March 24 - Nasdaq 100:  Don't Worry About The Soft Landing,  Investors' Corpses Shall  Deaden The Fall

The Nasdaq 100 is a magical index. Simply place money into it and watch it grow faster than any comparable average while lasting  longer than any skyward bound IPO.  Great!  But now for the bad news, the Nasdaq 100 is the bull market, and will crash the hardest if and when capital has no place to rotate but out.

The Nasdaq  100 was born on January 1985. The companies selected are not scrutinized over like the collection in the Dow 30 are, it is only the biggest and brightest market caps which make the cut.  The index changes stocks  usually at the end of each quarter and in December of 1998 a new weighting system was introduced. The weighting system for all intensive purposes has given the index the framework to run faster, and it has.

Microsoft and Intel in December 1998 had a weighting of 14.5% and 8.4% respectively, and today  they carry a 7.51% and 6.84% weighting.  By implementing this system which automatically lowers a companies weighting as their market cap grows and raises the weighting of smaller companies, the  Nasdaq 100 has changed with times and benefited immensely.  What had more chance of rising dramatically in 1999, Microsoft or many of the smaller wonders such as QCOM or Applied Micro?  All  it takes is a couple dark horses riding high and joining the Nasdaq 100 to help the average grow faster than if the largest stocks had a higher weighting.

The beautiful thing about the Nasdaq 100 is that companies are tossed out as soon as they miss a beat in favor of larger cap tech's.  Some of the major names have lasted in this environment but most  stocks have not.   From August of 1994-1999 a total of 118 changes have been made to the Nas 100, and last year with the new weighting system there was 30 changes, the most in a single year.  Poor  Lincar Holdings Inc didn't even last 1 year from entry to exit, what a shame.  Could you imagine a Dow 30 changing companies with such ease?  We would of easily hit Dow 30,000 last year and be  gunning for 40,000 this year.

There is no inherent problem with the Nasdaq 100's structure, but the level it is at and the level it may   go to could add to the risk of a collapse. Prior to the weighting changes a handful of big cap stocks could hold the average up, but today as the average market cap of each company rises and  weightings are more evenly shifted any shake out could spell serious trouble.  But in an overall market were the word "divergence" rings loudly across almost any index or exchange, it has not yet  applied to the top 100 Nasdaq companies.

It is somewhat daunting to consider that until the Dow's recent rebound the bull market had  essentially only one unscathed area which was the Nasdaq.  The earnings don't justify the stock increases although the hope is that one day the will.  The threat is that with any serious rotation out  of tech the punishment could be unparalleled.  And the Nasdaq 100 which is almost double what it was in October won't slowly die, investors won't let, it will have to be done in one felt swoop, a complete meltdown.

The Nasdaq 100 is the bull market today.   If you don't think the end of the mania is near I recommend you buy it now, but if the end arrives when you are holding, well, I know the phone  number of a good bankruptcy attorney.