There’s a lot of talk about the NASDAQ being 21% above its 200 day moving average, so… here’s my 2 cents on the matter.
Yes indeed, the NASDAQ is over 21% above its 200 day moving average. So, if the 200 SMA is your exit, you’d endure a 21% drawdown waiting to sell. I’ve got a ratio chart for it, too. The 1.216 = 21.6% variation. Also note, it’s higher than it was in February.
At a ratio of 1.20 it was high in February, since 1.20 = the level of the NASDAQ was 20% higher than its own 200 day SMA. How high is that?
It’s a decade high!
So, yeah, the NASDAQ seems stretched…
Like the CBOE Put/Call Ratio I shared in Here’s what the equity options put call ratio is telling us, and what it isn’t, the % above a moving average is another indication of sentiment.
When it’s as high as it is now, the market very enthusiastic.
For example, the Fear & Greed Index calls it market momentum and uses the 125 on the S&P 500 as a measure of investor sentiment.
Chatting with some friends on Twitter, someone asked about the relative comparison to the 2000 stock market bubble.
The current period is no comparison to 1999-2000 when the NASDAQ was 50% above its 200 day SMA.
Here is the ratio between the NASDAQ and its own 200-day moving average back to 1985. The relative ratio level the NASDAQ got in 1999 was the highest ever seen.
Interestingly, I first started observing to get trading signals from relative strength ratio charts in the late 90s, and by the time 1999-2000 rolled around, I was comparing not only stocks to other stocks and their sector index, but also a cross section of global markets. For example, stocks vs. bonds, etc.
The NASDAQ was all the craze around 1999, and I had a t-shirt that said “NASDAQ; the world puts its stock in us.”
With technology leading with momentum, the tech heavy nas is seeing some popularity again.