Opinion: The Nasdaq and Dow are now trading in a way that was evident right before the internet bubble burst

The US stock market is experiencing an unusual number of mixed trading sessions, with one major index closing high and another ending lower. This is not a sign of a healthy market. This is why the big drop in the market on the Friday after Thanksgiving may not have been as unexpected as it seemed.

Consider the differences between the Dow Jones Industrial Average

The Nasdaq Composite Index

During the four trading sessions before Thanksgiving. On each of those days, one of these indicators closed while the other closed lower. On average over the four trading sessions, there was a 1 percentage point difference in their returns.

DJIA% change

Nasdaq Composite % change

difference (in percentage)

November 19


+ 0.40%


November 22

+ 0.05%



November 23

+ 0.55%



November 24


+ 0.44%


To analyze how rare such differences are, I have counted the number of times since the creation of the Nasdaq Composite in 1971 the day closed and the Dow closed down, or vice versa. Such differences occurred in 22% of trading sessions, or about once every five days. So that these differences persist for four consecutive days is unusual.

Also, these four trading days are not particularly unique nowadays. Over the next month, the daily differences between the Nasdaq and the Dow occurred 38% of the time. Its frequency was slightly lower during the subsequent quarter, at 37%. And both of those numbers are nearly twice the long-term average.

I’ve also measured the size of the difference in the daily returns of the Nasdaq Composite Index and the Dow Jones Industrial Average since 1971. The long-term average is 0.5, about half the 1.0 percentage point difference that occurred over the past four trading days before last Thanksgiving, on average.

To gauge the importance of hybrid markets, I measured the relationship between the Nasdaq’s composite post yield and the frequency and magnitude of differences between the Nasdaq and Dow. In both cases there was an inverse correlation: when the differences were more frequent, and the size of the differences were larger, the Nasdaq, on average, tended to produce lower returns.

This inverse correlation was especially evident at the top of the internet bubble, when the differences reached their extremes. In the weeks before that bubble burst in March 2000, more than half of the trading sessions saw the Nasdaq Composite and Dow Jones close with a mixed close. The average daily spread on the returns for these two benchmarks approached 2.0 percentage points.

Any parallel to the bursting of the Internet bubble is, of course, disturbing. Although the recent differences are not as extreme as those seen in March 2000, they are nonetheless well above the norm, and healthy markets are blazing across all cylinders.

Mark Hulbert is a regular contributor to MarketWatch. His Hulbert rating tracks investment newsletters that pay a flat fee to review. It can be accessed at mark@hulbertratings.com

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