Rebalancing weeks are some of our favorites. There’s a ton of big moves happening, and that means opportunities for us and our readers. In the spirit of that, here’s our S&P 500 rebalance preview, and a free pick that’s in line with our Burn Notice service.
When indexes rebalance, professional traders hone in on those moves because there’s a lot of money changing hands.
The S&P 500 is the largest tracked index in the world. And every quarter, it rebalances the stocks it owns — meaning they sell off some and add others. By doing so, many passive flows are created.
Funds that track the index also have to buy and sell stocks in the same amount in order to stay in line with the S&P 500’s rebalancing.
Look for the Big Moves in Our S&P 500 Rebalance Preview
We saw a huge move created from the S&P 500 rebalancing this past quarter. In December 2020, Tesla Inc. (Nasdaq: TSLA) was added to the index, forcing everything tracking the index to buy shares of the electric vehicle company. It was the biggest addition in history.
That created a move that short-term traders like us absolutely love.
On the last day to add Tesla to your portfolio before it was added to the S&P 500, it traded over 200 million shares at around $700 each. It was the most liquid trading in the history of the U.S., and that volume caused the stock to close at all-time highs.
For our readers that know what Burn Notice is all about, that’s a huge opportunity to go against a big move… A chance to capitalize on the panic.
In one overnight session, traders had the opportunity to make 7% on the short.
Now a new stock has been announced a week ahead of the rebalance.
Check out our S&P 500 rebalance preview to see what big moves are going to happen on March 20, and some Burn Notice strategies we like. It doesn’t matter what happens between now and then, there’s going to be action!
As always, guys, feel free to email your trading questions to jeff@joyofthetrade.com and learn some of our best strategies by subscribing to our YouTube channel.
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