Nasdaq 100, Dow Jones, S&P 500 News: Triple Witching Adds Volatility; Nvidia Drops in Market Rebalancing

James Hyerczyk
Updated: Jun 21, 2024, 16:26 GMT+00:00

Key Points:

  • Nvidia shares fall over 2% in early trading, questioning the sustainability of AI-driven market rally.
  • Triple witching and index rebalancing create abnormal market volatility, impacting S&P 500 and key stocks.
  • U.S. service sector reaches 26-month high, but existing home sales hit a 30-year low due to high mortgage rates.
Nasdaq 100, Dow Jones, S&P 500 News

In this article:

S&P 500 Edges Lower Amid Nvidia Slide and Triple Witching

The S&P 500 experienced a slight decline on Friday after the benchmark briefly surpassed the 5,500 mark for the first time. This movement coincided with Nvidia shares dropping for the second consecutive day.

At 14:40 GMT,  the Dow Jones Industrial Average is trading 39205.38, up 70.62 or +0.18%. The S&P 500 Index is at 5461.86, down 11.31 or -0.21% and the Nasdaq-100 Index is trading 17651.65, down 56.94 or -0.34%.

Nvidia Shares Drop

Nvidia shares fell over 2% in early trading on Friday. This followed a more than 3% drop on Thursday, despite the stock hitting an all-time high earlier that day. Year-to-date, Nvidia remains up more than 150% and briefly overtook Microsoft as the most valuable public company earlier in the week. The current dip has raised questions about whether the AI-driven market rally has peaked.

Market Rebalancing

Analysts suggest that the current market conditions do not indicate an imminent crash but rather a rebalancing. The high valuations of certain stocks are expected to level out, leading to a broader market distribution. This rebalancing comes as some sectors have deviated significantly from the average stock performance, indicating a potential broadening of market gains.

Triple Witching Volatility

Friday’s trading was notably volatile due to the occurrence of triple witching. This event involves the simultaneous expiration of stock options, stock index options, and stock index futures options. Additionally, index rebalancing activities added to the market’s volatility. Changes include CrowdStrike joining the S&P 500 and adjustments in the weights of Nvidia and Apple in the Technology Select Sector Index, necessitating substantial acquisitions by ETFs to align with the new index weights.

Stocks on the Move

Several stocks saw significant movements on Friday. Nike rose 1% following an upgrade from Oppenheimer. Gilead Sciences increased by more than 2.6%, continuing its rally. Sarepta Therapeutics soared 37% after FDA approval of its Elevidys gene therapy for Duchenne muscular dystrophy.

Economic Indicators

The U.S. service sector showed strong performance with the Services PMI reaching its highest level in 26 months at 55.1, up from 54.8 in May. The manufacturing sector also saw improvement, with the PMI flash reading hitting 51.7, surpassing expectations. However, the housing market remained sluggish, with sales of previously owned homes at a 30-year low, influenced by high mortgage rates.

Market Forecast

Given the current market developments, traders should prepare for heightened volatility in the short term. The rebalancing and index adjustments suggest a cautious outlook, but no major downturn is anticipated. The market’s response to Nvidia’s movements and the outcome of triple witching will be key indicators for future trends. Expect heightened fluctuations as the market adapts to these adjustments, with potential opportunities arising from the rebalancing process.

Technical Analysis

Daily E-mini S&P 500 Index

Given Thursday’s closing price reversal top and today’s confirmation of the chart pattern, we anticipate a 2 to 3 day correction into at least 5396.75.

A trade through 5588.00 will negate the pattern and signal a resumption of the uptrend.

Keep in mind that we’re not looking for a change in trend, but a move that could alleviate some of the upside pressure.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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