Advertisement
Advertisement

NASDAQ Composite Weakens on Aggressive Profit-Taking

By:
James Hyerczyk
Updated: Sep 6, 2018, 15:15 UTC

A sell-off in shares of Apple or Amazon, for example, could be a major drag on the NASDAQ Composite Index because these two trillion-dollar corporations have been chased higher recently by highly aggressive speculative buyers. Earlier today, ADP and Moody’s Analytics reported that private companies added 163,000 jobs last month. This was below the 190,000 forecast.

stock ticker

U.S. equity indexes are trading mixed shortly after the opening on Thursday. Volume is light as global trade fears may be keeping jittery investors on the sidelines. Additionally, a few of the major institutions and mutual funds may be waiting for tomorrow’s U.S. Non-Farm Payrolls report. Volume has been below average all week, which suggests investors may have extended their late summer vacations.

While talk about additional tariffs and President Trump’s political issues may be grabbing the headlines, the indexes have been slowly weakening in response to heavy tech related selling pressure. So far this week, as measured by the NASDAQ Composite, technology shares have fallen more than 2 percent.

Technology stocks have been the leaders this year so the weakness we’ve been witnessing could be normal profit-taking due to overbought conditions. It’s a little early to call a major top, but if the technology sector is weak now then conditions could worsen if investor uncertainty over trade worsens over the near-term.

Yesterday, it was social network stocks Twitter and Facebook pressing the technology sector lower. Today, the chipmakers are among the worst-performing tech stocks. This could be early proof that the selling pressure is spreading across sub-sectors.

This is somewhat important because as investors, we need to know if the selling is related to a general rebalancing of stocks and bonds, or a reallocation between technology subsectors.

A sell-off in shares of Apple or Amazon, for example, could be a major drag on the NASDAQ Composite Index because these two trillion-dollar corporations have been chased higher recently by highly aggressive speculative buyers.

Trade Issues

The reaction by investors this week to the on-going negotiations between the U.S. and Canada, and the threat of additional tariffs on China by the U.S. suggests the issue may be getting old, or that the worst outcomes have been priced into the market. Therefore, I would be surprised by a steep sell-off at this time.

The news tariffs on China has been talked about for weeks so I think this will be absorbed easily. China’s retaliation could be a surprise because no one is sure how they will respond. I also think the market believes the U.S. and Canada will reach an agreement in a timely manner. Nonetheless, the announcement of a new deal could launch stocks to new highs. However, we could see a few days of heavy selling pressure if both parties decide to walk away from the negotiation table.

U.S. Economic Reports

The major economic news this week will be Friday’s U.S. Non-Farm Payrolls report. According to analysts, the headline number is expected to show the economy added 193K jobs in August. This is up from 157K in July. The unemployment rate is expected to dip from 3.9% to 3.8%. The most important component of the report, Average Hourly Earnings, is expected to rise 0.2% after last month’s 0.3% gains. A solid wage increase will solidify the chances of a September Fed rate hike, and perhaps another one in December.

Earlier today, ADP and Moody’s Analytics reported that private companies added 163,000 jobs last month. This was below the 190,000 forecast. However, this did not cause a stir in the markets because the gains continue to point toward a strong economy.

In other news, ISM Non-Manufacturing PMI rose to 58.5, much higher than the 56.8 forecast. This indicates that respondents remain positive about business conditions and the economy.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

Did you find this article useful?

Advertisement