Winners and Losers from Reshuffling the Nasdaq 100

I wrote about the reconsititution of the S&P 500 Index earlier. To read that story, click here .

The final element of quintuple-witching day on Friday will be the annual reconstitution of the Nasdaq 100 Index.

That's when the index is both rebalanced in terms of the relative weightings of the component stocks, but it is also the opportunity for new stocks to enter the index (and for an equal number of stocks to be eliminated).

There's not very much money in index funds that track the Nasdaq 100, probably only $30 billion at most. That's almost nothing compared to the $1 trillion in S&P 500 index funds, and most of it is in a single fund: the trust underlying the Nasdaq 100 shares, the security known affectionately to traders as the "Triple-Q's."

Nevertheless, because some of the stocks entering and exiting the index are volatile and illiquid, buying pressure from the indexers should push up the prices of entering stocks and their selling pressure should push down the prices of those that are exiting.

Here are the stocks that are entering and exiting the index:

Company and Symbol	Dollar value of trade indexers will have to make (millions)	Number of shares indexers will have to trade (millions)	Percentage of average daily volume indexers will have to trade
Entering - buy
BEA Systems (BEAS: Nasdaq)	$435	5.5	55%
Check Point (CHKP:Nasdaq)	384	2.4	60%
Millennium Pharmaceutical (MLNM: Nasdaq)	212	3.7	90%
Exodus Communications (EXDS: Nasdaq)	223	7.3	81%
Flextronics International (FLEX: Nasdaq)	210	7.2	82%
Rational Software (RATL: Nasdaq)	140	3.1	82%
Human Genome Sciences (HGSI: Nasdaq)	151	1.90	62%
Mercury Interactive (MERQ: Nasdaq)	136	1.4	49%
Idec Pharamceuticals (IDPH: Nasdaq)	177	0.8	44%
Inktomi (INKT: Nasdaq)	69	1.6	32%
Abgenix (ABGX: Nasdaq)	80	1.2	98%
TMP Worldwide (TMPW: Nasdaq)	107	1.6	236%
Exiting - (sell)
Adaptec (ADPT: Nasdaq)	(17)	(1.4)	80%
American Power Conversion (APCC: Nasdaq)	(59)	(4.4)	202%
Apollo Group (APOL: Nasdaq)	(44)	(1.2)	258%
Dollar Tree Stores (DLTR: Nasdaq)	(70)	(1.7)	223%
Herman Miller (MLHR: Nasdaq)	(24)	(1.0)	340%
Legato Systems (LGTO: Nasdaq)	(18)	(1.6)	140%
Networks Associates (NETA: Nasdaq)	(34)	(2.4)	136%
Northwest Airlines (NWAC: Nasdaq)	(32)	(1.2)	301%
PacifiCare Health Systems (PHSY: Nasdaq)	(7)	(0.5)	83%
Quintiles Transnational (QTRN : Nasdaq )	(51)	(2.8)	546%
Sigma-Aldrich (SIAL : Nasdaq )	(58)	(1.4)	222%
Synopsys (SNPS : Nasdaq)	(64)	(1.3)	221%
MetaMarkets.com.

The Nasdaq 100 is designed to reflect the largest-cap and most liquid Nasdaq-listed stocks. So, as you'd expect, the stocks ejected from the index tend to be illiquid, low-cap names -- while the new stocks entering the index are the emerging big-cap superstars.

A quick glance at the winners and losers tells the story of the last year -- the emergence of new Internet infrastructure and biotech leaders. But a perverse result of this score-keeping process is that the total dollar value of entering stocks to buy is far greater than the total value of exiting stocks to sell.

The imbalance of buys over sells should be about $1.8 billion. As a result, indexers will have to sell $1.8 billion from across their portfolios. This will probably be implanted in the form of sell programs at the close on Friday.

$1.8 billion is a big program to implement all at once. If that's the way this trade is executed, we could be in for a rough close.

---

Don Luskin is President and CEO of MetaMarkets.com, and a portfolio manager of OpenFund. At time of publication, OpenFund was long Check Point Software, Millennium Pharmaceutical, Human Genome Sciences and Abgenix. Luskin appreciates your feedback and invites you to send it to Don Luskin .