Market Parallels – 2000 and 2018
Miles Franklin sponsored this article.
They don’t ring a bell at a stock market top. If a bell existed, someone on Wall Street would silence it.
Quick Summary: Stocks—Watch Out Below!
Tops are often spread over many months. That encourages people to believe the bull market remains strong and not ready to collapse.
Many have observed this stock market parallels the craziness in the 1998—2000 bubble. Consider the parallels.
Weekly highs from the dot-com era:
May 14, 1999 Transports high
January 7, 2000 Yahoo (AABA) high
January 14, 2000 DOW high
March 10, 2000 NASDAQ composite high
March 10, 2000 DAX high
March 24, 2000 NASDAQ 100 high
March 24, 2000 S&P 500 high
March 31, 2000 CISCO Systems high
April 14, 2000 NIKKEI 225 high
September 1, 2000 Intel Corporation high
Weekly highs from the current bubble:
January 19, 2018 Transports high
January 26, 2018 DOW high
January 26, 2018 DAX high
January 26, 2018 S&P 500 high
January 26, 2018 NIKKEI 225 high
May 11, 2018 CISCO Systems high
June 8, 2018 Intel Corporation high
June 15, 2018 Yahoo (AABA) high
June 22, 2018 NASDAQ composite high
June 22, 2018 NASDAQ 100 high
June 22, 2018 Amazon high
- The DOW, Transports, DAX, S&P 500 and Nikkei 225 peaked in January, over five months ago. The NASDAQ index, tech stocks and internet stocks peaked in May and June 2018 (so far).
- The topping process in 2000 took from January to September, not including the Transports. The collapse thereafter was brutal.
- The topping process (so far) has run from January to June in 2018. The NASDAQ, particularly the FAANG stocks (Facebook, Amazon, Apple, Netflix and Google), have moved upward too far and too fast. They are due for a correction.
- The craziness may not be over. Amazon and others could rise even higher. The Elliott Wave folks have mentioned a target for Amazon around 1,900, which is 200 points higher.
- The bigger the liquidity induced rally, the larger the crash. Think 2000 collapse again.
SPECIFIC STOCKS IN 2018:
Amazon stock looks like it’s in a bubble, especially on the monthly chart. It may not be ready to pop… YET.
Netflix stock is like Amazon. They are good companies, but their stocks are over-valued with super-high P/Es.
What happens to stocks, bonds, and commodities that rise in a near-vertical ascent? They crash!
EXAMINE HIGH-FLYING STOCKS FROM THE DOT-COM ERA AND CONSIDER THE PARALLELS:
Yahoo (AABA) rose from under $4 in 1998 to over $120 in January 2000 and then fell back under $5 in late 2001 (not shown).
Cisco rose from under $10 in 1998 to over $60 in March 2000 and then fell back to $10 in 2001 and under $7 in 2002.
Intel rose from under $12 in 1998 to over $50 in August 2000 and then fell back to $15 in 2001 and under $9 in 2002.
The NASDAQ 100 Index lost over 80% from high to low after the 2000 crash. A similar crash for the high-flying NASDAQ of 2018 stocks is possible.
HOW HIGH IS AMAZON in 2018 COMPARED TO THE S&P 500?
Amazon stock has streaked higher more rapidly than the S&P 500 Index. Yes, Amazon stock looks like it’s in a bubble and the ratio to the S&P shows the same. Good companies can rise too far and too fast.
What about the NASDAQ 100 Index compared to the S&P 500 Index? The ratio looks similar to the bubble top in 2000. It is over-valued in 2018 compared to the S&P.
SUMMARY SO FAR:
- Market tops take time.
- Markets become crazier and more over-valued before they crash and burn.
- High-flying NASDAQ stocks in 2018 are like high-flying NASDAQ stocks in 2000, before they crashed.
- Ratios comparing Amazon to the S&P and the NASDAQ 100 to the S&P show both Amazon and the NASDAQ are over-valued.
Is This Banking Stock Warning of Things to Come?
The monthly chart of Deutsche Bank looks dangerous. A derivative crash might be the “bullet” that kills the bull market of 2018.
WHAT ABOUT REAL MONEY? Russia, China and India value gold more than dodgy debt and fiat currency units. They hedge their paper investments (dollars, Treasury paper etc.) with gold.
What does the ratio of gold to the S&P 500 Index show?
Gold prices are too low in 2018 compared to the S&P 500 Index. The ratio is near where it was in 2000, before gold prices rallied from under $300 to over $1,900 as the U.S. went crazy with debt, wars, invasions, housing bubbles, derivatives, Quantitative Easing and more.
Will this cycle be different? Will congress balance the budget, pay down debt, abandon deficit spending, and “play nice” with other countries? If this seems unlikely, convert over-valued stocks into under-valued silver and gold bullion for safety and insurance.
Quantitative Easing levitated the stock market by flooding the system with liquidity. Should we expect “Quantitative Tightening” to do the same? Might it pop the stock market bubble instead?
Amazon stock might rally to $1,900 and the stock bull market could rally further. Maybe we should hold our stocks for another decade, and the Easter Bunny will bring goodies. Is the potential reward worth the risk?
But if the above plan sounds weak and risky, consider silver and gold bullion as insurance against something unpleasant arriving unexpectedly.
Miles Franklin has no influence on Quantitative Tightening, over-valued stocks, massive budget deficits, “out-of-control” spending or the next arrival of the Easter Bunny. Miles Franklin sells silver and gold bullion.
Based on the parallels between 2018 and 2000, owning silver and gold bullion for insurance is a good idea.