Nasdaq Strength Priced In?

Today's Idea

The fundamentals driving the Nasdaq are unique to the companies that comprise the index. Consumers have been stingy with the exception of technology. However, the S&P and Nasdaq may converge. For this reason, some traders may wish to consider legging into a Nasdaq-S&P spread, selling the March E-mini Nasdaq and buying the March E-mini S&P. Traders may possibly want to look for this spread to narrow to 950 points.

Fundamentals

Nasdaq futures are lower this morning on the news that Steve Jobs is taking a medical leave at Apple (AAPL). Given the weight given to large caps in the index, the lower price of the stock is pushing the entire index lower. Because of the way the index is weighted, the stock accounts for roughly 21% of the Nasdaq 100. Technology stocks have been outperforming the general market during the past few months, so a pullback is not out of the question and could actually be healthy. For the first time in a long time, tech companies are bringing new, innovative devices that change the everyday consumers' lives. Smartphones, tablets, internet TV and 3D television are affecting the consumer in the same way personal computers did in the late 80's and early 90's and the internet did at the turn of 21st century. Sales of these devices have been extremely strong in the face of a fragile economy. Many traders may now question whether Nasdaq stock valuations got a bit ahead of themselves. The index has outperformed the S&P since September, and there could possibly be some convergence between the two indices unless technology sales keep exceeding expectations by a wide margin.

Technical Notes

Turning to the chart, we see the March Mini Nasdaq trending higher. Prices have traded above the 20-day moving average since the end of November, and above the 50-day since early September. If the futures begin to correct, these two averages are likely to come into play. Support comes in at 2230 and 2200. The 2200 level can be seen as a critical level to maintain the uptrend in the near to intermediate-term.

Rob Kurzatkowski, Senior Commodity Analyst