The truth about the devastating Nasdaq rout

“The number of Nasdaq shares down more than 50% is near record high.”

That’s the headline that Yahoo has made for Bloomberg these days chart and articles.

Approximately 40% of stocks included in the Nasdaq Composite Index It is Similar to the bear market of 2000, 2008, and 2020, it is at least 50% below the 52-week high. The chart also shows that the Nasdaq reached this level in the bull market in 2016 and 2018.

The AD line reveals the truth about the Nasdaq

The graph shows that capitalism works.

SMBs rely on the Nasdaq Exchange to raise funds for their operations. It is the seat of speculative companies that may or may not succeed.

For example, the Nasdaq is home to Google, a successful search engine. But it was also home to Lycos, Altavista, Yahoo, Excite, Infoseek, Ask Jeeves and other forgotten search engines.

In a dynamic economy where entrepreneurs strive for success, it is expected that there will be more failures than successes. As a result, the Nasdaq’s Advance-Decline (AD) line has been trending downward for decades.

Nasdaq AD line since 1997

The AD line subtracts the number of stocks closed on a given day from the number of high closed stocks. In the bull market, persistent problems should overtake those that have fallen, and there should be an upward trend in the AD line. In the bear market, the downtrend should be more abundant and the indicator should have a downtrend.

This can be seen on the New York Stock Exchange, where investors trade with large, financially sound companies.

NYSEAD line since 1996

nyse advertising line

Both charts cover the same period, but show different trends. The Nasdaq is for speculation and the NYSE is for investment.

The fact that many Nasdaq stocks are trading at least 50% below their 52-week highs shows that investors are willing to accept the risks of speculative companies. In itself, this is a bullish factor.


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