Friday, February 1, 2013
The nearly 4-year old bull market in the Nasdaq 100 futures is starting to look a bit tired, as this tech heavy index has not mimicked the strong performances of the other major indices to start 2013. It is still too soon to tell if this market will play catch-up and soon post multi-year highs or will lead the broader market lower for an overdue correction.
Though the performance of U.S. stock market so far this year has been impressive, with the S&P 500 up over 5% in January, after taking a quick glance at the daily charts for the major stock indices, it is quite noticeable that the Nasdaq 100 is definitely lagging behind the performance of the Dow, the S&P500 and the Russell 2000. An obvious culprit contributing to this outlier is the performance of Apple Inc. stock. This darling of the financial media has had a rough start to 2013, falling over $100 per share since January 1st. The relative weakness in the Nasdaq 100 may be reflective of investors' concerns about the health of the tech sector, with Nasdaq 100 stalwarts Intel, Research in Motion, Microsoft, Cisco and Dell among the largest short interest positions on the exchange. Austerity measures being put in place by cash-strapped state and local governments seemed to have put a crimp in public sector spending. This has had an effect on the sales of computers and network equipment as upgrades on infrastructure are delayed. If we shift gears from the fundamentals to the technicals affecting the Nasdaq 100, some indicators are apparent that might be reflecting some headwinds to any market rally in the near future. Among the most important could be the potential formation of a head-and-shoulders top seen on the daily continuation chart. With the value of the Nasdaq 100 index nearly tripling since the major lows were made back in early 2009, it should not be too much of a stretch to believe that a much needed price correction may be in the cards should the September 2012 highs not be put to a test in the coming weeks.
Looking at the daily continuation chart for E-mini Nasdaq 100 futures, we notice what may be a head-and-shoulders top formation in the making, as the "right shoulder" has failed to test the highs of the "left shoulder" made back in April of last year. Prices are also testing the 20-day moving average (MA), which has acted as strong support on a closing basis since the "chart gap" formed after the New Year's holiday. Since the start of 2013, the Nasdaq futures have been trading in a relatively narrow 80+ point range, with the majority of the month being spent between 2700.00 and 2750.00. We also see a bearish divergence forming in the 14-day RSI, and trading volume has been light so far this year. The January 1st low of 2686.25 looks to be support for the Nasdaq 100 futures, with resistance seen at the top of the recent trading range (2768.75) made on January 23rd.
Mike Zarembski, Senior Commodity Analyst