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Why Nasdaq 3,000 Is 'Bigger Deal' Than Dow 13,000

While the Dow hitting 13,000 made big headlines earlier this week, the Nasdaq's ascent to 3,000 could be the more significant of the two psychological milestones.

NASDAQ
NASDAQ

That's because the Nasdaq Composite Index , which measures roughly 3,000 stocks primarily in technology and related fields, actually has been a market leader and could say more about where stocks are headed than the narrowly focused Dow and its 30 industrial companies.

The Nasdaq was within a few points of the 3,000 milestone on Thursday, while the Dow continued to hover around the 13,000 mark.

"The Dow went over 13,000 a bunch of times," says Dave Rovelli, who focuses on tech stocks as managing director of trading at Canaccord Genuity. "To see the Nasdaq going to 3,000 on real earnings — Microsoft , Cisco , everybody participating — is a lot bigger deal."

In fact, the 3,000 barrier resembles something of a historic high in Rovelli's eyes.

Sure, the Nasdaq surged to an all-time closing high of 5,408.60 on March 10, 2001. But that was back in the days of what former Federal Reserve Chairman Alan Greenspan called the "irrational exuberance" that pumped up the Internet bubble, which soon after exploded and sent the market into a lasting tailspin.

"When we went from 3,000 to 5,000 that was just irrational exuberance. They were putting 500 multiples on Internet stocks that had no earnings," Rovelli says. "To me, the Nasdaq now is making all-time highs. You're taking out something that was irrational."

In fact, the last time the index crossed 3,000 was later that year, on Dec. 11, as tech went from market darling to problem child while the industry struggled through the designs of handheld devices that now are driving the sector higher.

"The smartphone market is just mind-boggling," Rovelli says. "This is true earnings, true momentum, with real potential for growth."

Importantly, the current cyclical bull-market rallyhas been pushed by non-defensive sectors like technology, which has led the Standard & Poor's 500 sectors, with financials the second-biggest gainer.

On the major indexes, the Nasdaq was up about 16 percent heading into Thursday's trading, while the S&P 500 gained 8.6 percent and the Dow rose 6.6 percent. Small-cap stocks, as measured by the Russell 2000, are up about 7 percent thus far in 2012 and underperformed the broader market in February.

"We want to see leadership from the more aggressive areas, especially technology," says Ryan Detrick, senior analyst at Schaeffer's Investment Research in Cincinnati. "Usually in a bull market you see technology and small caps. Technology we've been having, which is a little more significant for a potential longer rally."

Should the Russell catch up — even though it doesn't have a nice, round number in sight — that would be an even better sign.

"Small caps haven't done much recently. They've been kind of consolidating," Detrick says. "You definitely want to see small-cap leadership like we did late last year and earlier this year."

To be sure, many in the market dismiss the big landmark numbers. Short-term traders see little significance in them unless they signal verifiable resistance or support levels in technical analysis.

"All of these numbers are irrelevant except to the public and the papers," says Keith Springer, president of Springer Investment Advisory in Sacramento, Calif. "To the real traders I don't think it makes any difference."

Yet it's unmistakable that the Dow has struggled to break free of 13,000, even though it broke the barrier intraday a week ago. Meanwhile, the S&P 500 is caught in 1,370-1,375 range, where it peaked in 2011, while the Nasdaq almost immediately retreated Wednesday after slipping past 3,000.

"While Dow 13,000 is just a psychological number, 1,370 on the S&P is a big deal," Detrick says. "That's where we've been going for the last week or so. So that's a little more significant from a technical point of view."

—Correction: An earlier version of this report had the wrong number of stocks in the Nasdaq Composite Index. It is about 3,000.

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