Why Microsoft Is Key
First of all, I would like to wish the Nasdaq bubble
a happy anniversary! It’s been three years since you popped.
Today wasn’t good from a market standpoint. Many foreign markets are hitting
multi-year lows, including Japan and much of Europe. The European I-shares (IEV)
moved below their September lows today. The Dow Jones Industrials, NYSE
Composite Index, Russell 2000, and S&P 600 are all trading below their February
lows.
The S&P 500 and Nasdaq are “the last of the holdouts,†just like “The Outlaw
Josey Wales.†They are the only major indices not to fall below their February
lows. I tend to doubt they will fare as well as Josey did.
If the February lows are broken, the next level of support is the October
lows. Below that…ugh.
No multi-time-frame setups today. Since we are at such a critical juncture,
barely holding above those February lows, I thought I’d talk about something a
little different.
First, let’s look at the
(
QQQ |
Quote |
Chart |
News |
PowerRating) daily
chart, which is the proxy for the Nasdaq 100.
We are currently about 2.8%
above the February lows.
Now let’s look at a chart of Microsoft
(
MSFT |
Quote |
Chart |
News |
PowerRating)
— which makes up 11% of the Nasdaq Composite.
Microsoft is extremely close to
breaking down. A move below today’s low would signal a break of its recent
consolidation. From a technical standpoint, Microsoft looks shortable. From a
fundamental standpoint, it’s not a stock I would consider shorting. If it does
break down, though, the chances of the rest of the Nasdaq holding up are pretty
slim. How can the rest of tech rally if Microsoft collapses? Not easily.
Therefore, a possible play here is to
short the QQQs on any confirmed breakdown in Microsoft. This is one way that
you could get in on the move down a little early. If the QQQs do follow through
and collapse below their February lows, I would definitely look to lock in some
partial profits quickly. Cover a little if there is a selling panic. The next
panic could always be to the upside in this crazy, news-dominated environment.
Feel free to email me with any questions or comments.
Good Trading,