Volumes Spike As Technology Stocks Lead

And now we’re approaching the summer months, which happen to be rather volatile as volumes shrink, pushing stocks around. Investors got a taste of summer volatility on Friday, June 18^th as a swath of selling hit stocks.

In fact, it was the largest single-day of selling since the pandemic, second only to 10/28/20. Below is a chart from my research firm MAPsignals, which measures big buying and selling in stocks. The red bars are the daily total of sells.

Look how Friday was the largest sell day in 2021:

Here’s a zoom in:

Big selling in stocks makes people uncomfortable. But, I’m not too worried. After looking into the data a bit further, the selloff is normal. Let me explain.

Last Friday was Quadruple witching. That’s the 3^rd Friday of March, June, September, and December. They call it Quad witching because 4 expirations happen: options futures, stock options, market index futures, and stock futures. Basically, 4 times a year there’s huge volumes in stocks.

And when volumes are high, you can expect stocks to whip around. So, this raises a question: Do stocks tend to pull back on quad witching days? To find out, I looked at prior returns for the S&P 500 (SPY ETF) on the last 6 Quad witching Fridays.

Notice anything?

That’s right, recently it’s a red day for the S&P 500. So, Friday’s action was ordinary…at least to me. But, let’s keep going. How has the SPY ETF performed on these days going back to 2015?

You tell me:

Only 3 out of 26 periods had a positive daily performance. So, nearly 90% of the Quad Witching days going back to 2015 were red for stocks. So, Friday’s selloff doesn’t worry me.

Rather than worry about single selloff days, my data points to a strong undercurrent for stocks. The Big Money Index (BMI) has been trending higher lately.

If you’re new to the BMI, it tracks Big Money buying and selling stocks on a 25-day moving average. If the index (blue line) is gaining, the market usually follows higher. If it falls, it usually precedes a pullback in stocks.

Right now, it’s at a 6-week high:

And this leads me to the main message of today: Technology stocks are getting bought as reopening and value stocks are getting sold. For growth investors, this is a good thing!

Under the surface of the Big Money Index are daily buys and sells. It’s important to pay attention to where the money’s flowing. Looking at last week, we can see that buyers were seen in Technology and Energy stocks.

Off to the right you can see yellow areas. Those tell us that 25% or more of a sector saw outsized buying and selling. Notice how there was chunky selling in popular value/reopen groups: Financials, Industrials, Materials, Discretionary, Staples, & Utilities.

So, let’s tie this all up. Quad Witching Fridays tend to be red for stocks. It’s normal. And looking under the surface, the bigger picture points to a rotation out of value and into Technology/Growth and Energy.

Sometimes pullbacks happen. Doing a little dive into history helps calm nerves and put everything into perspective.

Disclosure: the author holds no position in SPY or the S&P 500 at the time of publication.

Learn more about the MAPsignals process here: www.mapsignals.com

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