Commentators claiming the stock market is in the grips of "a speculation-driven frenzy" whose effect has been to "revive investor animal spirits" apparently overlook the far greater extent to which utter complacency is the driving force behind rising stock prices in the aggregate...
It's the NASDAQ Death Spiral revisited: the technical measure of underlying participation that saw the NASDAQ Composite's March '09 low confirmed by NASDAQ's cumulative advance-decline line ... as well as finds the NASDAQ Composite's rally off its March '09 low badly diverging from the same.
Note how but a relative handful of listed issues did the heavy lifting on NASDAQ from March '09 - April '10 ... while fewer still propelled NASDAQ higher since late-June 2010.
If ever there were a means of quantifying the existence of "animal spirits," the cumulative, upside participation of NASDAQ-listed issues most ably qualifies as a suitable measure. When fundamental prospects for equities in general, indeed, are positive "a speculation-driven frenzy" will make itself apparent by way of expanding upside participation of NASDAQ-listed issues, and this in a manner confirming a rising NASDAQ Composite.
Nothing of the sort has been in evidence since March '09 bottom. Rather, the greater preponderance of NASDAQ-listed issues simply are not participating in NASDAQ's advance to any degree close to those relatively fewer issues leading the NASDAQ Composite higher.
Most NASDAQ-listed issues are languishing badly relative to where these traded three years ago, thus demonstrated that, no "speculation-driven frenzy" is behind NASDAQ's advance. Rather, complacency bolstering willingness to hold onto lagging dogs is the larger factor helping drive the NASDAQ Composite higher.
Yet this is not some new dynamic whose portent is unpredictable. In fact, similar circumstance existed in 2008 (first in May, then again in August) when in relation to its late-2007 peak the NASDAQ Composite was not trading much lower, yet its cumulative advance-decline line contrarily was in the midst of spiraling decidedly into the abyss.
Today, even more profound is the disparity between the NASDAQ Composite and its cumulative advance-decline line versus the position of both in late-2007. Thus is the way paved with objective evidence supporting an outlook (such as mine) anticipating a NASDAQ Composite trading in the vicinity of 300 sometime over months ahead...
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