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Equity futures higher

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Equity futures are looking higher this morning with S&P 500 futures up 4 and NASDAQ futures are higher by 21. S&P value for today is $2.18 with buy programs set at $3.84 and sell programs set at $0.06. Below we're going to take a look at the bullish percent for the NASDAQ-100 as of the close Friday. Traders and investors should remember that each stock in the NASDAQ-100 is either on a "buy signal" or "sell signal" as it relates to its point and figure chart. Bullish percent display's the percentage of stocks that are currently on a buy signal then charts that percentage using the 3-box reversal system.

NASDAQ-100 bullish percent has bulls alert!

Different point and figure charting systems update their bullish percent data at different times. Stockcharts.com updates their bullish percent information every day and current readings have changed from "bear confirmed" to "bull alert". Traders that like to trade the QQQ's should be aware of this reading and understand its input as it relates to risk and perhaps potential reward.

NASDAQ-100 Bullish Percent Chart - 2% box

"Bull Alert" is characterized by the bullish percent falling below the 30% level (columns of O's) and then reversing up into a columns of X's (I like to use the 3-box reversal method). The above chart tells us that 24% of the stocks in the NASDAQ-100 are on a "buy signal." Currently it would take a 30% reading for this indicator to reach a "bull confirmed" status. I've highlighted previous "bull confirmed" signals on the above chart in pink.

Cisco Systems Chart - $1 box

Any trader trading the QQQ's should have her/his eye on Cisco Systems (NASDAQ:CSCO). Shares of CSCO made up 6.35% of the weighting in the NASDAQ-100 Index on December 29 2000, but now makes up 4.77%. However, CSCO only makes up 1% of the weighting as it relates to our bullish percent chart and always will. On January 26th, CSCO's "sell signal" at 39 would have "subtracted" 1% from that day's bullish percent for the NASDAQ-100 bullish percent reading (any sell signals after that level do not take away further from bullish percent). On the above chart, it would take a move to $32 for CSCO to achieve a "buy signal" and contribute positively to the bullish percent for the NDX. If CSCO continues lower (current bearish price objective is $16), what effect will it have on the QQQ's? If CSCO reverses its course and rallies, what effect would that type of move have?

Current heavyweights in the NASDAQ-100?

As of March 1st, Microsoft (NASDAQ:MSFT) accounted for 8.27%, Intel (NASDAQ:INTC) 5.21% and QUALCOMM (NASDAQ:QCOM) made up 4.19% of the NASDAQ-100. Based on these numbers, CSCO would be ranked #3 as it pertains to its weighting in this index.

Do you know what an "equalizer" is?

Trading/investing isn't just a matter of looking at stocks on a chart and predicting future price movements. Good traders make multiple observations, process those observations over time (by the minute, hour, day, week and month) and make educated sound "bets" based on those observations. I'm not an authority on sound systems, but think of MSFT, INTC, CSCO and QCOM which carry the bulk of the weighting in the NASDAQ-100 different "knobs or buttons" on a stereo system equalizer. To get the sound "just right" each of these stocks needs to find some level of "unison" if the bulls are ever going to hear "sweet music." Right now CSCO and INTC have "headed south". MSFT has been the "strongest" of the bunch and QCOM looks like it's trying to find its footing. Only MSFT has been able to show any type of strength as it relates to the other three and perhaps any type of performance in the QQQ's to the upside is going to be lead by MSFT. The current weighting of the QQQ's and these four stocks can actually work to a traders benefit at currently. Notice the nice diversification of technology each of these stocks represents. MSFT (software, GSO.X), INTC (semiconductors, SOX.X), CSCO (networking (NWX.X) and QCOM (telecommunication IXTCX). Another good way to use MARKET, SECTOR, STOCK to your advantage!

Why a bearish trader must not be complacent!

As negative as some of the above might seem, it's important that traders study the bullish percent and understand what it measures. "All it measures" is the percentage of stocks in a group or index that are currently on a "buy signal." These "buy signals" occur at different levels depending on their point/figure charts. I pointed out that it would take a move to $32 currently in shares of CSCO to achieve a "buy signal." MSFT generated a "buy signal" at $61 and a trade at $53 would be needed for a sell signal to occur. INTC is currently on a "sell signal, but a move to $37 would have the stock back on a "buy signal". On Friday, QCOM came very close to generating a "buy signal" at $65, but was turned away late in the session. As you can see, each of these stocks is perhaps a button on an equalizer. I've said before that the big guys lead and the little ones follow. I consider each of these stocks "big guys." For that reason, traders and investors should watch them closely at current levels because they're going to tell us all something in the next week. If MSFT begins to falter from current levels watch out below, especially if INTC, CSCO or QCOM continue their descent. However, if MSFT busts a move to the upside and we start getting some "buy signals" from the likes of CSCO, INTC and QCOM, all heck could break loose to the upside. At that point the equalizer will be fine-tuned. Right now the knobs on the equalizer are still being adjusted.

Jeff Bailey
Staff Analyst

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