10-day buy-to-open put/call volume ratio was at a record high of 0.96 heading into the new year
Subscribers to Chart of the Week received this commentary on Sunday, January 15.
The Nasdaq Composite (IXIC) is wrapping up its best weekly win since Nov. 11. While Friday’s broad-market breather halted the tech-heavy index’s five-day winning streak, the dominant headlines this week remained all about the Federal Reserve, inflation, and the upcoming earnings season. With the IXIC and its corresponding tech indices getting the short end of the stick from media, we want to start off 2023 with some major technical milestones to monitor.
The Nasdaq settled above 11,000 for the first time since Dec. 14 on Thursday night. Schaeffer’s Senior Market Strategist Chris Prybal has noted in the past that the Nasdaq has shown the propensity to respect 1,000-point levels. Per the chart below, you can see the index’s Covid low was at 7,000, while its post-Covid high was clocked at 16,000.
With that in mind, let’s turn to the Nasdaq-100 Index (NDX), a large-cap growth index of 100 of the top domestic and international non-financial companies based on market cap. The NDX’s 10-day buy-to-open put/call volume ratio was at a record high of 0.96 heading into the new year. Fast forward a week, and it has cooled to 0.91, per the chart below, but you can see that it remains at elevated levels in the last three years. And among index component short sellers, NDX short interest has fallen in 4.2% in the most recent report, but remains up 31.7% year-over-year, and in the 92.5% rank of the last five years. Senior Market Strategist Matthew Timpane highlighted this trend last week, Jan. 5, on Twitter. Note how he acknowledges the rebalancing effort, but considering this percentile still remains elevated a week later, it’s proven worth monitoring.
Breaking it down further, consider the Invesco QQQ Trust Exchange Traded Fund (ETF) (QQQ) for a moment. The NDX’s ETF is once again facing off with its 1,000-day moving average, a long-term trendline that’s been popular in this space in the last 24 months.
And if you want to dig deeper and monitor individual equities, per Senior Quantitative Analyst Rocky White, Netflix (NFLX) and Alphabet (GOOGL) are historical outperformers in January. NFLX averages a 15.7% monthly return with 70% of the returns of the positive in the last 10 years, while GOOGL’s average 10-year return comes out to 3.9%, with eight out of 10 of the returns positive. Considering the combined holdings of NFLX and GOOGL comprise 8.8% of the QQQ, keep an eye on these FAANG heavyweights while the larger tech indices dance with contentious trendlines.