Stock Index ETFs Set To Close Week Near Lows In Volatile Trade

Stocks and index ETFs tumbled once again on Friday, after attempting to make a run-up in the overnight futures trading session, in what has been a volatile week of trading.

With stock index futures shifting to a new front month contract, equity indexes are retesting the lows made Wednesday, bringing the Nasdaq back into correction territory as tech stocks declined. The Dow Jones Industrial Average traded just below breakeven, after climbing as much as 294 points earlier in the day. Meanwhile, the S&P 500 dropped 0.5%, as the Nasdaq Composite tumbled 1.3%. The S&P 500 and Nasdaq both reached their lowest levels of the week on Friday.

The major stock index ETFs are falling on Friday along with their underlying benchmarks, with the SPDR Dow Jones Industrial Average ETF (DIA), SPDR S&P 500 ETF Trust (SPY), and Invesco QQQ Trust (QQQ) all declining. The iShares Core S&P 500 ETF (IVV) slipped 0.6% Friday as well.

Although markets continue to tread water above the February highs, analysts are concerned about the S&P 500, as it fell below its 50-day moving average, an important technical level monitored by traders, for the first time since April. The Nasdaq also traded under its 50-day moving average, where it has not closed since early Spring.

“Markets continue to struggle finding an equilibrium,” said Mark Hackett, chief of investment research at Nationwide. “This market is more akin to the emotional swings of March and April than in recent months. We are likely to continue in a period of directionless volatility as bulls and bears wrestle between the strong Fed liquidity and improving economic backdrop and the continued uncertainty and elevated valuations.”

The FAANG cohort is under pressure on Friday, amid news that SoftBank was pondering adjustments to its options trading strategy, which prompted Apple to lose 2.7%, Amazon to drop 2.5%, and Facebook and Google to decline over 1%.

Economic data Friday also showed an increase in the CPI, which caused inflationary concerns to arise.

“The resurgence in economic demand following the pandemic lock down has turned the direction of consumer prices on its head with pent-up purchases from the consumer dramatically changing the deflation trend to an inflation trend,” said Chris Rupkey, chief financial economist at MUFG.

Douglas Busch, founder of ChartSmarter.com, expressed concern over stocks, saying that a “hallmark” of a healthy market is closing close to its high following a fragile start. “The opposite of that action could be the definition of how the benchmarks fared Thursday,” he said.

“Decent early gains quickly faded, and as many stated last week’s lows were critical to hold,” Busch said in a note to clients. “Perhaps, for the first time in a while, we can say advantage bears.”

The market is set to post significant losses this Labor Day week. The Dow declined 2% for the week while the S&P 500 has sank 2.9%, on target its second straight weekly loss for the first time since May. Meanwhile the Nasdaq was hurt the most, sinking 4.6%, and on target for its worst week since March, which is troubling technical analysts.

“The next couple of sessions will be crucial in judging the possible extent of the pullback, and bulls will be looking for signs of positive divergences as the major indices approach their 50-day moving averages,” said Ken Berman, strategist at Gorilla Trades.

For more market trends, visit  ETF Trends.

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