Will history repeat itself?-- revisited.
As I watched the market recaps today, I kept thinking that there was something strange about all the references to a near bear market. That 20% decline that everyone kept talking about finally kicked me right in the ass after a little dwelling. The brain doesn't work as quickly anymore. <g>
Anyway, if you remember our analysis of the market's reaction to FED policy back in 1998, I had mentioned that the one thing that was different this time around was that the market did not flat out tank after the first rate cut.
While I would like to think that we could be setting
ourselves up for the next big bull run, I keep thinking
about that initial nasdaq tanking (22%) after the first
rate cut in 1998. The big selloff didn't happen this time.
Sure, we drifted down a bit, but that was only after the
biggest point and % gain ever for the NAZ.
Well if we are going to see a repeat of the events of the
easing cycle of 98, then we must test that important level
of NAZ support at 1900 first before any long term rally can
ensue. Why? This is why: Keep the percentage numbers the
same. This would imply that this time we would need to
have a nasty selloff of a 20+% magnitude.
Old post: Message 15149012
Old graphic: members.aol.com
History doesn't always repeat itself, exactly.
I was originally thinking that if everything remained the same, we would could see a big drop after the first rate cut that would be equal in magnitude to the 22% 1998 sell off. The big selloff never materialized. Instead, what happened was a short term rally that brought us close to strong resistance surrounding the 3000 level. So much for that idea, right?
The market works in mysterious ways.
On Jan 31, 2001 the FED cut rates for the second time. The Nasdaq close of that day (2773) to our intraday low today (2156) represents the same decline in percentage terms as the 1998 decline after the first rate cut....22%
September 29, 1998 Nasdaq close = 1734 (Fed cuts rates)
October 8, 1998 Nasdaq low = 1343
Approx 22% decline. Capitulation. The Nasdaq rallied to all-time highs.
January 31, 2001 Nasdaq close = 2773 (Fed cuts rates 2nd time)
February 23, 2001 Nasdaq low = 2156
Approx 22% decline. Capitulation???
I have to stop there because nobody can predict the future. <g> But it's fun to make these historical comparisons!
See new graphic detailing the above:
members.aol.com
Have a good weekend everyone, and let's hope we have finally seen market capitulation.
-B |
