The fear of missing out on the bull market is palpable. As the S&P 500 has now been in a bear market for over a year I think market participants are feeling the pressure to not miss out on the next bull market, especially as each market rally provides just enough of a reminder of the potential returns on the other side of this bear market.
Technical Similarities between the Dot-Com Crash and Today's Market
The dot-com crash of 2000-2003 I think shared a similar moment— it was characterized by two back-to-back false breakouts, as defined by the short-term moving average (20 day) crossing above the medium (50 day) on the S&P 500. However, despite these initial signs of recovery, the market ultimately tumbled, dropping an additional 30%. While the causes of the 2000 bubble bursting differ significantly from those of today's bear market, the current moment bears a striking resemblance to the current market position. A cautionary thought to avoid letting the fear of missing out guide investment decisions.
The current day market has a similar look with two breakout signals— the first one proved to be false and in the coming weeks it will be determined if the second yields a similar outcome.
It is worth highlighting that during both periods, the long duration moving average (200-day) served as resistance.
As we continue to monitor the potential for any rally to signify the end of the bear market, it is important to keep an eye on the S&P 500 reaching 4220. At this point, the index would be around 5% above its long-term moving average. Historically, this has been a reliable indicator that the index has marked a bottom and that a sustained bull market is on the horizon.
Sentiment Indicator Shows Greed in Market Despite Different Causes of Decline: A Comparative Analysis of S&P 500 2000-2003 and Current Market
As measured by CNN’s Fear and Greed Index— greed is driving the market.
The S&P 500 charts that are presented below are the same periods discussed earlier, 2000-2003 and the current market. The blue line at the bottom of the chart represents a sentiment reading. A high reading indicates a market characterized by greed, while a low reading reflects fear.
It is noteworthy to observe that, despite the different reasons for the market decline in both periods, the sentiment reading indicates an environment of greed following the second false breakout.
If the current market follows a similar trajectory, market participants can expect the downtrend to continue and sentiment to shift towards an environment characterized by fear.
Despite the recent market rally, it is key to remember how easy it is to become caught up in the excitement of “the new bull market” narrative.
I remain skeptical and out of the market until the S&P 500 reaches 4220.
Timely Newsletter Insights
This newsletter has contained timely insights about the stock market.
On August 31, it was noted that the market resembled the environment and chart of 1969, and warned of a bearish crossover. This happened the following week.
On September 18, the article discussed the technical deterioration in the S&P 500 and predicted that the June lows would be revisited, which occurred the following week.
On September 25, the article continued the comparison to 1969 and identified a potential double bottom as an area to initiate a relief rally. This rally started on October 13 and reached its target area on October 28.
From October 30 to December 3, the articles discussed the end of the relief rally, which appears to have concluded on December 13. *At the peak of the rally the S&P 500 had extended moderately above the target of 3900-4000.
Disclaimer: The information in this article is for informational purposes only and should not be considered financial advice or a recommendation for any investment. I am not a financial advisor, and the content is not intended to serve as financial advice. It is solely intended to ignite thought and discussion.
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