MAILBAG QUESTION:

"i'm quite bullish on the ndx and think it could hit 5000 in 2015. How do you see it? that's the next milestone isn't it?"

MY RESPONSE:

For the sake of our general trader audience, I'll say something about chart 'milestones'. And ALSO, why a next NDX move of 1000 points would be a slight slowing of the prior advance in the hot big cap Nasdaq 100 Index.

There's not an exact definition of a so-called milestone price level but here's an approximation: a definite next milestone is $100 when a stock is at $50. The next 'milestone' price level above 100 is when the same stock reaches $200. Each 100 dollar increment then becomes another milestone.

In the case of the S&P 500, a next major milestone above 1800 is 1900. A bigger milestone is SPX going from 1000 to 2000, which the index has done over the past 2 years basically.

In the case of the Nasdaq 100, big milestone levels are 1000 point increments, such as the Index going from 4000 (reached 8/15/14) to potentially 5000 next as you suggest.

A 'RULE OF THUMB' ABOUT MILESTONE LEVELS:

There is a rule of thumb about major 100 point or 1000 point milestone increments: there's a tendency for a NEXT milestone to be reached once one milestone is crossed even if it takes a while.

For example, the Dow 30 (INDU) pierced 16000 in November 2013, then pulled back a few hundred points, rallied above 16,000 again, pulled back to 16000 in April (2014), then advanced to 17000 last month (July, 2014). Or, take the case of the 2008 bear market, when INDU broke 11000 in September and kept breaking down 1000 points by 1000 points until dipping briefly below 7000 in March 2009. It was of course widely reported/noticed when the Industrial Average fell below the 10000 milestone, then 9000, 8000 and finally 7000.

NOT ALL MILESTONE LEVELS REPRESENT THE SAME PERCENTAGE GAIN OR LOSS:

A 'linear' or arithmetic price scale is what we are used to seeing as options trading involves shorter-term price objectives generally and we measure price increments equally. Each 10, 100, or 1000 points is the same distance on the chart. Going from 100 to 300 looks the same as going from 900 to 1200. But the same 300 points means a bigger percentage gain in the first instance.

A chart that is logarithmic in nature, or properly termed a semi-logarithmic or 'semi-log' chart (for reasons I won't go into) measures EQUAL percentage moves as seen below. The Dow going from 11000 down to 7000 (4000 points) is the same percentage move as the Average going from 11000 up to 17250 (6000+ points).

Finally, in answer to the question, yes I think it possible that the Nasdaq 100 will reach 5000 in the coming 12 months. And, a move from 4000 to 5000 would actually represent a SLOWING of the Index's advance (+ 25%) relative to its move from 3000 to 4000, which was a gain of 33%. See the chart highlights below.


GOOD TRADING SUCCESS!