People like to say “history doesn’t repeat, it rhymes.”Well, right now, the stock market feels darn near repetitive to me… Hopefully that means things change from here and the market creates its own course. But I’m skeptical. The whole “this time is different” thing never really seems to work out — and I’m seeing a lot of similarities between the market today and the early 2000s. And if this time is just like last time, I want you to be prepared. Because even though stocks have sunk 70% or 80%, now may not be the buying opportunity you think it is… That’s why I want to take a step back from Bank It or Tank It and look at the broader market picture. What I’m about to show you is going to guide my trading philosophy for the next several months, if not years. Let’s dive in…
These Similarities Are Eerie
First, let’s look at the similarities between now and the dot-com bubble.
- Two key indexes from now and then soared nearly 1,000% in the five years before the crash.
- Both were champions of innovation and speculative companies.
- And both indexes crashed 70% in roughly one year.
You may have guessed it, but I’m talking about the Nasdaq 100 during the dot-com bubble…And the ARK Innovation ETF (ARKK) today. Think about it for a second. The dot-com bubble that bottomed in March 2003 was all about speculative growth stocks. A company threw “dot com” in their name and their share price soared. Many of these companies didn’t have real operations. But that didn’t stop them from bringing in big money on pure speculation. If you ask me, this sounds awfully familiar… We’ve had high-flying names that promised to lead us into the future with innovation, including crypto assets. And, just like in the early 2000s, you can find most of those companies in one simple ETF: the ARK Innovation ETF. ARKK holds companies like Shopify, Roku, Block, Zoom Video Communications, and many more. These names were once seemingly unstoppable… But now, they’ve been pummeled — falling 70% to 80% across the board. Again, eerily similar to the dot-com stocks back in the early 2000s. The Nasdaq today is almost a blue-chip index, with more stable tech stocks than speculative growth names. But when we compare the Nasdaq 100 from 1995 to 2001 and the ARKK ETF from 2016 to 2022, it’s like we’re looking at the same picture…
ARKK from 2016 to 2022
Nasdaq 100 from 1995 to 2001
These two charts look like they could have happened at the exact same time, yet they are two decades apart.And if things play out the same way this time around, we’re not done yet…
ARKK Can Still Go Lower
Let’s say you’re a trader back in 2001. The Nasdaq 100 just fell 70% in quick fashion, so you think it’s time to buy and hold for the long haul.It’s the epic crash you’ve been waiting for, and prices are at irresistible lows. For a while, you’d be patting yourself on the back — because after the Nasdaq 100 fell 70% in 2001, it bounced about 50% over the next month. Until, that is, it crashed another 50%… Then bounced another 50%… And then, finally, gave way to a longer, slower decline that didn’t bottom until nearly a year later. When all was said and done, the crash wiped out about 85% of the Nasdaq 100’s value. And if the same thing repeats today, it means ARKK can still go lower. It could easily hit the $20s in the months ahead. Yes, we’d be due for a short-term jump to the upside — so if you were thinking of buying the dip, that’s fine. Just be sure to take profits on any bear market rallies that come up… Because I don’t see an official bottom for ARKK until almost two years from now. If the dot-com bubble is any indication on what to expect next, this bear market is just getting started.
Regards,Chad Shoop, CMTEditor, True Options Masters
Chart of the Day:Gold’s Big Retest Is Underway
By Mike Merson, Managing Editor, True Options Masters
If there’s one thing you haven’t really been able to depend on this week, it’s gold.The shiny yellow metal, which is supposed to perform well in times of excess inflation and stock market sell-offs, has been disappointing its reputation. From the highs, gold is down about 12%. That’s certainly a better long than stocks right now, but it isn’t exactly encouraging, either. However, for purely technical reasons, I think gold bugs could finally wake up. Gold has made a full round trip to retest the top line of its former downtrend channel. The moving averages are also still in a bullish stack, something we can’t say about most stocks right now. I expect gold to mostly tread water here — the new highs I was so excited about clearly aren’t on the table yet. But with almost everything in a brutal sell-off, gold is acting relatively well.
Mike Merson Managing Editor, True Options Masters