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has always been on the cutting edge when it comes to electronic trade execution, but it also faces considerable competition from innovative third-party market centers. Ironically, the exchange tried to eliminate its key rival when it bought Instinet in 2005. It's no coincidence that a new venture, the Better Alternative Trading System, or BATS, was founded just two months later to fill the void.
Nasdaq's stock topped out 10 months ahead of NYSE Euronext and dropped more than 40% by the middle of 2006. It's been looking for a bid since that time, stuck in a holding pattern that shows few signs of resolution. It's hard to imagine that the competitive environment will get any easier for the exchange as it tries to take back market share and share price.
Note the mid-February volume peak and decline. The exchange had just reported earnings after its failed attempt to buy the London Stock Exchange. Shareholders voted with their feet that day, believing a major growth opportunity had been lost. Even though the stock has bounced strongly in recent weeks, it continues to show a lack of key sponsorship.
Bottom line: The opportunity cost of an investment in Nasdaq just isn't worth it right now. Realistically, there's an equal chance that price will be trading 10 points higher or 10 points lower when we get to the end of 2007. That makes it an unwise choice for risk-conscious
At the time of publication, Farley had no positions in the stocks mentioned, although holdings can change at any time.
Alan Farley is a professional trader and author of
The Master Swing Trader
. Farley also runs a Web site called HardRightEdge.com, an online resource for trading education, technical analysis and short-term investment strategies. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Farley appreciates your feedback;
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