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Morning Brief: 7/11/23- NDX 100 Rebalancing

If you have leaned heavy into tech this year, like myself, you are boasting some record level gains. The NDX is up 40% YTD, with stocks like #TSLA, #NVDA, #AAPL, #META leading the way with gains of over 100% so far this year. This bull run has been quite historic, but like anything in history all good things must come to an end.

A rebalancing is set to come in this month, with a projected date of July 24th, and the measures to be announced July 14th. This has only been done twice in history in 1998 and 2011. Technically speaking, the rules state that if the aggregate total of all stocks with individual weights above 4.5% in the index exceeds 48% (currently on 7 stocks account for 55% of the total weighting of the Nasdaq 100). So what does a reweighing actually mean for trading?

A rebalancing is quite simple when it comes to trading. The 7 stocks that are overweighted in the index i.e. #TSLA, #NVDA, #AAPL, #META , will have to be sold and the money reinvested in underweighted tech stocks. Theoretically , this means we should see some sharp selling pressure in these stocks that are all near 52 week highs or have pushed to new record levels. Trading this means that we have multiple options plays here. Buying puts, selling theta, or credit spreads seem to be the best strategies here. But there is no need to get ahead yet, as we don't want to position ourselves until after key data comes out this week.

We will want to trade on or before July 23rd, as the changes will come into affect on July 24th. Let's keep an eye out for this and add it to the trading calendar.

Futures at 7:00, Dow flat. S&P +0.1%. Nasdaq +0.1%. Crude +0.5% to $73.38. Gold +0.5% to $1,940.50. Bitcoin +0.7% to $30,403.


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