What’s Important To Remember About The Nasdaq


Stock index futures finished modestly lower
in what was overall a pretty quiet holiday-shortened week of trading. The
dominant theme was the fact that equities struggled in the face of a number of
positive reports. Neither solid economic data nor upbeat corporate earnings
news were able to trigger a sustainable rally in futures prices. Tuesday was an
exception, as the key indexes were able to put in a broad-based move higher, but
things went downhill from there the rest of the week as every bit of good news
was used as an opportunity to sell stocks. While little damage was done to the
key indexes in terms of point declines, it’s important to note that many of the
underlying bellwether shares put in sharp losses for the week.

The March SP 500 futures closed
Friday’s session with a loss of -3.50 points, and finished the week with a 2
point loss. Volume in the ES was estimated at 686,000 contracts, which was ahead
of Thursday’s pace, and above the daily average. Open interest increased with
Thursday and Friday’s slides, which can be looked at as options-related or as
shorts getting some poison pill courage. On the higher time frames, we have
some weekly vs. daily dynamics going on. On the weekly chart, the ES posted a
market structure high and narrowly avoided an inside week. Looking at the daily
chart, the ES cracked its 10-day MA support, bounced off its 20-day MA, and
settled right on its daily trend line support. So far, no major damage has been
done and Monday will confirm whether or not we get an “oversold on support”
bounce. A break of that 20-day MA would confirm a double top with January’s
high. On an intraday basis, bear flags were the name of the game throughout the
session


One of the
main reasons behind the stall in equities in recent weeks is simply the large
amount of resistance the key indexes have been bumping into around current
levels. The SP 500 and the Dow have both really had a hard time when attempting
to close above their January highs, and incidentally, these highs are also
around the same level where both indexes stalled in early 2002. At this point,
I’m not overly concerned, given the magnitude of the rally in 2003, and in fact,
it’s pretty healthy for an extended consolidation, or even a sharp pullback to
take place. The recent action has been pretty similar to the way both indexes
acted during the summer of 2003, prior to the rally starting up again.

As far as
the NASDAQ Composite goes, the recent action in the tech-heavy index may be
cause for some concern. In recent weeks, there has been a sizeable amount of
upbeat tech earnings reports, but the index has simply been unable to hold any
rally. Also, the last few years, the NASDAQ has largely been “the leader” for
the overall market, so its recent lackluster behavior shouldn’t be ignored.
It’s important to remember that the tech-heavy index is usually the most
volatile of the three major indexes, and consequently, it’s also subject to the
most violent corrections.

Looking
ahead this week, we have a few key economic reports with Consumer Confidence on
Tuesday, Durable Orders on Thursday, and Friday’s Michigan Consumer Sentiment
and Chicago PMI. Fed Chair Greenspan also has a busy week with 4 public
appearances, which could juice up the market volatility.

Program Trading Levels

Fair Value – (0.74)

Buy Program Premium – 0.05

Sell Program Discount – (1.47)

Closing Premium – (0.41)

Closing Bias: If the futures gap up at the
open, watch for a retracement down towards the gap fill.

Please feel free to email me with any questions
you might have, and have a great trading day tomorrow!

Chris Curran