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It may be a volatile couple of weeks for global equity markets, and traders will enjoy embracing it. We have several key events due to drive stocks these next weeks, including:
  1. The FOMC decision this week, which could set stocks either way;
  2. The possible continuation of the Greece versus Troika standoff , which so far looks like it may go to head with the worst possible outcome;
  3. Closer to Asia, we have the possibility of a bigger outbreak of the MERS virus especially in North Asia. This could rattle confidence and bring fear to overheating equities there.
Moreover, these two weeks may see several ‘technicalities’ which could affect stocks wildly, possibly with a negative bias.

Triple Witching

First, Triple Witching happens again this Friday. Known sometimes as ‘freaky Friday’, Triple Witching is an event that occurs when the contracts for stock index futures, stock index options and stock options all expire on the same day. With all the activity of the contracts ending during this expiration period, and the reshuffling of market holding, the effect is usually a dramatic increase in trading volume. With this spike in activity, volatility usually follows. In fact, independent studies have shown that the swing in stock prices during the week of Triple Witching and the following week, has been wider than most weeks. Triple Witching this week also coincides with a period when global stocks are standing near their seven- to fifteen-year highs. All of this is happening just as we are about to be faced with a reversal of interest rates from the world’s biggest economy, the first in years. Secondly, as a follow up next week, we have the usual month/quarter/semi-annual end window dressing activity. This could add to the possibility of a sell-down in stocks as fund managers may find it difficult to resist the temptation of ‘locking in’ what has been a solid year-to-date performance for most of the key major indices.

Proxy China Play in doubt?

DAX

… a message from the bond markets…. VIX - Perhaps time for some insurance….
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