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Another Dot Com Bust?
The S&P 500 is trading up, near a 52 week high. This would make investors happy if it were not for the narrowness of the rally. Market Watch remarks on the similarity to the period before the dot com bust.
In the last 20 years, the only other times we have seen less than 55% of components above their 200 DMA while the SPX was within 2% of a 52-week high have been ’98-’00, October 2007, and July/August of this year. In other words, the narrowness of this market is unlike anything we’ve seen since the period preceding the dot-com bust.
In the last year the S&P 500 has gone up and down and ended 1% up. The top ten stocks by market cap have gone up 14%. All the rest of the stocks in the S&P 500 are down 6%. We wrote recently about avoiding penny stocks and about seeking low P/E ratio bargain stocks instead of the big cap stocks that are trending way too high. History tends to repeat itself. When investors pile into stocks for the wrong reasons they distort the market and the market always corrects. Will we see another dot com bust?
Dot Com Bust
The dot com crash occurred from March 2000 to October 2002 during which the NASDAQ Composite lost 78%, falling from 5047 to 1114. Investopedia describes the dot com crash.
The rise in usage [of the internet] meant an untapped market–an international market. Soon, speculators were barely able to control their excitement over the “new economy.”
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