By Nicholas Santiago on March 26th, 2010 3:24pm Eastern Time
As many of our subscribers know by now, rarely do the markets decline sharply on a Friday. Today the major indexes such as the SPDR S&P 500 ETF (NYSE:SPY), SPDR Dow Jones Industrial Average ETF (NYSE:DIA), and the PowerShares QQQ Trust, Series 1 ETF (NASDAQ:QQQQ) have all reversed earlier gains but, remain near the unchanged mark for the day.
Many traders and investors would think the markets would decline further after the news out of Asia reported a possible conflict between North and South Korea. While this news has not been confirmed, gold has spiked on the worries. The SPDR Gold Trust ETF (NYSE:GLD) is trading higher today by more than 1.40 to 108.26.
While trading volume is usually very light on a Friday, however, we believe there is something more to this flat to positive close on Friday phenomenon. Over the past year or so we have had very few Friday's that have been down significantly on a Friday. In the past year there have been about 7-8 Friday's when the market has been down over 100 points. Therefore, today is really not a surprise to see the market trade around the flat line into the close.
Remember, the institutional money that controls the movements of the market does not want to spook the Asian markets over the weekend. This weekend Asia could be exceptionally sensitive due to the geopolitical events in North and South Korea. Second, most stock market crashes that occurred have happened on Monday's. This is because the negative sentiment and momentum build up over the weekend, culminating on Monday. Third, the powers that be do not want a bad headline on the evening news when people are getting ready to shop and spend money over the weekend. Remember, the average person will watch the news or read the newspaper over the weekend and just glance at the Friday's numbers in the stock markets. They are not paying attention to the day to day movements. This is why we call this the “Friday Effect.”
Comments