Why not, we hit 5,000 in early 2015 and it’s been two whole years so why not add 20% to the index – 50% from the lows of last year but let’s not pick nits, right? In fact, the Nasdaq Composite ($COMPQ) is up 20% since the election, gaining $1.7 TRILLION in market cap to hit $8.5Tn for the first time this morning.
I know I didn’t put $1.7Tn into the Nasdaq, did you? No, no one put $1.7Tn into the Nasdaq. In fact, there were only approximately $200Bn worth of net inflows into the Nasdaq since the election and the rest is LEVERAGE. That’s because the price of all the shares that haven’t been trades instantly adjust to the price of the shares that are actually trading and, in a low-volume rally like the one we’re having, those distortions can get pretty drastic.
Another problem with the Nasdaq, which we’ve discussed before, is that the top 10 stocks make up almost 1/2 of the index, more than half if you don’t count GOOGL twice. It’s all about what the Top 10 are doing and, other than GILD (who I just featured as a great bargain on Nasdaq Live yesterday morning) all of these stocks have been performing very well and soon we’ll see if the earnings justify the massive gains.
Back when the Nasdaq was first challenging 5,000 on Dec 7th (Pearl Harbor Day) we were concerned that the market may fly higher – like it did in 1999 before the crash. At the time we used a bullish $3,850 Dow ETF (DIA) trade that has already returned the projected $15,000 (289% profit) but there’s still the obligation to buy 500 shares of AAPL at $97.50, on the short puts we sold for $10 (now $3) so, if we were to close those out for $1,500, the final profit on the upside hedge would be $9,650 (250%) but who doesn’t want to own AAPL for $97.50? So why would we pay $1,500 to get out of those contracts?