The NASDAQ-to-Dow Ratio

Every so often I like to look at the ratio of the NASDAQ Composite to the Dow 30. Traditionally, the Dow goes for about 5 times the NASDAQ, or a NASDAQ-to-Dow ratio of 0.2.
As you can see from this chart, the 5-to-1 rule has held up surprisingly well for a long time:
nazdow.bmp
If you have a sharp eye, you may have noticed that something seems…missing from the chart. Well, you are right. I cut out two-and-a-half years from the chart.
Here’s what the whole thing looks like.
That really shows you how crazy the NASDAQ got. At its peak, the ratio topped 0.5. Yet even after all that madness, the traditional range reasserted itself.
As of yesterday’s close, the NASDAQ was going for 0.1896 of the Dow which is a bit below the heart of its long-term range.

Posted by on July 18th, 2006 at 10:36 am


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