The US Stock Market has more than $100 trillion worth of stocks sold yearly, with technology stocks such as Apple and Netflix becoming more popular. However, not many traders are aware they have the option to trade 100 technology-based companies at the same time through the Nasdaq. In this blog we will look at different elements and factors for traders to take into consideration, whether already trading the Nasdaq or simply just thinking about it.
These are 2 main considerations which traders generally deem to be pros and cons of trading indices instead of individual stocks. The pro is that the Naqdaq has taken into account risk mitigation as the asset is made up of 100 stocks, therefore you are not placing all your eggs in one basket. However, the con can sometimes be that the instrument is more expensive and may be out of certain traders’ reach.
The Nasdaq has been one of the leading US indices over the past decade and we can see from our chart analysis how this has affected the demand and the price. In July 2010 the instrument was priced at $1,853 and this month it has reached a new high of over $11,000 despite the global recession. In addition to this out of America’s top 10 trade indices, the Nasdaq is the only index to reach a higher price than it had pre-Coronavirus.
The stock index is strengthening against the background of the positive reporting of global companies, as well as expectations regarding Wednesday’s report of the index leaders, Tesla and Microsoft.
Stocks within the Nasdaq
Netflix was the first leading company to report, posting second-quarter revenue of 6.15B, exceeding projected 6.08B and, most importantly, surpassing last quarter’s 5.77B. Despite the income growth, the earnings per share were 1.59 instead of 1.82 expected due to the decline in the company’s share price.
Facebook announced the global launch of short music video service, Instagram Reels, in response to a fast-growing rival TikTok. Facebook announced a 50% increase in production volumes for the latest version of the Oculus virtual reality headset, which will strengthen its leading position in this market segment according to Claws and Horns’ analysts. On July 29th, the company will report for the second quarter of 2020. The Announcement is likely to create a lot of volatility not only on the individual stock but also the Nasdaq.
However, not all the earnings will be positive. A few disappointing company earnings after the bell Tuesday weighed on investor sentiment. Shares of Snap dropped more than 9% in extended trading after the social media company reported fewer-than-expected daily active users.
With the Nasdaq increasing in value due to the market turning to technology-based assets as their haven, traders also need to take into consideration whether the asset is overbought. Nasdaq companies have been continuously releasing attractive fundamentals such as an affordable iPhone, company profits and cheaper cars but the question remains whether the market has overpriced the asset. Therefore it is important for traders to consider the market volatility and possible scenarios.
Technical elements
The asset developed a resistance point at $10,667 last week, where the instrument struggled to cross. At the start of this week, at the market opening, the asset quickly broke through the resistance price with a strong candlestick and plenty of momentum. The momentum continued until midway through Tuesday’s session which then slowed. However, the loss of momentum is normal taking into consideration the large increase.
Since the slight pullback, the price has been moving within the range of $10,937 and $10,831. Even with the pullback the asset is still considered bullish with the price trading above the 15, 25 and 50 days averages.
Without a doubt, traders will be asking themselves whether this is a bubble or not. However, it is undeniable that the asset is outperforming the rest of the market as other indices have failed to reach previous highs post COVID-19. Over the next 2 weeks the price movement is going to be deeply linked to the earnings which will be released by the remaining Technology companies. Traders would be wise to monitor these results as well as continue to analyse the asset’s price movement.
