Using the Nasdaq to Capitalize on Panic-Selling

In past Trade of the Day issues, we’ve discussed the tactical trading strategy of playing market volatility – and, more recently, oil market volatility – by using two different exchange plays:

For today, I’d like to add one additional name to this list: Nasdaq Inc. (Nasdaq: NDAQ).

As I’m sure you can guess, Nasdaq Inc. is the operator of the Nasdaq stock market, which is part of a so-called “comfortable oligopoly” among exchange-related plays.

Nasdaq Inc.’s trading revenues are tied to trading volumes, so periods of increased trading frequency lead to more transaction volume gains. Just like Cboe Global Markets and Intercontinental Exchange, Nasdaq Inc. could offer a “safe haven” way to capitalize on panic-selling in times of heightened market volatility.

The business breaks down like this…

Market Services

  • Operates various exchanges and offers equity-derivative trading and clearing, cash-equity trading, fixed-income and commodities trading and clearing, and trade-management services.

Corporate Services

  • Offers liquidity solutions, such as capital-raising solutions for private and public companies.

Information Services

  • Sells and distributes historical and real-time quote and trade information to retail online brokers, proprietary trading shops, internet portals, and data distributors.
  • Offers Nasdaq-branded indexes and financial products. In other words, for any site to access historical Nasdaq data, it’ll have to pay fees for that right.

Market Technology

  • Provides trading, clearing, settlement, surveillance, depository, and information dissemination to various markets, as well as SMARTS and TradeGuard, which are suites of products for risk management.

In addition to these segments, Nasdaq Inc. has recently gotten into some new ventures that are pinching margins in the near term but may bear fruit in the longer term.

One such venture is the Nasdaq Financial Framework, which is an order-matching and price-dissemination system used by other capital-market operators – and even some sports betting markets.

Right now, this technology is being used for betting with the Hong Kong Jockey Club – and also on the soccer-oriented Football Index. If proven successful, the Nasdaq Financial Framework could evolve into a far larger profit center for Nasdaq Inc.

For instance, Nasdaq Inc. estimates that the available market for this technology could reach $22 billion.

Analysts at Oppenheimer are even more optimistic. They think the nonfinancial customers for the technology could grow into a market worth $32 billion. That’s why they just upgraded Nasdaq Inc. with a 12- to 18-month price target of $111.

Nasdaq Daily Chart

Action Plan: With proprietary assets that have a nearly impossible barrier to entry, let’s keep an eye on Nasdaq Inc. going forward. A retest of the support levels anywhere below $100 might be a viable entry spot.

If we see the right time to make a move, we’ll alert you immediately in The War Room.

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