Ultra High Risk For Equities

Ultra High Risk For Equities.

Many key equity indexes have recently forged higher into either NEW ALL TIME HIGH territory or close.   The Nasdaq 100 continues to power ahead led by “The Four Horseman of the Nasdaq Collapse” (https://markonomics101.com/2018/08/23/tipping-point-part-2-the-four-horsemen-of-the-nasdaq-collapse/).  The first chart below shows the current Nasdaq 100 bubble trend from 2014 through 2018 in an Ultra High Risk, Late Stage Ascending Wedge pattern.  In contrast, the second chart for only one day, August 30, 2018, for the Nasdaq 100 provides some support for the “potential” of yet higher prices in the near term and perhaps longer.

No matter whether one takes the view that the equity markets are poised to blast off to yet more highs or exhausting the last of their strength, the extreme risk of the current market zone trends cannot be overlooked.  The ultra long term chart (chart #3) of the Nasdaq 100, with both of the 21st Century Bubbles included, demonstrates just how much larger, more encompassing, and extreme the Technology Bubble of 2018 has become.  PLUS, more importantly, the Parabolic similarity of the two bubble patterns is unmistakable.

 

The “Internet” or “Dot Com” Bubble peaked in early 2000 after a final year of accelerated stock price appreciation.  From Peak to Trough, it fell more than 85% in the ensuing two years and did not recover its losses until 2017.  The current 5-year (2014-2018) weekly chart shows the Nasdaq’s prominent “Ascending Wedge” Pattern.  While occasionally an Ascending Wedge is indicative of a continuation of the move preceding it, the steep slope makes a downward (or BEARISH) break much more likely than an upside (or BULLISH) break.

The presence of Parabolic Up Trend lines toward the completion of an Asset Bubble is not limited to stocks.  The Cryptocurrency Sector, for example, is a recent reminder of how important it is to pay attention to Terminal or “Death” Patterns such as Parabolic or Accelerated Up Trends.  From Coin Market Cap (https://coinmarketcap.com/charts/), we can see that the IDENTICAL pattern was present at the time of the peak of Cryptocurrency prices.  Virtually all individual issues experience these patterns as well.

 

 

The stampede into Cryptocurrencies reached an unsustainable fever pitch by January 2018, when the sector was valued at a total market capitalization of approximately $825 Billion.  A short 30 days later, the Sector had shed nearly 70% of its value to reach an interim low of $282 Billion.

 

 

The appearance of a Parabolic Up Trend Line is not only strongly indicative of “high risk” but also the corresponding complete disregard of such risk by market participants.  Parabolic Up Trends often occur as the investing “crowd” becomes convinced that this “once in a lifetime” opportunity is being lost.  The desperation to not miss the “fleeting” moment, creates a near panic buying frenzy that drives asset values nearly straight up and well ABOVE any level that could be supported by tangibles such as future cash flows.

Ultimately, those who do not remember history are doomed to repeat it and suffer the financial consequences.  “Take Your Money off the Table, before the Table Takes Your Money Off of You”.

 

Leave a Comment

Your email address will not be published.