NASDAQ NEWS: Naz Falls to Six-Year Low
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September 23, 2002
Last week, I discussed how the sub-sectors of the tech world were falling to new multiyear lows (see Nasdaq News: Naz Remains in a Range, though Some Indices Do Not, 916/02). At the time we were looking for signs that either the broader market would pull these tech sectors up or weakness would prevail, taking the Naz to new lows. Well, the latter occurred on Monday, with the NASDAQ ($COMPQ) falling to new lows. Below is a chart of the past three months that shows the low from last July and the subsequent move below it on Monday.
Figure 1: Daily Chart, NASDAQ
Today’s close below 1,200 took out some very strong support that goes back to 1996. The Naz last closed below this mark on September 16, 1996. Just to put this in perspective, the Naz has now lost 77 percent of its value from its all-time high reached on March 10, 2000. Obviously, the “buy the dip mentality” has disappeared, but there still are some disturbing facts dealing with this recent decline.
Last July and early August, when the Naz was reaching new yearly lows, the NASDAQ Market Volatility Index ($VXN) was spiking above 70. However, even though the Naz lost 2.96 percent today and moved below the 1,200 level, the VXN rose just 1.30 percent to close at 59.85. Below is a comparison of the VXN and Naz over the past three months showing this discrepancy.
Figure 2: Volatility, NASDAQ
Even with Monday’s decline, the VXN is roughly 15 percent below the level it was at when the Naz was roughly at the same value in July and August. Though traders aren’t buying these declines, they aren’t showing a lot of fear either. Yes, the put/call ratio and the VXN are definitely at values above average, but this isn’t the type of fear we would expect when the market reaches a six-year low. Unfortunately, this may mean that more declines are in store for the NASDAQ Composite.
There are a couple of things to look for when the markets are trying to establish a bottom. First, the fear indicators will spike drastically. Second, up volume will be swamped by down volume at a ratio greater than 10-1. Third, talk of impending doom will dominate the news and financial stations. Even non-financial publications will start to talk about the market. Look for these things to occur before jumping back into tech stocks and it could save you a lot of cash.
Jody Osborne
Senior Staff Writer & Options Strategist
Optionetics.com ~ Your Options Education Site
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