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S&P 500 SPDRs (NYSE: SPY) Collapse

|Includes: SPDR S&P 500 Trust ETF (SPY), SPY

August 20, 2010

Both the S&P 500 Index (SPX) and it’s tracking ETF the S&P Deposit Receipts (NYSE: SPY) collapsed in heavy volume on Thursday, August 19.

This was not unexpected.

Tuesday’s August 17 rally pulled back almost 50% by the close. Though there was a gain on the day, losing substantial ground in the final hours on low volume is bearish.

Wednesday’s August 18 rally faded in the final two hours and the SPX and SPY closed with barely a fractional gain. Again volume was extremely low.

Thursday’s decline started at the open, even though premarket futures had factored in a nice gain at the start. Nevertheless the market dropped immediately and stayed down. The selling was on heavy volume. The SPX lost 1.7% and SPY lost 1.8%.

A note on volume. This is near the end of August and volume is always light with many traders and investors on vacation. But even with these factors, Thursday’s declines were on heavy volume.

Thursday’s close was at a new low for both the SPY and SPX. In fact it was the lowest close since July 21.

The SPY has support at $106 and the SPX has support at 1056.88. If we close below these levels in coming days, we expect declines to continue with a test of the July 1 correction lows probable.

The ( ETF Timing Strategy has a position in the S&P 500 SPDRs.

Disclosure: The ( ETF Timing Strategy has a position in the S&P 500 SPDRs.