'Friday Effect' Engaged
Many traders and investors may have realized by now that the major stock market indexes often get supported or defended into the weekend. We call this phenomenon the 'Friday effect'. If you have looked at a chart over the last two years most Friday's before a weekend are basically a flat to slightly positive trading day. There have been a few rare times when the major indexes have sold off sharply on a Friday, however, the key word is rare. Today the SPDR Dow Jones Industrial Average ETF (NYSE: DIA), and the Powershares QQQ Trust (NASDAQ: QQQQ) both started the session sharply lower and are now trading slightly positive on the session.
Today the stock market started the session sharply lower after a weaker than expected GDP report was released by the Commerce Department. However, after the morning gap lower open the market has surged higher. It is also important to note that the U.S. Dollar Index has also declined sharply from the opening bell at the New York Stock Exchange. When the dollar declines the major stock indexes will usually inflate higher.
Please remember that the volume is usually very light on a Friday. Therefore, after the first couple hours the volume will usually get very light and the market often goes into a sideways float throughout the rest of the day. Many professional traders and investors will generally leave early on a Friday to get a head start on the weekend in the summertime. Therefore, it is prudent to expect less volatility throughout the rest of the session. In any case it looks as if the 'Friday effect' has played out again as the markets are now flat to slightly higher on the session.
