Exchange traded funds indexed to the S&P 500 dropped nearly 3% on Friday, selling off following the miserable U.S. employment report and after hitting resistance near their 50-day exponential moving average, a key technical indicator.
“At the open the S&P 500 swept lower following the poor monthly jobs report. Ten minutes into the session channel support of a rising three week uptrend was found and subsequently retested,” said Tarquin Coe, technical analyst at Investors Intelligence. “That channel is in a larger four week channel which itself is in a larger three month channel. Reactions at the boundaries of these channels should provide tradable directional cue in the week ahead.”
SPDR S&P 500 ETF (NYSEArca: SPY) and iShares S&P 500 (NYSEArca: IVV) were down 2.7% in afternoon trading Friday.
“In addition to those channels there is the overhead 50-day exponential moving average. This level is yet to be tested by the correction,” Coe wrote in a newsletter Friday.
“Given the close proximity of that average a brief probe up to test that level needs to be allowed for with respect to bearish positions,” the technical analyst added. “We remain cautious owning equities beyond the short-term as we still believe the rally off the August lows is merely countertrend.”
SPDR S&P 500 ETF was down 3% year to date, heading into Friday’s sell-off.
S&P 500
iShares S&P 500
Full disclosure: Tom Lydon’s clients own SPY.