Nasdaq Exuberance Is Comical

 | Oct 25, 2013 | 7:39 AM EDT  | Comments
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Stock quotes in this article:

amzn

,

msft

,

nflx

I am hereby raising my price target on Nasdaq to 5,048. If that number sounds familiar it's because it was the March 2000 closing high.

We may have a little stall first at 4,200 since those are the twin peaks we had on the oversold rally in July and September of 2000, but we really should get back there. And maybe we should just go to 6,000. Why not?

It doesn't matter that Nasdaq gained 21 points on Thursday with net volume of 150 million shares. This compares to the Wednesday point loss of the same amount (22 points) with a net loss of a little more than 1 billion shares. For those doing the math at home, that is a net loss in volume of about 850 million shares. It doesn't matter that the number of stocks making new highs is 240 vs. 400 at the recent highs (the same number we had in July when Nasdaq was 10% lower). It doesn't matter that Nasdaq is overbought.

In fact the only reason I have to support my view that Nasdaq is going back to 5,000 is the Fed is behind the market and the end of the year is on its way. I mean, isn't that enough? And when will they start with stock splits? Come on. If the logic 14 years ago was if the stock splits it makes it look more affordable, then someone needs to get on that bandwagon already. All these super-high-priced stocks are clearly not allowing anyone into them.

I say that all in jest, but that's how it felt after the close on Thursday when Microsoft (MSFT) and Amazon.com (AMZN) gapped up on earnings. I have nothing against Amazon and the chart actually looks perfectly fine, but the exuberance was rather comical considering we saw the same exuberance with Netflix (NFLX) after the close, yet it managed to sell off after gapping up.

In the meantime, the banks were down for the third day in a row and relative to the S&P they act horribly. It actually concerns me greatly, but I think the Bank Index has pulled back to the support area I drew in almost a week ago on the chart.  I think it should rally.

The issue here will be if they don't rally, that would be bearish. The other issue is if they do rally and do not manage to get through that resistance overhead. Don't you find it rather curious the way the financials have been ignored this week and no one seems to mind? Can it be because of all the lawsuits and fines? Whatever the reason, we all know that if they don't keep pace it eventually matters.

Notice on the chart below that ever since the lows in the autumn of 2011 the ratio has had a series of higher highs and higher lows. You can believe the banks don't matter but this chart says they do. Bulls should hope I am correct that they are due for a rally in the next day or so.

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