I'm going to make this post short, because there's a lot of material out there already showcasing this phenomenon, but tl;dr is that indexes like the NASDAQ 100 have a track record of adding trendy stocks into the index around the stocks' ATH, and end up bag-holding the stock as it's valuation comes back to reality. Examples are: Atlassian, Peloton, Okta, Match, Zscaler, Lucid, etc. over the past 2 years.
That's not to say that they only choose losers, but in situations where speculative, “story” companies without the financials to back it up gain massive momentum, it's not surprising to see them lose most of their gains once added. It's not the indexes job to try and sift through the best company based on merit or valuation. Rather it's based on performance and market-cap which is out of their control.
All that being said, $ENPH will be added to the NASDAQ 100 on Monday 11/21 and ironically replace $OKTA. Enphase is interesting because it's an energy company valued like a speculative, growth tech stock. It's nearing its 52 wk-high and on the verge of breaking out to the upside. Unsurprisingly, it's done well this year while energy has done great. When does that narrative change? I'm not here trying to call the peak on the energy rotation, but the odds are good enough for me. The next few weeks are absolutely crucial for Enphase to retain its bullish narrative, but if it cracks it'll come down hard.
I am short $ENPH now, but am cautious of it's performance over the next couple of weeks. It could have a crazy move to the upside in the near-term off of index inclusion momentum and if that happens, I will be adding to my shorts.
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