“The latest rebalancing of the Nasdaq 100 index NDX will see Tesla Motors TSLA join the index to replace Oracle ORCL , which is moving to the New York Stock Exchange and will no longer be eligible for inclusion.
The move is a testament to Tesla’s rapidly advancing shares, and another feather in the cap of CEO Elon Musk. But it may also signal a slowdown for the stock, judging by what happens when stocks join the Nasdaq 100.
Ryan Detrick of Schaeffer’s Investment Research found that stocks added to the Nasdaq 100 over the years have tended to underperform those that are removed.
“When you are added it means things are going great. Now things can continue to go great, but it does set up a higher bar,” Detrick said in e-mailed comments.
The stocks removed from the Nasdaq 100 going back to 1995 have averaged a return of 22% in the year following their removal, while those added to the index have only averaged a return of 11.6% over the subsequent year.
Detrick said as far as Tesla goes, “this isn’t a sell signal. Still, buying this stock three months ago when it was 40 and very few believed in it was a far better entry. Now it is a popular stock with a very devoted fan base. Just remember the bar is set higher now and any disappointment could lead to a larger than expected sell off.”…”
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