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The NASDAQ 100 Index has been pressured of late along with the broader stock market. The catalysts have been the impending Fed action, lower energy prices and concern about high-yield debt and emerging markets. However, these catalysts are hardly direct risks for the 100 largest companies found within the NASDAQ 100 and QQQ. As a result, I see this weakness as a special opportunity to purchase these stocks at unwarranted discount via acquisition of QQQ. Fear has spread across the market. Major business media has raised the specter of a Fed rate hike that could stir trouble for emerging markets and high-yield debt. While it’s true that higher interest rates pressure borrowers on the margins, they should not immediately bankrupt them all. That is unless panic is pushed to the populace and investors immediately demand even greater yield for the debt that helps to sustain those fringe borrowers. Nevertheless, I see an opportunity here as the PowerShares QQQ Trust ETF ( NASDAQ: QQQ ) is being pressured for all the wrong reasons. The NASDAQ 100 has already been discounted by this issue and concern about lower energy prices, despite a lack of direct exposure to either. And there is a chance the NASDAQ 100 could sink further on these concerns this week. I would see any further decline as a very special opportunity, which I expect smart money would pounce upon, driving the QQQ to bounce higher not long thereafter. Indeed, the move higher may already be underway. Thus, I suggest using this wrongfully placed weakness as an opportunity to acquire the top NASDAQ stocks at discount by using QQQ. 1-Month Chart of QQQ at Seeking Alpha You can see in this 1-month chart of QQQ that the NASDAQ 100 Index has been under extraordinary pressure of late. The cause has been the same for all stocks, as evidenced by the moves of the SPDR S&P 500 Trust ETF (NYSE: SPY ) and the SPDR Dow Jones Industrial Average ETF (NYSE: DIA ). First, it is important to note the recent impact of lower energy prices. As America has charged toward energy independence, the energy sector has become a more important driver of American GDP. Thus, as energy prices have declined steeply and swiftly, the economies of the South and Midwest have been impacted. Energy stocks have been impacted as well, as energy producers and suppliers see smaller profit margins and are pressured to reduce capital spending. Some may be coming under financial stress as prices have fallen even further. But the NASDAQ 100 and our proxy for it, QQQ, are hardly exposed. Therefore this macro factor pressuring all stocks opens an opportunity to buy QQQ at misplaced discount. Looking to the factor of high-yield and emerging market exposure, the companies within the NASDAQ 100 are the 100 largest stocks mostly in the technology sector and including biotechnology. The largest of all firms are not usually fringe borrowers, and companies that fall out of economic favor tend to be replaced within the large stock market indexes composed of the blue chips before long. They are not borrowers on the fringe, and so the high-yield issue should not affect them. In fact, these larger companies may benefit from the failures and distressed asset sales of others as they gain market share and acquire strategic assets on the cheap. QQQ’s Top 10 Holdings % of Assets as of October 30 Apple (NASDAQ: AAPL ) 12.83% Microsoft (NASDAQ: MSFT ) 7.92 Amazon.com (NASDAQ: AMZN ) 5.51 Alphabet (NASDAQ: GOOG ) 4.60 Facebook (NASDAQ: FB ) 4.34 Alphabet (NASDAQ: GOOGL ) 4.02 Intel (NASDAQ: INTC ) 3.03 Gilead Sciences (NASDAQ: GILD ) 2.99 Cisco Systems (NASDAQ: CSCO ) 2.76 Comcast Corporation (NASDAQ: CMCSA ) 2.49 The top 10 holdings of QQQ are a who’s who of American technology, and also include a major biotechnology firm and e-commerce retailer. These are not companies starving for capital or finding it hard to come by. Thus, a quarter point rise in the benchmark interest rate should not burden them, nor should a full point increase over the course of the next year, should that result. Thus, as QQQ has come down, if these individual stocks have also fallen and are individually sporting strong alpha drivers, they should likely be purchased as well. The point is that we must study the details when macro drivers impact the broad stock market, because these broad moves in equities can open up opportunities in specific sectors of the market and in specific stocks. In this case, I suggest investors can benefit by taking stakes in the high-technology behemoths of America via QQQ. The security reflects a misplaced discounting by the drivers of fear and concern about oil prices, high-yield debt and emerging market risk. I cover the market and sectors of it regularly, along with other topics, and invite interested parties to follow my column here at Seeking Alpha . Scalper1 News
Scalper1 News