relief.

Ocean shipping stocks like Textainer (NYSE:TGH), Star Bulk Carriers (NASDAQ:SBLK), and Danaos (NYSE:DAC) have experienced tremendous demand for their products and services. It’s likely they’ll continue to garner attention until the supply chain is fixed.

Ship Shape: Moving on from ocean ships to spaceships, Elon Musk’s SpaceX successfully launched four amateur astronauts into space on its Resilience space capsule. The Inspiration4 mission is scheduled to last three days and could be one giant leap for space tourism.

The successful launch appears to have helped competing space tourism rival Virgin Galactic (NYSE:SPCE), which rose more than 3.5% during the day. The Economic Times reported that SPCE already has hundreds of bookings at $200,000 to $250,000 per ticket. Other related stocks, like Astra Space (NASDAQ:ASTR), Ehang (NASDAQ:EH), Innovative Solutions and Support (NASDAQ:ISSC) and Kaman (NYSE:KAMN) were mixed on the news.

While space tourism is a service outside the reach of many consumers, the ability for these companies to scale in the future may be a big determinant of their success.

Disclaimer: TD Ameritrade(R) commentary for educational purposes only. Member SIPC. Options involve risks and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options.