• Why Being Kicked Out Of The Nasdaq-100 Is A Good Thing

    by  • December 16, 2013 10:58 am • Breaking News, Broad Market Analysis, Quick Hits

    The Nasdaq just announced their annual changes to the NASDAQ-100 Index (NDX).  DISH Network Corporation (DISH), Illumina, Inc. (ILMN), NXP Semiconductors N.V. (NXPI), TripAdvisor, Inc. (TRIP) and Tractor Supply Company (TSCO) were all added.  Fossil Group, Inc. (FOSL), Microchip Technology Incorporated (MCHP), Nuance Communications, Inc. (NUAN), Sears Holdings Corporation (SHLD) and DENTSPLY International Inc. (XRAY) were all removed.

    This is where things get interesting. We’ve looked at this before and the names that are removed tend to outperform the names that were added!  For a refresher, here’s what I said last year about it.  In the end, it all comes down to expectations. If a company is removed, more often than not, a lot of bad things have been happening.  Versus if it is added, the future looks very bright.  Well, if you buy simply based on expectations, it is easier to beat lowered expectations versus higher expectations.

    Check out how the changes from last December have turned out.

























    Sure enough, the names removed saw some big winners and just one [BlackBerry Ltd (BBRY)] is actually lower since the changes. Netflix, Inc. (NFLX) is the prime example of what can happen when a company has good news and sentiment is very negative, as it has gained more than 300%.  Last year, I was on Yahoo Breakout with Matt Nesto and mentioned why being removed could be very bullish and cited NFLX specifically as one to watch.  Nice when it works.

    So is this just a one-time thing?  Last year played out, but what about longer-term?  Here is the data going back since 2009.  A year later, those removed are up nearly twice as much as those added.














    Lastly, here are the results going clear back to 1995.  Again, we see steady outperformance from those removed versus those added.  Please note on this one, though; the issue is a lot of these tickers have changed and others simply don’t exist anymore.  So be aware it isn’t 100% accurate, but is the best that we could find and I felt it was still worth sharing.

















    So will Sears or Fossil be huge winners when we look back this time next year?  I sure wouldn’t want to bet against it.



    Ryan Detrick is the Senior Technical Strategist at Schaeffer's Investment Research in Cincinnati, Ohio. He joined Schaeffer’s in 2003 and is a frequent speaker and writer on stock market and economic issues and is widely sought after by financial media for his expertise and commentary. Mr. Detrick is a common guest on CNBC, Fox Business, and Bloomberg Television and has been quoted in outlets such as The Wall Street Journal, BusinessWeek, USA Today, Reuters, the Associated Press, and others. With a decade of financial industry experience in the investment and financial services area, strengths include short-term trading with an eye toward timely technical- and sentiment-based trading opportunities, and advanced option trading strategies. Mr. Detrick received a BA in finance from Xavier University, an MBA in finance from Miami University, and has earned his Chartered Market Technician (CMT).