A Double-Top Ending to the 1990's Tech Bubble?
True confessions: it looks like I let my natural optimism overwhelm my reluctant skepticism. I was believed and was relatively convinced that we had hit a bottom last week but today's action undermined even my confidence.
The only obstacle holding back further declines is a support trendline emanating out of the absolute Tech Bubble Crash low of 775.80 on October 9, 2002 or intra-day low the following day of 768.63. Is there anyone out there who could have ever imagined this past October, 2007 when the Index closed at 1562.47 where we'd be today. That's a full 50% haircut in average stock prices.
I agree with those who say the current economic malaise is much worse than the Tech Bubble Crash, worse than the mid-'70's Oil Embargo, perhaps even working its way down to the depths of the Great Depression. If true, then this market has a long way to go on the downside. The Great Depression Crash cut the market (then measured by the Dow Jones Industrial Average) by nearly 90% from a peak of around 390 to a crash low below 50 (click here for Chart 1). It made the descent in 7 strides stretched over three years (click here for Chart 2).
With trepidation in using The Great Depression as a yardstick for measuring this evolving recession/depression and the 1930's crash as a model for the current market, one can conjecture that the eventual bottom is out there somewhere towards the end of 2009 at a level that erases most of the 1990's Bull Market (in the 400-500 area). Impossible? Well, did you ever think we'd see 800 again after hitting 1500?
Please tell me this fear of another 50% decline from here is out of the realm of possibilities. But in response as an unrepentant chartist, let me offer that the two peaks (2000 and 2007) could be viewed as a the two heads of a huge, extended double-top formation:
I remember reading about "secular bear markets" and thinking it could never be and then having to embrace the fact of actually being in a secular bear market. And now I have to at least contemplate what I hope is the remote possibility of a double-top ending to the 1990's Tech Bubble as manifested in the bankruptcies of the tech, housing, financial and, now, auto industries. Unbelievable!
I'm not saying a bounce isn't possible here but it's only prudent going back to the drawing board and coming up with a new strategy.
Labels: charting, Market Crashes, Secular Bear Market
6 Comments:
I feel like I need to vomit
Tonight the cnbc tech analyst said s&p 400-600. I think when people look back Bernake will catch hell for waiting so long to cut rates and then cutting too slowly, rates should be zero now. Paulson which catch hell for allowing Lehman to collapse and for reacting too slowly and for not buying up the bad assets. Scares the hell out of me what is happening with Citi. Same ole talk, pandit says their well capitalized, paulson sits on his hands. Congress sits on its hands on gm. Obama sits on his hands in naming who his treasury secretary will be in two months. Its a disgrace. We're watching the the destruction of our country. People are worried about the BCS and whether Obama played basketball today. Obama better announce a huge infrastructure program that will begin immediately when he takes office. This economy needs something on which to grow.
We all see the same charts, learned the same rules of thumb and, consequently, come to the same conclusions (only I came to mine yesterday, Yamada stated hers tonight). When I got started down the technical route over 40 years ago, I was ridiculed by my college roommate. Today, with charts available with a click of your mouse, everyone's a chartist. No wonder why fluctuations are so rapid and extreme.
Having said all that, I agree that a heavy infrastructure program will be put announced and put in place by April. We may be in the 4-600 range on S&P but the bounce back will also be extreme. When it starts be sure you're on the right side.
This inference derived from this chart is not justifiable. When using multiple years, please convert the Y-axis to a log scale. The story will be very different with a log scale. Thanks for your work and I enjoy reading your posts.
Anon, excuse me. Believe it or not, but the y-scale is logrithmic; I only work in logarithmic scale because it's the only way to make sense of charts. Click here to see what the arithmetic-scale version would look like and compare the two.
Thanks, Yes I see that the Y-axis is logarithmic.
BTW, the excesses leading to 1929 tower over the excesses leading to Oct 2007. Thus, comparisons of 1929 and 2007 should be based on using data from a decade earlier (what goes up faster needs to come down faster). If you analyze that data, you may be surprised to see that we are highly oversold right now, unless we are facing a Grand Daddy of Great Depressions. Unfortunately, the technicals are suggesting exactly that.
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