The Truth About the Devastating Nasdaq Rout

“The number of Nasdaq stocks down more than 50% is almost record.”

That’s the headline Yahoo made for Bloomberg these days chart And articles.

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

AD line reveals the truth about Nasdaq

The chart shows that capitalism is working.

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

For example, 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 vibrant economy where entrepreneurs strive for success, it is expected that there will be more failures than successes. As a result, Nasdaq’s advance-decline (AD) line has been on a downward trend for decades.

Nasdaq AD line since 1997

The AD line subtracts the number of closed stocks on a particular day from the number of high closed stocks. In the bull market, ongoing problems are expected to outpace those who 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 is seen on the New York Stock Exchange, where investors trade with large, financially sound companies.

NYSEAD line since 1996

nyse advertising line

The two charts cover the same time frame, but show different trends. Nasdaq is for speculation and 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, it’s a bullish factor.

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