We are all familiar with the tech bubble of the late 1990s and crash in the early 2000s. Could the charts be setting up for a similar tech crash this year? While it is too early to tell, there are worrisome developments in technology stocks that could easily trigger a correction is not an outright crash over the next 12 months. While this is a purely technical argument, the Nasdaq has not reached the highs of the 2000s and the animal spirits in today's market do not match those in the earlier bubble. But it could be the memories of the first tech bubble crash that prevents the rise of the 2nd tech bubble today.
Here is the weekly Nasdaq-100 chart from 1998-2001. Beginning in October 1998, the Nasdaq-100 spent 17 months above the 20 day weekly moving average and tested it 4 times during that time. Then came a blow off top with a huge bearish engulfing candle that pierced the 20 day MA in March 2000. It wasn't until 6 months later that it failed at the 50 day MA and began to crash to pre-rally levels. The technical damage occurred swiftly and came as a surprise to many. The wise ones took their money out during the period of consolidation before the crash.
Here is the Nasdaq-100 chart from the last two years. As in the previous chart, the Nasdaq-100 spent 15 months above the 20 day MA and tested it 4 times. Over the last week it broke through the 20 day MA to the downside. To continue the uptrend as it stands, the Nasdaq-100 will need to bounce quickly above the 20 day MA and while Janet Yellen may be the one who can do that, it appears that it's time to test the 50 day MA. While it's too early to say whether "Tech Bubble 2.0" is truly over, caution is warranted in the near term.
Disclaimer: The content of this blog should not be used as recommendation to purchase or sell securities.
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Hosein Kouros-Mehr
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