NASDAQ 2002 and Today

A few weeks ago I mentioned that I thought the current rally would in some ways mirror the way the Market came off of its lows in 2002 – 2003. Specifically, I mentioned that it would be normal to see the markets oscillate violently about the 200-day moving average (Blue Line).

Here is the NASDAQ ($COMPQ) and how it bottomed in 2002 -2003. See how for three months price violently traded along the 200-day? The trading range was very Bullish and constructive, but also violent and unsettling if you owned stocks (I did back then and remember the time well).

$COMPQ ended up retracing 62% of the initial rally, before putting in a “double bottom” at about 1,263. It then broke out of the 3 month consolidation and sat around for a few weeks (black Circle) before launching for 4 years.

Will the markets play out exactly like 2002 – 2003? Not exactly, but the process may have some similarities. The initial pullback off of the 200-day has been far less violent than in 2002, so the depth of the selling in this consolidation may be less than in 2002 -2003. It just seems that the Big Boys are more willing to commit money more quickly than they did in 2002 -2003.

The other thing to note about the 2002 -2003 bottoming process is that each low slightly undercut the previous low. This served to scare some weak hands into selling. Do not be surprised to see this occur during the next few weeks. This is important, because the best entries into positions have been on violent pullbacks, so reversals will need to watch very closely.