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Another Key Test for S&P 500 ETF After Four-Day Slide


Investors are waiting to see if U.S. stock exchange traded funds can hold around their short-term trend lines ahead of any tapering signals in Fed minutes this week.

The iShares Russell 2000 Index (IWM) was 1.5% higher Tuesday while the SPDR S&P 500 (SPY) gained 0.8%. IWM and SPY dipped below their 50-day simple moving average and recovered. The ETFs bounced Tuesday after a four-day down streak.

“The S&P 500 ETF (SPY) broke below its 50-day moving average on Monday, but moved right back above on Tuesday,” says Arthur Hill at StockCharts.com. “This moving average held from December to early June. SPY broke below in late June, but quickly recovered and recaptured the moving average. It looks like another battle is taking shape as SPY bounces at this key average for the fourth time since December.”

Small-caps have been outperforming large-caps, with IWM has increased 20.2% year-to-date while SPY rose 16.8%. Both funds, though, have been steadily declining since the start of August after the broad equities markets touched record highs, with the S&P 500 index crossing over 1,700 for the first time.  [A Look at Small-Cap ETFs Outclassing the S&P 500]

On Tuesday, U.S. stocks finally broke a four-day slump, the markets longest losing streak this year, after positive results from major retailers, reports Angela Moon for Reuters.

Equities markets have been weakening as renewed Fed tapering fears grip investors.

“Stocks are rebounding today but we are seeing a lot of market swings because of the concerns on Fed tapering, so I wouldn’t be surprised if we ended flat or lower by the end of the day,” Randy Frederick, managing director of active trading and derivatives at the Schwab center for financial research, said in the article.

“Everyone is still focused on Fed tapering. We remain cautiously bullish with pretty full exposure to stocks,” Frank Ingarra, head trader at NorthCoast Asset Management LLC, said in a Bloomberg article.

Investors are now waiting for Federal Reserve officials to meet in Jackson Hole, Wyoming this week to discus monetary policy. The Fed minutes will be released Wednesday, August 21. Many anticipate the Fed to scale back its bond purchasing program by September.

Meanwhile, market volatility has been rising this month as fear escalated. The The iPath S&P 500 VIX Short-Term Futures ETN (VXX) , which tracks the CBOE Volatility Index, or VIX, has gained 6.0% over the past week, with investors hedging against a fall correction after such a strong summer and 2013 in general. [VIX ETFs Up Two Weeks in a Row on Market Jitters]

SPDR S&P 500

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Max Chen contributed to this article.

Full disclosure: Tom Lydon’s clients own SPY and IWM.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.