What Is the Nasdaq-100 Pre-Market Indicator (PMI)?
The Nasdaq-100 Pre-Market Indicator (QMI) reflects trading activity based on pre-market open prices for the Nasdaq 100 Index, and gives an indication ofthe opening price for the index each trading day.
Nasdaq developed the indicator to give investors and tradersa better view of market activity prior to the official opening at 9:30 a.m. Eastern Time, based on actual price and volume data for Nasdaq 100 stocks.
Key Takeaways
- The Nasdaq-100 Pre-Market Indicator (PMI) helps investors gauge pre-market trends, based on market reaction to overnight news, and uses these trends to help predict the index's opening price.
- The PMI uses the same calculation employed by the Nasdaq 100 index during regular market hours.
- The PMI is based on the last sale prices of Nasdaq 100 stocks during pre-market trading, which begins at 4 a.m. Eastern Time and lasts until the market is open.
Understanding the Nasdaq-100 Pre-Market Indicator (PMI)
Some of the most important market moves can take place outside the 9:30 a.m to 4 p.m. Eastern Time regular trading sessions of the New York Stock Exchange (NYSE) and Nasdaq.
The often-volatilepre-markettrading session is widely followed to gauge the market outlook ahead of the regular open. Price volatility is driven by forces outside the regular trading session, and knowing how to trade stocks and futures during this period is an opportunity for investors looking to profit.
After close is important as well, as investors take stock of the day and make trades that might have caused too much volatility immediately before the close.
The Nasdaq-100 Pre-Market Indicator (PMI) provides direct insights for Nasdaq 100 stocks but is also an important tool to gauge pre-market sentiment for the overall stock market. This is because index components include well-known and heavily traded large-capitalization stocks, such as Amazon.com, Apple, Netflix, Meta (formerly Facebook), Alphabet, Intel, Microsoft, and Qualcomm.
The Nasdaq 100 PMI is, therefore, useful to many market participants. It also helps traders assess the market’s level of overall activity and the degree of technical price support.
The Nasdaq 100 Index
The Nasdaq 100 comprises the top 100 domestic and international non-financial companies listed on the Nasdaq in terms of market capitalization. Major industry groups represented include computer hardware and software, industrials, biotechnology, and telecommunications.
In July 2023, the Nasdaq 100 underwent a special rebalance to redistribute overly concentrated positions in certain companies that have collectively become too weighty in the index. This is only the third instance of such a special rebalance, the other two occurring in 1998 and 2011.
The rebalance that Nasdaq made to the Nasdaq-100 Index affected the PMI as well because it changed the weights of the companies in the index. This means that the PMI will be more influenced by the price movements of the companies whose weights increased, such as Alphabet, Facebook, Netflix, and Costco, and less influenced by the price movements of the companies whose weights decreased, such as Apple, Microsoft, Amazon, and Tesla.
Prosand Consof the Nasdaq-100 Pre-Market Indicator
The Nasdaq 100 PMI is especially useful to traders, and soundly beats the old way of doing things: Prior to its introduction in the year 2000, traders relied on futures contracts and individual pre-market stock trades to try to figure out where the index might open. This took both time and effort to decipher, so the Nasdaq 100 PMI eliminated needless work prior to the market open.
Also, the indicator uses editing logic to filter out bad trades and thus provide a more accurate reading of market trends than traders might determine on their own. For this reason, the Nasdaq 100 PMI is used by those who trade individual securities, as well as index exchange-traded funds (ETFs) like the QQQ.
The indicator isn't used by long-term investors nearly as often, however. Given their longer holding periods, many investors have little need to know where the Nasdaq 100 or the general market might open. As a result, watching either the Nasdaq 100 PMI or its sister indicator, the Nasdaq 100 After Hours Indicator (AHI), might not be all that important, unless investors happen to be making portfolio changes that particular day.
How Is the Nasdaq-100 Pre-Market Indicator Calculated?
The Nasdaq-100 Pre-Market Indicator (PMI) is calculated by using the last sale prices of Nasdaq 100 securities during pre-market trading, which occurs from 4 a.m. to 9:30 a.m. Eastern Time. The PMI is then scaled to reflect the Nasdaq 100’s regular-session opening value.
What Does the Nasdaq-100 Pre-Market Indicator Tell Investors?
The Nasdaq-100 PMI gives investors an idea of the direction and magnitude of the Nasdaq 100 Index’s opening price, as well as the overall sentiment of the market before the regular trading session begins. The PMI can also help investors identify potential trading opportunities or risks based on pre-market price movements.
How Reliable Is the Nasdaq-100 Pre-Market Indicator?
The Nasdaq-100 PMI isn't a perfect predictor of the Nasdaq 100 Index’s performance during the regular trading session, as there may be factors that affect the market after the pre-market window or during the day. The PMI is also based on a limited number of trades, which may not reflect the full liquidity and depth of the market. Therefore, investors should use the PMI as one of many tools to gauge market conditions and trends, and not rely on it solely.
The Bottom Line
The Nasdaq-100 Pre-Market Indicator (PMI) is an index that measures pre-market trading activity for the Nasdaq 100 Index, which consists of 100 of the largest and most actively traded U.S. and international companies listed on the Nasdaq stock exchange. The PMI gives investors an indication of how the Nasdaq 100 Index may open and perform during the regular trading session, as well as the overall market sentiment before the market opens.
However, the PMI isn't a definitive forecast, as it is based on a limited number of trades and may not account for all factors that affect the market. Investors should use the PMI as one of many tools to assess market conditions and trends, and not rely on it exclusively.
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