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Google and Red Hat added to Nasdaq
Rob writes "Google Inc and Red Hat Inc are two of the big technology-related stocks to be added to
the Nasdaq-100 in the latest annual reordering of the 100 largest non-financial stocks on
the Nasdaq stock market. Meanwhile, the addition of Raleigh, North Carolina-based Red Hat
reinforces the credentials of the open source Linux operating system on which the company
has built its business. "
You don't just add companies to the NASDAQ 100. You also have to drop them. The losers this time:
Career Education Corp.
Dollar Tree Stores Inc.
Intersil Corp.
Invitrogen Corp
Level 3 Communications Inc.
Millennium Pharmaceuticals Inc.
Molex Inc.
Novellus Systems Inc.
QLogic Corp.
Sanmina-SCI Corp.
Synopsys Inc.
Smurfit-Stone Container Corp.
I've never heard of most of these companies. And that's one of the problems with the NASDAQ 100 as an index. Its contents change often, to drop losers and reward winners. Which means that the NASDAQ 100 is constantly rising as long as they can find some stocks going up.
How can you compare today's NASDAQ 100 index with yesterday's if the stock on it change? They weight the numbers to ensure that yesterday's number is the same as today's, but it means that tomorrow's number is on a completely different scale. The NASDAQ will almost certainly go up because you've replaced losers with winners, but that makes it hard to use yesterday's numbers with tomorrow's numbers to help visualize the overall trend.
The NASDAQ 100 index is far flakier than the relatively stable Dow Jones Industrial Average, which is why the NASDAQ 100 is less often reported than the Dow. It's supposed to measure the health of the hot tech stocks in the US, which means it's going to be flaky, but it also makes the number somewhat less useful.