Todays Market: Triple Witching and Float Rebalance
The S&P 500, down 2.2% for the year and down 1.2% this week, has fallen below initial support near 1188 and has tested its Jan low (1184.16)... The Nasdaq has fallen below its Jan low (2008) and established a new 4-month low while the Dow, down (-1.8%) for the year, is testing levels not seen in about a month.
Triple witching is coinciding with re-weighting activity in the S&P. Todays quarterly options expiration, in which stock and index futures and options all expire simultaneously, has added some instability to the market. The S&P's adjustment efforts to enhance liquidity and more accurately reflect what's actually available for purchase by regular investors, has attached an extra bit of caution.
The S&P 500 begins its float rebalancing today, as the US S&P Indices shift to a half float adjusted calculation to enhance liquidity. S&P intends to shift its major indexes to "float-adjusted" market capitalization weights. That is, the value of the Index will be calculated by, for each component, multiplying the number of shares in the public float of the component by the price per share of the component. The result is then divided by the divisor.
Thus, the "float adjusted" market capitalization methodology will exclude blocks of stocks that do not trade from the weighting determination for a stock in the index. One stock seeing immediate effect has been Wal-Mart (WMT 52.09 -0.24), as its weighting in the S&P 500 will be almost halved (from 2.04% to 1.2%) by the re-weighting process completion on Sept. 9, 2005.
Triple witching is coinciding with re-weighting activity in the S&P. Todays quarterly options expiration, in which stock and index futures and options all expire simultaneously, has added some instability to the market. The S&P's adjustment efforts to enhance liquidity and more accurately reflect what's actually available for purchase by regular investors, has attached an extra bit of caution.
The S&P 500 begins its float rebalancing today, as the US S&P Indices shift to a half float adjusted calculation to enhance liquidity. S&P intends to shift its major indexes to "float-adjusted" market capitalization weights. That is, the value of the Index will be calculated by, for each component, multiplying the number of shares in the public float of the component by the price per share of the component. The result is then divided by the divisor.
Thus, the "float adjusted" market capitalization methodology will exclude blocks of stocks that do not trade from the weighting determination for a stock in the index. One stock seeing immediate effect has been Wal-Mart (WMT 52.09 -0.24), as its weighting in the S&P 500 will be almost halved (from 2.04% to 1.2%) by the re-weighting process completion on Sept. 9, 2005.
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