Stock Indexes Providing Eerie Parallels to Previous ‘Booms’; Portend Late-Feb/March Plunges!
02/19/25 – The Roaring ‘20s, the dot.com ‘90’s and… – “While it might only be only one sector of the overall financial markets, there is an unfolding parallel – part 1920’s & part 1990’s – that warrants closer scrutiny in the weeks and months to come. In both previous cases, it was an example of trends getting way overdone.
Another trend is showing signs of stretching to an extreme… and preparing for a sharp ‘snap back’ (some of which has already taken place).
In the 1920’s, stocks were heading progressively higher when someone developed the ingenious idea of creating a shell company whose only value would be the stocks that shell company purchased.
That shell company would issue shares – like any other company – and allow the ‘average investor’ to afford stocks in a market that was quickly becoming overpriced & inaccessible to many investors.
On the surface, it sounded like a reasonable idea.
As that roaring bull market became over-extended, the shares of those shell companies became too expensive… so someone had another bright idea. Let’s create a shell company whose only value would be the stocks of the other shell companies it purchased (whose only value is the shares of the stocks they purchased & owned).
That shell company would issue shares – like any other company – and it would allow the ‘average investor’ to again afford stocks in a market that was rapidly becoming overpriced.
Great idea… except for one thing!
Any setbacks in the overall stock market – something considered next to impossible at that time – would exponentially magnify losses in the corresponding shell companies …and exponentially magnify losses in the related shell companies of shell companies.
As a result, a 10% loss in general equities might create a 20% (or greater) loss in the first level shell shares… that might create a 40% (or greater) loss in the second level shell shares. Hmmm.…
Lucky for them – or so they thought – the roaring ‘20’s bull market would never stop… and serious corrections were impossible. Maybe.
The 1990’s were a bit different but were still a prime example of a market that gets WAAAAYYYY ahead of itself with shares of dot.com companies – that were years away from possibly showing any profitability (or even any income) – bid up to levels akin to the Tulip Bulb Mania. Luckily, the roaring ‘90’s bull market could never experience a serious correction. Maybe.
The 2020’s is seeing an amalgamation of both – though it is probably not yet to the same degree (and could stay contained to one sector of the market).
This is occurring in the digital currency arena.
When digital (crypto) currencies – particularly Bitcoin – became overly expensive, a plethora of less-‘qualified’ cryptos were created to fill in the void.
Then came NFTs and meme coins – examples of ‘the greater fool’ type of ‘investment’ (speculation).
And now there is a race to see which tech companies can become the largest holders of Bitcoin (and others) the fastest. Even if they have a viable core company, the value of their Bitcoin holdings is rapidly overtaking the value of the core company.
What happens if Bitcoin drops 20 or 30%… and just languishes there for a few months?
What happens if Bitcoin returns to where it was when the post-Election parabola took hold… built entirely on ‘future expectations’?
If Bitcoin merely erased those 6 weeks of gains – from early-November – mid-December – it would be a normal, healthy correction in a multi-year bull market.
However, that would equate to a ~35% drop (a relatively normal correction in a bull market that has extended this far) that would be exponentially magnified in companies, funds & individual accounts that bought it since mid-December… some of which is probably on margin or debt of some form.
What then?
Before 2025 is complete, investors might find out the answer to that question.
Stock Indices remain in the midst of multi-month trading ranges while showing progressive signs of topping (in leading/weaker indexes) and rolling over to the downside. On balance, the ensuing declines could last into late-March/early-April ’25.
An intervening decline could produce an initial multi-week low on March 3 – 7th.
The S+P Midcap – which has been leading most reversals since early-October – was projecting a rebound peak on January 22/23rd that would fulfill a 58 – 59 day high (June 3) – high (July 31) – high (Sept 27) – high (Nov 25) – (high; Jan 22/23) Cycle Progression. It topped on January 22nd.
That spurred a sharp drop even as the S+P 500 & NQ-100 remained resilient. In contrast, the NQ-100 was positive and was expected to set a daily low on Feb 10th and then rally into Feb 14/18th…
The S+P 500 has twice neutralized its weekly downtrend (it reversed down in Jan ‘25) but would not turn that trend back up until a weekly close above 6162/ESH. As a result, it could reverse lower this week (or next) – without turning the weekly trend back up – even as the NQ-100 retests its high and fulfills its weekly trend pattern.
In both cases, it would signal a new 1 – 2 month peak and usher in a (likely) multi-week decline.
The key will be the weekly close (Feb 21st) in the S+P 500… On an intermediate basis, stock indexes need to give weekly closes below their mid-January lows to exit the intervening trading range and elevate their sell-offs to a higher magnitude…
Bitcoin & Ether are reinforcing signs of topping after Bitcoin set its highest daily close on January 21st – 6 months/180 degrees from a previous high daily close (July 22nd) – ushering in the potential for a larger-magnitude wave ‘5’ peak as it fulfilled a ~43 – 46-week low-high-high-(high; Jan 3 – 24, ’25) Cycle Progression. Ether preceded that top and many cryptos have lost 40 – 55% from their recent peaks.
A drop into early-March remains the primary objective for this decline. Ether & Solana have already plunged to their early-November ’25 lows. Could others follow suit?” TRADING INVOLVES SUBSTANTIAL RISK
Stock Indexes are preparing for the more pronounced phase of their projected 1Q 2025 sell-offs – expected to take hold in the second half of February and accelerate lower in March ’25. They are confirming major peaks projected for, and set precisely on, Nov 22/25, 2024… and subsequent/ secondary highs (in S+P Midcap 400 & related indexes) projected for ~January 22nd.
That was/is expected to prepare the way for sharper declines in Feb/March ’25, including a likely March Meltdown and confirmation of a broader stock market (seismic) shift… in sync with weekly trend and multi-month 4-Shadow signals triggered on January 10/13th. Coinciding with that, Bitcoin projected a major peak for January 2025 and is signaling a sharp drop into late-Feb/early-March ’25.
The 17-Year Cycle projected 4Q 2024 as the most likely time for a major (multi-month and multi-quarter) peak in equities – and 2025 as the time for the next major decline. Corroborating that, the DJIA is revealing eerie parallels to late-2007/early-2008 and providing a roadmap for future expectations.
What are Parallels – AND Contrasts – Between 1920’s, 1990’s & 2020’s?
How Would Late-Feb/Early-March Plunges in Equities & Cryptos Reinforce Similarities?
What Do Weekly Trend & 4-Shadow Signals Bode for Late-February/March ’25… and 2Q 2025?
Refer to latest Weekly Re-Lay & INSIIDE Track publications for additional details and/or related trading strategies.