Wed March 21, 2012
Here is an excerpt from a recent post by a well known technician.
The plunge in the Nasdaq market during 2000 began the "lost decade" for stocks which have essentially trended sideways since then. The good news is the same Nasdaq market may be leading stocks into a better decade. Chart 1 shows theNasdaq Composite Index rising above its 2007 high to reach the highest level in twelve years.
This is precisely what I referred to in the last post. Indeed we did not start a lost decade in 2000 but an 18 year period of well established cycles. This would be a sideways 18 year period of ups and downs, likely ending where we began.
The irony of the now famous Eastwood Super Bowl Half Time ad is that indeed, we are just half way through the cycle. Detroit continues to flirt with bankruptcy.
The fact that the NASD is back to 2/3 of its all time high should be a warning, not an encouragement. Internal measures of bullish percent and the summation index are also flashing warnings. And insider sales are strong again. The group that exited stocks in October, small investors, are buying now, another reverse indicator. LEt's take a look.
NASD
Indeed I will grant the RSI has yet to reach the overbought status it enjoyed in March 2000. But please, please note that the run up from 3000 only lasted four months! And then it collapsed just as quickly. Then the run up was caused by euphoria over dot.coms. Today Apple leads the way followed by other techs like long suffering MSFT. I doubt we have enough tech stocks today to duplicate the year 2000 rise to a peak. But then I was not smart enough to load up on Apple either, so I could be wrong. Our point is that the crowd piling into the NASD now is unlikely to be clever enough to pile out in time, just like March 2000.
As we noted the existence of trading software has caused more herding than ever. In some Western states there are today examples of where Native Americans herded buffalo over cliffs to their death. The same thing happens now in markets via computerized robot buying and selling.
For example. once we passed 1370, as I had suspected, programs covered short positions and put o longs, causing stocks to jump to 1400 in one day! Since then not much has happened, the genera euphoria of March lives on.
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