This year is a very important year and it’s important to know which side to be on when the stock market turns!
In March 24th 2000 the stock market peaked before the the bubble burst, known as the dot.com bubble, in one of the worst market corrections in decades, some companies, such as Pets.com and Webvan, failed completely and shut down. Others, such as Cisco, whose stock declined by 86%, and Qualcomm, lost a large portion of their market capitalization but survived, and some companies, such as eBay and Amazon.com.
The S&P 500 eventually bottomed out at on October 10th 2002 to 769 that was a 51% drop from the high in a matter of two and a half years.
In October 11th 2007 the stock market again peaked and the S&P 500 hit a high of 1576 before the bubble burst again this time know as the financial crisis. The S&P 500 bottomed out on March 3rd 2009 with a low of 666. This time it was a drop of 57% in a matter of one and a half years.
As I describe in my book, history repeats itself and this year is no exception. The markets have already shown increased volatility in the past couple of months.
As I mentioned in my book I discuss the market correct that happens every decade that occurs in years that end in 7 and 8. If we compare the weekly average returns for years that do not end in 7 and 8 you can see (highlighted in green in the tables below) that the volatility is very low and the returns are consistent, however when you compare the same weeks for years that end in 7 and 8 you will see increased volatility and that the returns are more erratic. This occurs before the crash!
So What Is Next?
Well if we take a closer look at the previous bubbles we can get a better idea of when the market will turn.
So lets take a look at the dotcom bubble in 2000. If you look at the chart below each candle represents one week. It hit a high in March 2000 and then came back down and gained support on the 50 weekly moving average (yellow line). It was pretty volatile but eventually retested the high in August (5 months later) but failed and then broke through the 50 week moving average. The old support becomes new resistance and continues to fall into recession.
If we look at the financial crisis of 2008 same this happened. In July it had an all time new high it pulled back got support at the 50 weekly moving average (yellow line) it retested in October but failed, it broke through the 50 week moving average. Old support became new resistance and failed to break through and fell into recession again.
Where Are We Currently At?
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