02-03-2012: March NASDAQ 100 Index: Earnings Reports Trump European Debt Worries
A slow, steady improvement in the economy worldwide seems to be supporting a long upward drive in the stock market, particularly for the tech-stock rich NASDAQ, which is outperforming other indices. Its gains in January were almost double those in the S&P 500 Index. As optimism spreads and a rosier picture emerges, there is a steady stream of late buyers into the stock market driving averages higher. The main source of concern, European debt worries seems to be getting old, and the European Central Bank is taking some steps to resolve the crises. Bank stocks as a whole are getting stronger, although European banks are a concern as they need to get more capital.
We fed into a neural network to get the following result:
March NASDAQ 100 Index:
March NASDAQ 100 Index:
The NASDAQ Index has been making contract highs recently. It is displaying leadership among the other U.S. indices with a gain of 8% in January. That could be contrasted with a gain of 4.3% in the same period for the S&P 500 Index. There was a disappointing earnings report from Amazon recently, offset by reports from Broadcom and Qualcomm. Electronic Arts and Green Mountain Coffee are set to report. Overbought technicals continue to be discounted in favor of earnings reports. Global equity markets have traded sharply higher of late, lifted by better than expected Chinese PMI data and a rally in European bank shares. Chinese manufacturing activity is back into a growth phase it is believed. Investors are beginning to position for a successful resolution to the Greek debt swap talks. The German DAX is at its best level since August 4th. Recent data on consumer confidence, the Chicago PMI, and home prices has come in weaker than expected, but major trading indices seem to be discounting this. But soft economic data is detracting from recent momentum. The market is bracing for a smaller than expected $5 billion IPO filing from Facebook. Bank stocks are leading the way in the stock market overall, going from the most dismal to the most promising, stocks like Bank of America, Morgan Stanley, and Goldman Sachs after somewhat dismal earnings performance. There has been a lot of promising initial public offering activity in light of the very strong stock market. There have been solid manufacturing reports from around the globe. Financial and industrial stocks are the main strengths. U.S. employment data is making gains. The U.S. added 170,000 private sector new jobs in January. The market is reassessing toward a slightly more rosy economic view. But some Wall Street strategists are steering investors away from stocks at a level rarely seen in the past 15 years. Bank of America - Merrill Lynch is among those strategists. The European Commission blocked the merger between NYSE Euronext and Deutsche Boerse, citing concerns that a combination would create a "quasimonopoly" in derivates trading. The decision had been expected. NYSE's stock slipped 0.5% while rival NASDAQ OMX Group gained less than 0.1% after fouth-quarter earnings and revenue topped forecasts. Medivationran up 22% after the company and its partner announced positive results from a Phase III trial of an investigational drug for the treatment of prosate cancer. The main stories for individual stocks seem to consist mainly of improving earnings.
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I CME - Mar-12 NASDAQ 100 E-Mini ($20 X Idx) Cm.=0.01 Lim.= 0.7
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The above point-and-figure chart is giving a conventional buy signal.
We are headed toward a cyclical low and a seasonal up period.
Our best-performing internal program is "Zondr." It is giving a sell signal.
Results of "Zondr" for NASDAQ 100 Index (blue lines = successful trades, red, unsuccessful): (Always in the market.)
Our third system has triggered a buy signal. (Note, disregard the year on the chart. Our regular readers know this is not a Y2K-compliant system, but it still works.)
The point value is $20 for the mini contract. Initial margin on a single contract is $3,500. Use of options is advised.
Scale trade sellers are entering the market for the long term in this price range. However, be warned that scale trading does not work as well with indices where there is no commodity with a "cost of production."
In the chart below, the yellow line is the futures price, read on the right axis. All other colors are read on the left axis. Blue is small speculators. Red is large speculators. Green is commercials. Large speculators with the best track record are getting increasingly-long.
The average volatility shown below suggests that a major change in direction to down is imminent at a volatility low point.
Our option trade recommendation is to Sell the NASDAQ 100 Index March 2500 Call @ 52.00 or better.
What the Mar. - Jun. calendar spread suggests to us is that buying the near contract and selling the far one is at most times not profitable, which we think is a sign that these futures may go down. The best time to enter or leave the above spread is when it is at +15.00 or wider buying the far as prices are falling and then selling the near, and exiting or entering when it is at -15.00 or wider sellling the far as prices are rising and then buying the near.
Here's an intraday chart for the previous day ( 02/01 ).
Risk Versus Opportunity Report
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NDH2 March NASDAQ 100 Index
High Price: 2566
Current Price: 2488
Low Price: 2449
Risk: 0.031
Opportunity: 0.062
(O/R) Ratio = 2.000
| Factors | Weighted Points |
|---|---|
| Inter-Market Analysis | - 1 |
| Parabolic Chart | + 1 |
| Nirvana Chart | + 1 |
| News | + 1 |
| Point & Figure | + 1 |
| Cyclicals | - 1 |
| Seasonals | + 1 |
| Internal System 1 | - 1 |
| Internal System 2 | 0 |
| Third System | + 1 |
| Historic Range | - 1 |
| Commitment of Traders | + 1 |
| Range/Volatility | - 1 |
| Level Table | + 1 |
| Other Factors | + 1 |
| Total | + 4 |
Place 4 March NASDAQ 100 Index Mini on a Buy Watch with stoploss @ -94 below the get-in point._____________________________________________________________________________________________________________________________E.L.
