News broke this week that the Nasdaq-100
(INDEXNASDAQ:NDX), the largest non-financial companies listed on the exchange, was rebalancing its holdings
. You might know this one more by its ubiquitous ticker QQQ
(NASDAQ:QQQ). These changes are set to take place on December 24.
What caught my attention is that three of the names set to be removed, among others, were Research In Motion
(NASDAQ:NFLX), and Green Mountain Coffee Roasters
(NASDAQ:GMCR). These three have been on a tear over the past few months and are also names we’ve been bullish on recently.
So the obvious question is, what does this mean? Assuming the company wasn’t bought out (which is rare given these are normally large companies), the shares are removed because of performance or because their market cap is too small. In other words, sentiment is probably incredibly low. You don’t get kicked out for having good performance. One of my favorite sayings is, "You buy low expectations, not low price." I’m guessing getting kicked out of the QQQ probably is a sign things can’t get much worse. Sure, the worst case is the company goes on to become bankrupt, but let’s look at the stats before making that assumption
Since ’08, we counted three companies that were bought out, so we removed their results. That left us with 38 stocks that were kicked out of the QQQ (not including the 10 set to be removed next week).
I worked closely with Rocky White in our Quantitative Analysis group on this study and the results are simply stunning.
No matter what time frame you use, stocks act incredibly bullish
right after being removed from the QQQ. The bottom line is, a year later, the average stock is up +63.6% and higher +76% of the time. We do a lot of studies around here, but these might, hands down, be the most bullish results I’ve ever seen.
Here is a list of all the stocks that have been removed since ’08. In conclusion, it might be well worth your time to take a closer look at the 10 set to be removed next week, as those could be some of the biggest winners next year if past history plays out yet again.
Click to enlarge
This article by Ryan Detrick, CMT, was originally published on Schaeffer's Investment Research.
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No positions in stocks mentioned.