The NASDAQ Composite index closed yesterday at a level of 5056.06. That’s an all-time high, surpassing the previous peak of 5048.62 achieved on March 10, 2000. NASDAQ is the last of the three major US indices to close above the highs made during the last gasps of the internet bubble of 1999-2000. A purist might say that the all-time intraday high of 5132 and change–also made on March 10, 2000–has not yet been broken through. Although I’m somewhat of a stickler about these things, I think the closing figure is much more important in this case. So I buy the idea that we’re at a new high, even though on an intraday basis we’re fifty-some points short.
Does this achievement have any significance?
In terms of fundamentals, no.
In terms of market psychology, yes, in three ways:
–it finally closes the book on the Internet Bubble, allowing technically minded investors to concentrate their attention on the future, rather than retaining this one tiny cautionary reminder of an ugly period in the past
–an old high acts as a psychological ceiling, particularly for chart-oriented investors. The more time an individual stock or an index spends just below that level, trying to break through but having no success, the stronger and more impenetrable the ceiling becomes (in the NASDAQ case, we’ve been hovering below the old high for about two months). Once a breakthrough occurs, and provided the stock/index can stay above the old high, the ceiling reverses its role to become a floor that lends support. In addition, once the old high is crossed, there are no further barriers to advance for chartists to worry about–no more it-can’t-go-higher-than-this levels, just blue sky
–with 2000 out of the way, I think the relevant chart period to consider is from the highs in late 2007 until now. Over this time frame, NASDAQ isn’t a laggard. Quite the opposite. It’s up by 80% from the old highs vs. +35% for the S&P 500. NASDAQ is the healthy one, not the S&P.
No, the fundamentals haven’t changed. And no, I’m not going to skew my portfolio further toward NASDAQ names. Still, it wouldn’t be surprising to see the OTC index show relative strength over the next few months–provided we can stay above 5048–purely because technically driven buyers will become more favorably disposed toward it.