Our recent analysis suggests we may be setting up to repeat history in an odd and dangerous manner. As market technicians, part of our job is to work with numbers, find patterns and attempt to predict future price moves in US and Global markets. As you can imagine, it is not always easy to accurately predict the future. Still, we take on the challenge and truly enjoy being able to find and share trading strategy concepts with our ActiveTradingPartners newsletter. As such, we are sharing this recent technical research data with your today.
Recently, the ActiveTradingPartners research team identified a unique pattern in the VIX that allowed us to accurately predict the June 29 VIX Spike nearly 3 weeks in advance. Also, on July 30th, we predicted a big decline in the NASDAQ during August. It also allowed us to know that VIX Spikes were possible on other future dates – such as the most recent date near August 4th. Even though the current VIX Spike did not hit exactly on the August 4th cycle date, the actual VIX Spike move happened only two trading days after our predicted date and the VIX has rallied over 90% from recent lows. Sometimes, analysis like this allows us to know months in advance that a cycle or critical event may have a higher probability of happening. This allows us to plan and profit from our research.
Today’s research correlates to the recent price moves in the XCI index (Computer Technology), NASDAQ and US Majors. The premise of this research is that the past 4+ years have resulted in a global investment in Technology firms as a result of lower ROI in most other sectors. This focus on technology investing is uniquely similar to the XCI Index DOT COM rally from the late 1990s and early 2000s. We are attempting to verify our presumptions and analysis by using core technical analysis techniques as well as fundamental price analysis.
We’ll start by looking at the price activity leading up to the 2000 DOT COM bubble burst. Initially, our analysis focused on the similarities in price action setting up this price move. The Accumulation, Exuberation/Pause, Hype and eventual CRASH phase. In 1995, the Accumulation phase initiated after a nearly 95% rally from 13+ months earlier (1994 – 462 days total). Currently, the Accumulation phase initiated after a 100%+ rally from 13+ months earlier (2009 – 427 days total). Subsequently, the Accumulation phase lasted 1057 days resulting in a 238%+ advance in 1998. The current Accumulation phase lasted 1456 days resulting in a 77%+ advance in 2014. Interestingly, the 1998 advance totaled 472.50 pts while the 2014 advance totaled 594.00 pts – resulting in a 125% advance size increase.
The Exuberation/Pause phase in 1999 lasted 252 days and resulted in a 207.19 pt move (+31.51%). The Exuberation/Payse phase in 2016 lasted 889 days and resulted in a 288.26 pt move (+21.15%). The more recent phase took 3.5x longer (time) to result in 139% greater price advance (which was actually a reduced percentage move of only 67% of the 1999 advance.
I advanced the term WEEKS where is should have been days.
Many analysts may be quietly stating, “all of this can be attributed to relationships of percentage values vs higher price valuations”, which is of course true. Our attempt at dissecting these moves is to try to understand the propensity and strength of any future moves.
Lastly, the HYPE phase lasted 39 weeks in 2000 ending with an advance of 895.23 pts (+97.94%) from the PAUSE/FLAG breakout in 1999. The current HYPE phase lasted 53 weeks ending with an advance of 674.54 pts (+40.26%) from the PAUSE/FLAG breakout in 2016. The resulting current HYPE price advance is 25% lesser than the 2000 move and results in a nearly 60% decrease related to the total percent swings.
2000 DOT COM – XCI Index Chart