What is the NASDAQ ROC© ?

Updated 2/17/2012

The NASDAQ Rate of Change (ROC) chart is very helpful in getting the “big picture” view of the stock market quickly. The old saying “a picture is worth a thousand words” is very applicable to this chart.

Once you understand what it is showing you this chart will easily point out the direction of the NASDAQ stock market and make it easy for you to decide whether you want to be in or out (long or short) of the market.

(Click for Larger Image)

The NASDAQ Rate of Change (ROC) chart shows the annual rate of return of the NASDAQ market along the left axis and the years since 1990 along the bottom.

Remember this chart shows the rate of return not the current price so it is much easier to see performance. Want to know if we are up or down from last year? Simple, if we are below the zero line… the NASDAQ is down, if we are above the zero line… the NASDAQ is up.

The key is to exit positions while we are in positive territory (with a gain above the line) rather than waiting until we have a loss. We simply exit, sit on the sidelines safely with our money intact and reenter when we get a buy signal.

The red line is the 12 month moving average. As with most moving averages a buy signal is generated as the index crosses above the moving average and a sell signal is generated as the index crosses below the moving average. (See Current Analysis Below)

Another helpful way to use this chart is to look at the slope of the red moving average line. If the slope is down the market is trending down if the slope is up the market is moving up. And obviously if the line is basically flat the market is not trending at all.

Just because this chart is not moving higher does not mean we should sell. In the period from June 2004 – June 2007 the red moving average line was basically flat, although it had a bit of wiggle, but it was still flat at around 10% rate of return so holding during that period would have produced returns very close to the long term average.

If you are looking for big gains, the best buy signals come from a movement from below the 0% line. This allows you to capture the greatest up move.

Note: While viewing this chart we must remember that it represents the rate of return we would have earned if we had been holding the entire NASDAQ for the previous 12 months. This can be achieved through the use of an index fund or ETF.

You might also be interested in the  correlation between inflation and the stock market ? How does decade inflation and stock market returns compare?

Current Analysis:

The NASDAQ ROC index rose 8.20% just this month following a 7.36% rise last month. This puts the NASDAQ up 4.78% above year ago’s level. The NASDAQ has held up  a bit better than the NYSE which is now -3.72% below year ago levels. The NASDAQ started 2011 in the 2700′s and fell to the 2300′s by August then rose to the current 2900′s level. See our article Stock Trends by Month to see which months typically perform best and which perform worst.

For more information see the NYSE ROC.

Current Market Commentary:

The following video by INO President Adam Hewison gives specific current commentary on a variety of markets including Gold, Silver, the Dow and the Dollar. It is updated Daily at 1:00pm est. Just Click to watch. Mouse-over to find a button to expand to full-screen. Mouse-over full screen to find “shrink” button.

Stock Market Commentary on GOLD, Silver, S&P 500, US Dollar and Commodities by Adam Hewison. Every weekday at 1PM

Adam shares his decades of trading and investing knowledge plus he even records weekly updates on Saturday to help you make sense of where the market is going.

FREE Commentary Click Here