Friday ended a positive week with profit-taking on higher-than-average volume following three straight days of gains in which the Nasdaq hit a new record close. The volume increase was due to the triple witching expiration and the rebalancing of some of the indices. And profit-taking was triggered by an unsettling economic crisis in Greece — a cloud over the world markets that keeps raining on everyone’s parade.
Another result of Greece’s struggles was a rally in the bond market on Friday that dropped the 10-year Treasury note’s yield to 2.26% from 2.35% the day before. However, this was below the 2.5% high hit the week before.
All 10 of the S&P’s sectors fell on Friday. But KB Home (KBH) spiked 9.4% after beating earnings estimates, driving the iShares Dow Jones US Home Const. (ETF) (ITB) up 1.3%. The iShares NASDAQ Biotechnology Index (ETF) (IBB) fell slightly but gained 3.7% for the week.
The energy sector continued to lag the market, down 0.9% on Friday, reflecting crude oil’s 1.4% decline to $59.61 a barrel. Gold closed unchanged at $1,201.50 an ounce.
At Friday’s close, the Dow Jones Industrial Average was off 100 points at 18,016, the S&P 500 fell 11 points to 2,110, the Nasdaq was down 16 points at 5,117, and the Russell 2000 was unchanged at 1,285.
The NYSE’s primary exchange traded 1.8 billion shares with total volume of 4.3 billion. The Nasdaq crossed 2.3 billion shares. On the Big Board, decliners outpaced advancers by 1.4-to-1, and on the Nasdaq, decliners led by 1.2-to-1.
For the week, the Dow gained 0.7%, the S&P 500 rose 0.8%, the Nasdaq jumped 1.3%, and the Russell 2000 was up 1.6%.
This chart of the Russell 2000 shows that massive selling during the final minute of trading took back all of Friday’s gains. Light buying after the bell salvaged a 0.02 point gain for the Russell 2000 instead of a close at the high of the day at 1,286.58.
For the S&P 500, the close exaggerated a steady trend lower from a high near the opening at 2,121.64, closing the day at 2,109.99.
Conclusion
Was the market sell-off in the final moment of Friday’s close the result of the triple witching, i.e., expiration of stock index futures, stock index options and stock options? Some say that phenomenon, which occurs on the last day of each quarter, along with the rebalancing of some of the indices, drove the market down in the last minute of trading. There is little doubt that the two mechanical operations resulted in huge volume, but why the enormous run of profit-taking?
Perhaps there is a logical reason for the last-minute dump of stocks on Friday. However, until this institutional selling is explained, I think it best to interpret its impact as another false breakout and approach investments very cautiously.
Today’s Trading Landscape
To see a list of the companies reporting earnings today, click here.
For a list of this week’s economic reports due out, click here.
