E Yaay!! The NASDAQ Is Back To 5000! Sort Of… OK, Not Really…

None of us have a complete lock on all the great ideas, or even all the great writing.  My colleague and friend, Sy Harding, publishes Street Smart Report Online (386-943-4081) and is a renown market technician.  Here, with his permission, and somewhat abridged because of space constraints, is “The Rest of the Story” about the benchmarks.  It’s a great read…

Sy writes: “I hope Wall Street and CNBC don’t insult the intelligence of investors who were fully invested at the Nasdaq top in 2000 by claiming that ‘the market has come back’ — because if ever there was a market that was not the same as the market that went away, it’s the Nasdaq.

“The claim that ‘the market always comes back’ is one of the biggest scams Wall Street dumps on investors … It’s not just how long an investor often has to wait for ‘the market’ to come back, but that the market that comes back is never the same one that went away. They constantly change the stocks that comprise the indexes, throwing out companies that no longer represent the changing economy, replacing them with strong stocks that do.

“I don’t have the numbers on the overall Nasdaq.  But in just the seven years from 1999 to 2006 there were 109 changes in the stocks that comprise the Nasdaq 100, an index that only contains 100 stocks…  It isn’t just the Nasdaq… 23% of the stocks that were in the Dow at the market peak in 1999 were no longer in that index by 2004, just five years later. They had been replaced a few at a time by stocks of newer, stronger companies that were more representative of the changing economy. Microsoft, Intel, SBC Communications and Home Depot replaced Chevron, Goodyear Tire, Union Carbide and Sears Roebuck. Pfizer replaced Eastman Kodak. [Etc.]

“More recently, in 2013… Goldman Sachs, Nike, and Visa replaced poor performing stocks Alcoa, still down 82% since the market peak in 2007, Bank of America, still down 72%, and Hewlett Packard, still down 59%.  In just 11 years from 1988 to 1999 there were 256 changes made in the stocks that comprise the S&P 500, an index of only 500 stocks… The point is; what does it really mean to investors that the market always comes back, if the stocks that previously made up the indexes… were replaced with stronger stocks? That the Nasdaq is back at its peak of 2000 is meaningless.”