We remember the heady days of the .com boom and bubble built on a vision of a future where the world would be driven by technology. The banks and shops on the high street would close. AI would rule. There would be automation everywhere in manufacturing. You would be able to hold the sum of all world knowledge in the palm of your hand. The run up to the 2000 high was built on that expectation. We have that reality today – 18 years later. The Technology ETF XLK has broken to a new high. What does history tell us will happen next?
As chartists this is a fine example of a recovery – around an 80% fall – and break out. It has taken a long time to make a new high. But 18 years is not unusual for markets which were actually built on good fundamentals. In the ’29 crash, the Dow fell nearly 90% and took 25 years to recover back to its pre-crash high of 380 and onwards to its giddy value today. In a few decades, the Millennials will be all gone and the .com bubble will become a historic event, just like the Great Depression.
The break out itself has also been classic. There was impulse as it broke and then a retracement to the breakpoint and now a move through the previous short-term high. This is another chart for your album.
This formation is usually followed by a major move. There are few examples of breaks of more than one decade highs but many many examples in a short time frame. Charts is fractal. We have witnessed many smaller examples but the commonality is the move that follows is some multiple of the time width of the two peaks. This would indicate it would be normal if what follows is a bull market of at least two decades.