Nasdaq 100

Posted by & filed under Trading articles.

The US Tech 100, which is also called the Nasdaq 100, is one of the world’s most popular stock indexes. It includes “Silicon Valley” giants like Google, Facebook, Netflix and Apple and therefore garners a significant amount of media attention.

Overall the index includes 103 equity securities issued by 100 of the major public traded global, non-financial tech companies on the Nasdaq composite index. Analysts tend to view it as providing an indication of general economic health in the US and internationally.

The index is calculated using a system based in weighted market capitalization. Although it is called the Tech 100 and is largely tech-focused, it also includes non-tech companies including retail, healthcare, utilities, and more.  All financial businesses such as commercial and investment banks are not included; instead, they appear in the NASDAQ Financial-100.

Companies included in the US Tech 100

Companies in the following sectors are included in the index:

  • Communication Services
  • Consumer Discretionary
  • Consumer Staples
  • Health Care
  • Industrials
  • Information Technology
  • Utilities

To be included, the company must meet reasonably stringent criteria. For instance, it must be issued by a non-financial company; trading volumes must be at least 200,000 shares; the company must be listed on the Nasdaq Global Market or Nasdaq Global Select Market; and current financial statements must be subject to audit.

Investing and Trading in the US Tech 100

You can’t buy shares in the index, so if you wish to trade you need to do so through either an ETF (exchange-traded fund) that tracks it such as the NASDAQ:QQQ or by purchasing call or put options on the NASDAQ:QQQ or the US Tech 100 index directly.

You can also trade the index via CFDs and spread bets (if they are available in your country), giving traders an opportunity to open up short-term positions trading on the market’s volatility.

As it is an American index, the US Tech 100 is affected by US news such as GDP, nonfarm payrolls, unemployment data and so on. Being a tech-based index of course it is also affected by developments in technology such as the announcement of a new iPhone or some new kind of AI/robotics tech heralded as the “next big thing.” Keeping abreast of this news is important if you are going to trade the index.

Typically the spreads for CFD/spread betting on the US Tech 100 will be around 1 point when the market is open and around 5 points on the futures markets. One pip tends to represent one index point with most brokers.

Being a volatile market with a tight spread and based on some of the biggest companies in the world, it is not surprising that the US Tech 100 is one of the most popular markets for traders. Indeed, on IG Index it is listed as the sixth most popular index for traders, just behind such luminaries as the Dow Jones, FTSE 100 and Dax indices.

Ideas for trading the US Tech 100

Although the market tends to move in broadly the same way as the overall US stock market, it does have its own distinct behavior and does not always follow the main market exactly. The best idea if you want to trade the index, like any other market, is to study it closely and understand the factors that cause it to move and to anticipate them ahead of time.

For example, you might anticipate that there is a big earnings season coming up featuring the heavyweight “FAANG” stocks and you think they are due to produce blowout earnings.

You could place a buy trade on the market at the current price of 9129 for 1 point for example, with a target price of 9179 and a stop loss of 9000.

US Tech 100 Chart

US Tech 100 Chart from IG Index

Then if the earnings reports turn out to be as good as you hoped, the price moves up to your TP and you bank a profit of 50 points (9179 – 9129).

Alternatively you might believe that the market is over-valued compared to historical averages of P/E ratios and consider that a correction is in order. Therefore you might place a sell order at 9124 for 1 point, with a target price of 8174 and a stop loss of 9149.

If there is a market correction and the price heads downwards to your TP, you could be in for a healthy profit of 50 points in this example.

Calculating the US Tech 100

The index is calculated according to the market capitalisation of its members and weighted towards the high cap technology companies. The value equates to the index share weight of each security multiplied by its base price. These are added together and divided by an index divisor.

Note: The weightings are reviewed and adjusted every quarter, and the divisor is changed so that the index has the same value before and after the adjustment.

At the time of writing, the top 10 companies and their weightings were:

  1. Microsoft Corp – 11.975%
  2. Apple Inc – 11.044%
  3. Amazon.com Inc – 10.349%
  4. Alphabet Inc (GOOG) – 3.875%
  5. Alphabet Inc (GOOGL) –   3.864%
  6. Facebook Inc – 3.791%
  7. Intel Corp – 2.944%
  8. PepsiCo Inc – 2.15%
  9. Netflix Inc – 2.078%
  10. Cisco Systems Inc – 2.02

A brief history of the US Tech 100

The US Tech 100 index was devised in 1985, and on 31 January 1985, the base price was set at 250.  It closed at 800 on 31 December 1993, and on the following day, it was reset at 125. Annual adjustments commenced in 1993.

At the height of the dot.com bubble in 2000 the index exceeded 4,700 declining to under 900 in 2003 following the bursting of the bubble and other events including the 9/11 Twin Towers  and its aftermath.

The index recovered gradually achieving 2,239 in 2007 before falling to 1,018 in 2008. Although remaining volatile, the index climbed to a high of over 9,600 on 10 February 2020. Since then, as with all global stocks, it declined rapidly. It fell to a little under 7,000 on the 16 March 2020, recovering to over 8,800 on 13 April 2020 and just over 9,000 at the time of writing.

Finally

While we are currently living in strange times, US Tech 100 remains the most important tech-focused index in the world. Compared with many other indexes, it has relatively high volatility. The trading volumes are high, offering traders a high degree of liquidity so positions can be opened and closed efficiently. These features mean that the index is attractive to day traders.

 

The contents of this website are intended for educational and information purposes only and do not constitute any form of advice or recommendation and are not intended to be relied upon by you in making (or refraining to make) any specific investment or other decisions. Appropriate expert independent advice should be obtained before making any such decision. We cannot and do not offer individual investment advice.

Leave a Reply

Your email address will not be published. Required fields are marked *