Clients know I have been watching the 2000 time frame on the $SPX for quite some time now as it seemed to show eery similarities in action especially in the early part of the year. The backdrop for looking at 2000 was prompted by the very strong price acceleration in 2013 displaying bubble like behavior in some stocks and indices. The Russell 2000 and Tech especially started to show a vast acceleration in valuation since the being of the rally in November 2012.
Recently I had noted that in the year 2000 investors got a rather cold shower when the $NDX initially corrected 25% within 8 days officially bursting the 2000 bubble. This followed a strong uptrend which culminated in all time highs in the month of March. Combined with the deteriorating picture of the $RUT which I outlined earlier a look at a $NDX 2000 fractal gives reason to be at least cautious here.
Fractals are not a guarantor of future price action, but they can be useful in trying to understand a potential roadmap for identifying risk/reward.
Below I present a comparison of the daily charts of the $NDX year to date versus the beginning of January 2000 into mid April. I’ll let the reader draw their own conclusion of course, but the similarity in structure (also in relation to the daily 50MA) is frankly stunning:
Are we seeing a repeat this year? I couldn’t tell you as markets are obviously still awash in central bank liquidity and nobody can predict what markets will do from day to day. But the potential impact of structural risks such as record margin debt and hundreds of billions of dollars in derivatives can be dramatic as history has shown. If something similar were to play out markets could be in for a couple of really rough weeks. Are investors/traders prepared? The $VIX suggests no, but maybe they should be: