Data &
Technology
Research
Reports
Report Solutions
Reports Library
Actionable
Strategies
Free
Resources
Simple Backtest Calculator
Simple Seasonality Calculator
The Kelly Criterion Calculator
Sentiment Geo Map
Public Research Reports
Free Webinar
Pricing
Company
About
Meet Our Team
In the News
Testimonials
Client Success Stories
Contact
Log inLoginSign up
< BACK TO ALL REPORTS

A record number of Nasdaq stocks have been cut in half

Jason Goepfert
2022-01-06
Despite the Nasdaq Composite hovering relatively close to its recent peak, nearly 40% of stocks on that exchange have been cut in half. Nearly two-thirds of them are in bear markets. This kind of behavior hasn't been seen since at least 1999, and it should be a good sign, but with a major caveat.

Key points:

  • On the Nasdaq exchange, 38% of stocks have dropped 50% from their 52-week highs
  • Nearly two-thirds of them are in bear markets
  • These are exceptionally high figures when the Nasdaq Composite is so close to its own high
  • The few precedents suggest this should be a good sign, but with a major caveat

Nearly 40% of stocks have been cut in half

Valuations are at historical highs, companies are raising billions based on fairy dust, and the Fed is signaling a tightening cycle. All of these are scaring investors that we're on the cusp of a repeat of 1999-2000.

There are certainly some valid comparisons to that period. And there are some compelling counter-arguments as well. Whatever the fundamental and macro considerations, there is no doubt that investors have been selling first and trying to figure out the rest later.

Since the speculative mania in January/February 2021, many of the riskiest stocks have tumbled. It just so happens many of those stocks trade on the Nasdaq exchange.

After Wednesday's post-FOMC selloff, more than 38% of stocks trading on the Nasdaq are now down 50% from their 52-week highs. Only 13% of days since 1999 have seen more stocks cut in half.

At no other point since at least 1999 have so many stocks been cut in half while the Nasdaq Composite index was so close to a multi-year peak. When at least 35% of stocks are down by half, the Composite has been down by an average of 47% (!) from its 3-year high.

The average stock tends to catch up

So, what's it mean? Well, that's a tough one since it's never happened before in recent memory.

Bulls will suggest that most of the damage has been done, and the indexes should be able to soar from here. Bears will say this is just like the internet bubble, and the index is about to "catch down" to the average stock.

To get a sense of who may most likely be correct, the table below shows dates when the percentage of stocks cut in half cycles from a low level to above 38%. The index bounced around for a couple of months, with losses leading to gains and vice-versa, except for March 2020, which was near the pandemic low.

We get a few more precedents if we relax the parameters and look for times when it cycled from a low level to 35% or more (instead of 38% or more). And it was also a better sign, triggering near the bottoms of several medium-term lows in the past decade.

Lots of stocks in bear markets, too

There are also a lot of stocks in bear markets, down 20% or more from their peaks. It's curious that this figure isn't higher.

If so many stocks are down 50%, we could reasonably expect a high number to be down at least 20%. The difference is that the stocks that have been hit have been hit really hard. Most of the others have seen more modest selling pressure.

When the Nasdaq Composite wasn't even in correction territory, yet more than 65% of stocks on the exchange were in bear markets, it was a mostly positive sign. Over the next 2 months, the Composite rallied 22 out of 26 times.

What the research tells us...

This is a tough one. There are few, if any, precedents to the kind of activity we're seeing right now on the Nasdaq. There are some signs that it's equivalent to early 1999, right before a massive blow-off rally. And it's also somewhat similar to the behavior right after that peak.

There is a solid argument to be made that so many stocks have been hit so hard that the Nasdaq Composite shouldn't suffer too much more before being able to rally again. The most significant caveat, and it's a major one, is that there is the potential that we're also seeing behavior reminiscent of the 1999 and 2007 peaks.

Sorry, you don't have access to this report

Upgrade your subscription plan to get access
Go to Dasboard
DATA &
TECHnologies
IndicatorEdge
‍
BackTestEdge
‍
Other Tools
‍
DataEdge API
RESEARCH
reports
Research Solution
‍
Reports Library
‍
actionable
Strategies
Trading Strategies
‍
Smart Stock Scanner
‍
FREE
RESOUrCES
Simple Backtest
Calculator
Simple Seasonality
Calculator
The Kelly Criterion
Calculator
Sentiment Geo Map
‍
Public Research Reports
‍
Free Webinar
COMPANY
‍
About
‍
Meet our Team
‍
In the News
‍
Testimonials
‍
Client Success Stories
Pricing
Bundle pricing
‍
Announcements
‍
FAQ
© 2024 Sundial Capital Research Inc. All rights reserved.
Setsail Marketing
TermsPrivacyAffiliate Program
Risk Disclosure: Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Hypothetical Performance Disclosure: Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown; in fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk of actual trading. for example, the ability to withstand losses or to adhere to a particular trading program in spite of trading losses are material points which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all which can adversely affect trading results.

Testimonial Disclosure: Testimonials appearing on this website may not be representative of other clients or customers and is not a guarantee of future performance or success.