New Low Observer's  Instablog

Below is the one year performance of all the stocks on our Nasdaq 100 Watch List dated June 8, 2012 (found here).

The average gain for all the stocks from last year was +45.32%. This is compared to the Nasdaq 100 gain of +16.87% in the same period of time. Unfortunately, this is not the norm for the Nasdaq 100 Watch List therefore we wouldn't get too excited at the prospect of this same outcome for the current list.

Because the gains of Netflix and Green Mountain Coffee Roaster were so exceptional, if you exclude their returns the average gain in the last year would be +23.33%. In the case of the top five stocks, the average gain was +27.26% and is charted below:

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Within the last year, 4 of the 5 stock gained at least +20% while the fifth stock gained as much as +17% during the year. As indicated recently, the gains of Electronic Arts (EA) and Symantec (SYMC) require that investors sell the principal positions at minimum (found here). Can the stocks go higher? Yes. However, with gains exceeding +50% in a single year, it would be a shame to watch it dwindle away. Our view is that exceptional opportunities at good values are better alternatives than hoping the price will continue go up.

• Latest Nasdaq 100 Index with specific analysis for subscribers found here.

The following is the S&P 600 Index additions and deletions from 2003 & 2004 (Additional Index changes from 2005-2013 found here):

*Date either reflects when the stock was added/dropped to/from the index or when it was announced that the stock would be added/dropped to/from the index.

Source: Standard & Poor's press release 2003-2013

S&P Index Changes:

• S&P 100 2004-2013
• S&P 500 2003-2013
• S&P 400 2003-2013
• S&P 600 2005-2013

We have always maintained that those who administer the composition of stock indexes such as the S&P 500, Dow Jones Industrial Average, Nasdaq Composite do so in the fashion of rank speculators.

As further proof, it was announced that Netflix (NFLX) will be re-introduced to the Nasdaq 100 Index (found here). Below is the charting of Netflix (NFLX) being added and dropped from the Nasdaq 100 Index:

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In our article titled "Virgin Media Gets and Offer and Other Important Lessons" we said:

"Look for Netflix (NFLX) to be one of the two stocks added to the Nasdaq 100 index as the stock is twice the price that it was when it was booted from the Nasdaq 100 Index in December 2012, less than two months ago."

In our article titled "Nasdaq 100: 2012 Re-Rank Review", regarding the 2011 changes to the index, we said:

"As was the case in previous changes to the Nasdaq 100, the stocks that were added could not exceed the returns of the stocks that were dropped from the index."

Also regarding the 2010 changes, we said:

"In the middle of a bull market run, the stocks that were added to the Nasdaq 100 Index on December 20, 2010 (found here) have underperformed by a wide margin when compared to the Nasdaq 100 over the last 2 years."

Finally adding:

"However, as we've indicated with the Dow Industrials in the past (found here and here), being added to an index usually occurs when a stock has already seen its best performance and is far likelier to decline than rise over the medium term (1-3 year period)."

The Nasdaq 100 and the Nasdaq Composite Index are not below their respective 1999 peaks because the companies in the index haven't rebounded. Instead, as we've demonstrated regarding the Dow Industrials from 1929 to 1954, the indexes are below the 1999 peak because the selection of stocks to be added to the index at their high price and popularity instead of near their low price and solid valuations.

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