![]() The highlighted area in the charts below illustrate a critical point - we’re still above the key support of a 50-month average (=~200 week) in 2022 within a similar timeline (roughly 6-7 months), similar downward velocity (10mo rate of change ('ROC') below -15%) and a relative weakness (RSI around or below 30) compared to 20. Synthesizing the two provides insights and determines whether it is comparable. If the two up cycles share a similar velocity, the decline should be just as sharp. While there is much growth in tech concentrated stocks, it doesn’t mirror the dotcom bubble. The velocity (speed of change) and intensity of the Nasdaq growth before the 2000 crash (+9.71%/mo) is higher than even the pandemic bull run (+7.15/mo). The chart below compares the Nasdaq and S&P 500 in the up cycle leading to the dotcom bubble burst vs. So far, the data shows it is not, and if that is true, then this cycle is an entirely different ball game.įirst, to understand the drawdown’s extent, investors should also look at the expansion of prior up cycles. Investors whose portfolio is overweighted with tech or growth stocks should be particularly concerned if 2022 becomes the dot-com bubble 2.0. The number and percentage of the decline and the velocity (rate of change) for the three periods: 2000 (dot-com), 20, aren’t the same. The price charts, especially indices, often show us interesting patterns and collective wisdom (market behavior). While mapping, make sure we compare objectively–apples to apples, instead of apples to oranges, mangoes, or whichever flavor. Making a map of relevant past events and drawing correlations can help us take precautions for future or recurring bad events. Two key takeaways: 1) Mapping correlation There has been a lot of chatter around comparing the current economy to the below: So, we should step back and quantify what is happening in the economy and around us. Some of us are experiencing what our parents went through. Now, inflation in the US and worldwide is at a 40-year high. Yet, 2022 has proven to be an unprecedented economic cycle, regardless of which type of investment, and the macroeconomic environment affects many investment decisions. Internet-focused companies such as delivery, e-commerce and remote meeting services like Zoom ( ZM ) have transformed lives worldwide and helped many get through the unprecedented global lockdown and pandemic. Many publicly-listed tech companies in 2000 generated single to double-digit million dollar revenues, while most tech and growth companies in the S&P 500 index are generating nine-digit to billions of dollars in revenue today. Clearly, we aren’t in 2000, when most households only had a dial-up internet connection, and the tech sector contributed less than 1% of GDP ( 9.3% in 2021 in the US). Many compare the plummet in the broader market, including the S&P 500 ( SP500) and Nasdaq ( COMP.IND) indices, to the 2000 dot-com bubble burst.
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