NASDAQ 5,000 is Absolutely Meaningless
by Peter Leeds
Read all the past Blog entries here
Offer someone a dollar for their house. They will say, "no way."
You want to show you are serious, so you double your next offer to 2 dollars. You've come up in price 100%. They still won't sell.
What if you quadrupled your starting offer to $4. Will they sell now? Of course not.
It does NOT matter if you adjust your offer significantly, if the starting point is ridiculous.
In the year 2000, the NASDAQ level of 5,000 was ridiculous. As such, it is meaningless to make any comparisons, or justify any positions of any sort, when operating based off, and in comparison to, a ridiculous starting point. (On a side note, that was a great time for many investors before the crash, but especially penny stock traders)!
The NASDAQ could have been at 4,000, or 9,500 or 25,000 back then, it doesn't matter. The market was trading on speculation and potential. The market is trading now on valuation. The price drivers are completely different. Most penny stocks trade on speculation and potential, and as companies move from penny stock status to mature business, they often trade based on earnings power.
For the first time in 15 years, the NASDAQ has hit the psychological 5,000 level. The all-time record is 5,132. Don't believe that this has anything to do with anything. It's no different than thinking a penny stock which dropped half in value must be a good deal because it is trading so much lower than it once was.
15 years ago was the start of the Dot Com bubble collapse. However, the companies which make up the index are far stronger now, compared to the ridiculous Internet businesses whose prices were driven ONLY by speculation and potential.
Everyone is comparing the companies now to the companies then. Yes, they are way superior now. Most people take that to mean it is OK to be trading at current levels. After all, the underlying market is much healthier. Yes, much healthier... but compared to what?
So, will the NASDAQ keep soaring from here? Maybe. Will it collapse in price. Possibly. However, in no way does the "psychologically important" 5,000 level matter in ANY respect. The Index has no memory, nor does it care or know what it has done in the past. Learn about how penny stocks have no memory here
, plus Peter's personal trading tactics.
Here is your angle - everyone, from the media to your co-workers, is acting like NASDAQ 5,000 is a watershed moment. This level could indicate another top, or possibly it is a necessary price point on the way towards 6,000. While investors are using this significant point to generate positions and arguments as to what it means, you may do best by basing your decisions on ANYTHING else.
No one knows where the stock market indexes are headed, but they all do get afflicted by "confirmation bias." If a person thinks the NASDAQ will go up, they are noticing all the arguments in favor of their position, while ignoring counter-points.
This makes now a great time to invest, while all the sheep are distracted by their own shadows. Stick with your own common sense, and make your trading decisions based on your beliefs, all the while making sure to ignore all the comparisons to the year 2000 you are going to be subject to in the coming weeks.
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