The Nasdaq is at an important juncture at present time, as you can see we are in a massive rising wedge pattern (that typically resolves to the downside when triggered).
But it is also worth examining the last major bubble economy (given the current parallels) namely 2000 and 2007, in order to get a clearer picture of what is on the cards.
From what we can see it seems that while YES... as stated in my prior post, a yield curve inversion (YCI) is a very, very good recession/ crash indicator, it is not precise (obviously) therefore as investors and traders we need to have all bases covered.
I would not suggest going 100% short the market currently simply because of the fact that 2/2 of the last times there was a YCI, there were sustained rallies of varying intensity, in 2000 over 200% (fueled by the tech and internet bubble, so this is unlikely to occur again) and again in 2006 with a 30% rally from the point of first inversion.
What we need to take away from this is that despite ridiculous valuations, silly news driven headlines and flip flopping based on 'trade talks,' the market has proven to be an equal opportunity dream killer, both those who short too early and those who never exit their long positions when the market signals to do so.
P.S. It is worth elaborating on the rising wedge pattern seen in the Nasdaq, yes, it is a bearish sign and potentially a good shorting opportunity.
Look at the circled region on the chart during 2006 after the 1st YCI, that dip is an 18% drop in the index, for comparison i have drawn what an 18% drop from current values would look like.
Given the bearish pattern (rising wedge) and the overall lacking market sentiment despite being near ATHs i will be looking at playing a resolution to this pattern to the downside.
But it is also worth examining the last major bubble economy (given the current parallels) namely 2000 and 2007, in order to get a clearer picture of what is on the cards.
From what we can see it seems that while YES... as stated in my prior post, a yield curve inversion (YCI) is a very, very good recession/ crash indicator, it is not precise (obviously) therefore as investors and traders we need to have all bases covered.
I would not suggest going 100% short the market currently simply because of the fact that 2/2 of the last times there was a YCI, there were sustained rallies of varying intensity, in 2000 over 200% (fueled by the tech and internet bubble, so this is unlikely to occur again) and again in 2006 with a 30% rally from the point of first inversion.
What we need to take away from this is that despite ridiculous valuations, silly news driven headlines and flip flopping based on 'trade talks,' the market has proven to be an equal opportunity dream killer, both those who short too early and those who never exit their long positions when the market signals to do so.
P.S. It is worth elaborating on the rising wedge pattern seen in the Nasdaq, yes, it is a bearish sign and potentially a good shorting opportunity.
Look at the circled region on the chart during 2006 after the 1st YCI, that dip is an 18% drop in the index, for comparison i have drawn what an 18% drop from current values would look like.
Given the bearish pattern (rising wedge) and the overall lacking market sentiment despite being near ATHs i will be looking at playing a resolution to this pattern to the downside.
