Monday, March 12, 2018, 12:00 PM, EST
- NASDAQ Composite +0.37% Dow -0.5% S&P 500 -0.08% Russell 2000 -0.08% S&P MID 400 -0.07%
- NASDAQ Advancers: 1262 Decliners: 999
- Today’s Nasdaq Volume (100 day avg.) +23%
US stocks have reversed their initial gains, with the Dow dropping by more 100 points, but the Nasdaq remains higher and officially erasing all of the early February declines. Consumer Discretionary (+0.5%) and Information Technology (+0.49%) are leading the markets into the green. Over the next two days, US Treasury auctions will sell a robust amount of US debt (most since 2014), coming off a month that saw lackluster demand. Treasury yields are slightly lower ahead of the release. This week investors will be focused on companies that might be affected by the new tariff taxes, the economic calendar (CPI-Tues, Retail Sales-Wed, Housing Starts-Thurs, and Indst Prod-Thurs) and the US/North Korea tension easing.
- Since its 2/8 close, the Nasdaq 100 has rallied by more than 12.75%, or >800pts helped by the unusual suspects. The leading point contributors have been Apple (122pts), Amazon (102pts), Alphabet A+B (91pts) Microsoft (81pts), Alphabet and Intel (33pts). Only 12 components of the N100 are trading lower since 2/8.
- The FT reported that the gap between S&P 500 dividends and short-term US debt yields is the narrowest in a decade. We added the chart below which shows the narrowing difference between S&P 500 dividend yields (currently 1.84%) and the yields on 3-month Treasury Bills (1.67%) which could reduce the appeal of stocks. The article said that the S&P 500 trailing 12-month dividend yield has averaged about 2% since 2010, while returns on cash have been near zero. However, with the Fed raising interest rates, the yield on a three-month Treasury bill is now near 1.7%, just below the US equity dividend yield of 1.9%.
Technical Take: Nasdaq Biotech Index – Third time Could be the Charm
Last week biotechs were amongst the top performing industries with the Nasdaq Biotech Index (NBI) gaining 4.25%. The index finished the week at the 3,696 level which has been a major resistance line going back to November 2015. From its lows during the financial crisis in late 2008 to its cyclical high in the summer of 2015, the NBI gained 610% and cemented the biotechs as one of the top performing industries. However over the next three months the NBI declined 1,205 points, -29%, in three waves (see blue lines) which in hindsight made up the first leg of a “higher degree” three wave, ABC decline. The relevance of the wave count is the countertrend B wave, which peaked in January 2016 at, you guessed it, 3,596, which then equaled a 50% Fibonacci Retracement of the A wave’s 1,205 point decline. The NBI then spent nearly two months trying to break above this 3,570 – 3,596 resistance zone, but it failed to do so and rolled over for the third and final leg of the downtrend, wave C, which equaled 1,080 points, or -30%. Summarizing the entire decline, the 2015 – 2016 correction exhibited remarkable Fibonacci symmetry with a 29% decline (wave A), followed by a 50% rally (wave B), followed then by a 30% decline (wave C). The NBI first returned to the 3,596 level in October 2017, but as is often the case it failed to break through on its initial test of clearly defined resistance. Three months later in January 2018, the NBI was able to break out above 3,596 during the widespread market melt-up, but the broad market decline in early February pulled it back into the previous five month consolidation range where it bottomed along clearly defined support at 3,170. This is now the third time in five months the NBI is testing this critical line of resistance. In theory the more times a resistance level is tested, the more likely it is to give way. Given the size of the prior two-year base the NBI is on the verge of emerging from, a breakout carries a minimum measured move to 4,675, or +30%.
Nasdaq's Market Intelligence Desk (MID) Team includes:
Michael Sokoll, CFA is a Senior Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over 25 years of equity market experience. In this role, he manages a team of professionals responsible for providing NASDAQ-listed companies with real-time trading analysis and objective market information.
Jeffrey LaRocque is a Director on the Market Intelligence Desk (MID) at Nasdaq, covering U.S. equities with over 10 years of experience having learned market structure while working on institutional trading desks and as a stock surveillance analyst. Jeff's diverse professional knowledge includes IPOs, Technical Analysis and Options Trading.
Steven Brown is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq with over twenty years of experience in equities. With a focus on client retention he currently covers the Financial, Energy and Media sectors.
Christopher Dearborn is a Managing Director on the Market Intelligence Desk (MID) at Nasdaq. Chris has over two decades of equity market experience including floor and screen based trading, corporate access, IPOs and asset allocation. Chris is responsible for providing timely, accurate and objective market and trading-related information to Nasdaq-listed companies.
Annie O'Callaghan is Director on the Market Intelligence Desk (MID) at Nasdaq. Annie has worked for NASDAQ in a variety of roles including support of Nasdaq C-level management in client retention and customer service. Annie also served as a Sales Director in Nasdaq’s Transactions Services business. Prior to joining Nasdaq, Annie worked at AX Trading, managing accounts for its Alternative Trading System and served on Credit Suisse's trading desk as an Electronic & Algorithmic Sales Trading Analyst.
Brian Joyce, CMT is a Director on the Market Intelligence Desk (MID) at Nasdaq. Before joining Nasdaq Brian spent 16 years as an institutional trader executing equity and options orders for both the buy side and sell side. He also provided trading ideas and wrote technical analysis commentary for an institutional research offering. Brian focuses on helping Nasdaq’s Financial, Healthcare and Transportation companies, among others, understand the trading in their stock. Brian is a Chartered Market Technician (CMT).
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.