What Does It Mean When the Nasdaq Is Down?

When the Nasdaq is said to be "down," that usually means that the Nasdaq Composite Index, an investment index comprised of some of the largest companies on the Nasdaq stock exchange, is losing value. This can be an indication that the broader financial markets are under pressure. Although the Nasdaq Composite represents various sections, one particular industry could be influencing the index most heavily because of selling activity in that group of stocks.

Identification

The Nasdaq is one of the most commonly referred to indexes that illustrates broad market activity in the U.S. stock market. Along with the Dow Jones Industrial Average and the S&P; 500 Index, a single glance at the Nasdaq tells investors the general direction of stocks. The Nasdaq Composite comprises 100 stocks that are traded on the Nasdaq Stock Exchange. The larger a Nasdaq company's market capitalization -- a measure of a company's size -- the more influence it has on the direction of trading in the index.

Influence

Although technology is not the only sector represented in the Nasdaq Composite, it is the most influential industry in the index, and it can pressure the Nasdaq lower. The index includes other sectors, such as retail and biotechnology, but some of its largest companies are technology leaders. Indeed, the Nasdaq is sometimes referred to as a tech-laden index. As a result, if severe selling is occurring in one or more of the leading technology names, that could be why the Nasdaq is losing value.

Bear Market

Prolonged losses in the Nasdaq could mean that the stock market is experiencing a bear market. This is a period of months or even years when stocks and major indexes persistently lose value. When the Nasdaq declines 20 percent from a formerly achieved high price, the stock market is informally entering a bear market cycle, according to a February 2008 article in USA Today. In 2008, the Nasdaq was the first major indexes since 2001 to drop into bear market territory.

Buying Opportunity

When the Nasdaq declines, that can indicate buying opportunities in some index companies. Investors might be able to identify companies in the index that appear to be treated unfairly and have potential to rise in value in the future. One way to recognize these stocks is to check whether the financial fundamentals of a company, such as profits and sales, are growing. If they are, other investors might not be recognizing that stock's true value, and these buying opportunities could prove profitable in the long run.

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