This Market Reminds Me of 2000

The more this bear market has stretched out, the more parallels there are with past crashes. Specifically, the markets right now are starting to look a lot like they did during the dot com sell-off.

Of course, no market movement is going to be exactly the same as what’s happened in the past, but there are some scary similarities here.

Let me give you a quick refresher on what happened back in 2000 with the Nasdaq index.

The Nasdaq topped out in March 2000 and viciously sold off over 38% in just two months, bottoming in May.

Investors were then able to breathe a big sigh of relief as the market rallied over 40% during the summer months. But any signs of optimism were ultimately short-lived. 

The Nasdaq topped out by the end of August before another 80% crash. The bear market didn’t end up bottoming out till October 2002.

You can see how it all unfolded on the chart below.

It’s very possible that we have a similar path ahead of us in this current bear market. Here’s a price chart of the Nasdaq from late 2021 to present.

As you can see, we have a very similar setup in place right now as we did back in 2000. We have the same 38% decline followed by a 40% rally.

Apart from the price action, there’s also another striking similarity between today’s market and the dot com one.

Back then, practically any company that had anything to do with the internet did really well. The poster child for the dot-com bubble was Pets.com, an online pet supply retailer.

Investors loved the stock despite the fact that the company didn’t have a scalable business plan, was losing money on every sale, and couldn’t come close to turning a profit. The company eventually ended up bankrupt. 

Today, the craze is all about artificial intelligence, or AI. On May 24, chipmaking giant Nvidia reported blockbuster earnings.

The surge in demand for Nvidia chips was due to AI researchers using the company’s silicon to further their own projects.

Nvidia’s earnings announcement saw the company join the extremely exclusive $1 trillion market cap club.

Now to be clear, I’m not saying that Nvidia is another Pets.com, or that AI is just a passing fad. The point of these comparisons has more to do with how market sentiment right now is similar to what it was back in early 2000.

The internet has gone on to change the course of human civilization. I’m certain that AI will have an even more profound effect.

That doesn’t mean that we’re not creating another bubble in the short term, however. It will be fascinating to see whether or not the Nasdaq puts in a very important market top in the days and weeks to come.

Happy trading,

Imre Gams

Do you think we’re facing a dot com level bubble, or will this AI boom play out differently?

Let us know your thoughts – and any questions you have – at [email protected].