Will a Recent Event Affect Nasdaq OMX Group’s Stock?

With shares of Nasdaq OMX Group (NASDAQ:NDAQ) trading around $31, is NDAQ an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Nasdaq OMX Group is a holding company. It is a global exchange group that delivers trading, clearing, exchange technology, regulatory, securities listing, and public company services across six continents. Its global offerings are diverse: trading and clearing across multiple asset classes, market data products, financial indexes, capital formation solutions, financial services and market technology products and services. The company operates in three segments: Market Services, Issuer Services, and Market Technology.

On August 22, trading was halted on the Nasdaq OMX’s exchange in what is known in the industry as a “flash freeze.” The incident, which negligibly affected stock prices, reminded regulators and exchange operators just how fragile the modern market is given its dependence on intricate software systems. It was a problem with its software — the technology on which trading relies — that forced the Nasdaq exchange to go offline for more than three hours, a slightly ironic problem for an exchange home to many of the worlds biggest technology companies.

T = Technicals on the Stock Chart Are Mixed

Nasdaq OMX Group stock has struggled to construct a solid uptrend in recent years. The stock is currently trading near mid-prices for the year and may continue to bounce around as it finds value. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Nasdaq OMX Group is trading between its key averages, which signals neutral price action in the near term.

NDAQ

Source: Thinkorswim

Taking a look at the implied volatility and implied volatility skew levels of Nasdaq OMX Group options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Nasdaq OMX Group Options

21.98%

0%

0%

What does this mean? This means that investors or traders are buying a small amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

October Options

Steep

Average

November Options

Steep

Average

As of Monday, there is average demand from call buyers or sellers and high demand by put buyers or low demand by put sellers, all neutral to bearish over the next two months. To summarize, investors are buying a small amount of call and put option contracts and are leaning neutral to bearish over the next two months.

E = Earnings Are Decreasing Quarter Over Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Nasdaq OMX Group’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Nasdaq OMX Group look like and, more importantly, how did the markets like these numbers?

2013 Q2

2013 Q1

2012 Q4

2012 Q3

Earnings Growth (Y-O-Y)

-1.89%

-47.92%

11.97%

-14.75%

Revenue Growth (Y-O-Y)

-0.12%

-7.46%

-9.94%

-21.29%

Earnings Reaction

-3.04%

-0.94%

1.25%

-2.27%

Nasdaq OMX Group has seen decreasing earnings and revenue figures over the past four quarters. From these numbers, the markets have not been pleased with Nasdaq OMX Group’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Nasdaq OMX Group stock done relative to its peers – NYSE Euronext (NYSE:NYX), CBOE Holdings (NASDAQ:CBOE), and Intercontinental Exchange (NYSE:ICE) — and sector?

Nasdaq OMX Group

NYSE Euronext

CBOE Holdings

Intercontinental Exchange

Sector

Year-to-Date Return

25.97%

33.01%

53.90%

46.33%

35.27%

Nasdaq OMX Group has been a poor relative performer, year to date.

Conclusion

Nasdaq OMX Group is a global exchange group that offers trading, clearing, exchange technology, regulatory, securities listing, and public company services. The company has taken a lot of heat lately, due to the halt caused by technology failures on August 22. The stock has not done well recently and is currently trading near mid-prices for the year. Over the past four quarters, investors have not been pleased, as earnings and revenues have been declining. Relative to its peers and sector, Nasdaq OMX Group has been a weak year-to-date performer. WAIT AND SEE what Nasdaq OMX Group does this coming quarter.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.