NASDAQ Breaks Out on Robust Momentum
Stocks in the US started the trading session on a positive note, despite weaker than expected Durable goods orders data. Yields continued to move lower with the 10-year yield touching 2.70, and poised to drift lower. The mixed data seen continues to buoy the belief that the Fed will continue to keep their bond purchase program at 85 billion a month, and push tapering off until the first quarter of 2014.
On Tuesday the Nasdaq closed above 4,000 for the first time in 13 years as technology stocks pushed the major index higher. When comparing the Nasdaq today to the Nasdaq in the late 1990’s the price to earnings ratio is much different. At its high point during that period, the PE for the Nasdaq was 197, compared to 20 today. Even removing some of the outliers which pushed the PE to extraordinary highs, the price to earnings ratio was a whopping 47.
Volatility continued to decline as the major indices marched higher. The VIX printed below 13%, but is still above the lows made in early August and mid-November near 11.5%. The VIX represents the “at the money” strike implied volatility on the S&P 500 index and is the major input into options pricing. The lower the VIX the lower the premium needed to purchase options.
In the employment space, jobless claims fell 10,000 to 316,000, according to the Labor Department. Claims for the prior week were revised to show 3,000 more applications received than previously reported. Economists polled had expected applications to rise to 330,000 last week. The four-week moving average for new claims, slipped 7,500 to 331,750.
The Nasdaq was the best performing major index, climbing 0.67% and closing for a second consecutive session above 4K. Momentum is strong as the MACD generated a buy signal as the spread crossed above the 9-day moving average of the spread.
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