Stocks: 2018 Has Little In Common With 2007

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Includes: DIA, QQQ, SPY, TLT
by: Chris Ciovacco
Summary

Do the facts support the "S&P 500 looks like 2007" theory?

Do the facts support the "Nasdaq looks like 2000" theory?

What can we learn from asset class behavior?

Breakouts And Higher Highs

It's very difficult to look at the weekly chart of the S&P 500 ETF (SPY) below and draw long-term bearish conclusions. SPY corrected earlier in 2018, went sideways for a few months, and then broke above a multiple-month base.

short-takes-10-01-2018.png

Similar Story For The Nasdaq 100

The Nasdaq 100 ETF (QQQ) experienced a somewhat volatile period of consolidation between January and mid-June, and then went on to print a series of higher highs.

short-takes-10-01-2018-qqq.png

Dow ETF Prints New All-Time High

The Dow ETF (DIA) recently cleared the weekly high printed in January and simultaneously made a new all-time weekly closing high.

short-takes-10-01-2018-dia.png

Not Much In Common With 2007-08

The weekly chart of growth-oriented SPY relative to defensive-oriented bonds (TLT) recently printed a new all-time weekly closing high. Compare and contrast the 2018 chart below to the rollover look before and after the major stock market peak that was made on October 9, 2007. In October 2018, the SPY/TLT ratio is above an upward-sloping 22-week moving average. In October 2007, the SPY/TLT ratio was below a downward-sloping 22-week moving average. Unlike the 2007 chart, the 2018 chart shows little in the way of a migration to defensive assets.

short-takes-10-01-2016-spy-tlt.png

Nasdaq 100 vs. Long-Term Bonds

It's difficult to see signs of risk aversion or concerns about future economic outcomes in the present-day version of QQQ/TLT. The QQQ/TLT ratio recently cleared the February 2018 peak and remains firmly above an upward-sloping 22-week moving average. Is it possible the 2018 chart below morphs into something more like the concerning look in 2007? Yes, but it has not happened yet.

short-takes-10-01-2018-qqq-tlt.png

Dow Breaks Out Vs. Bonds

Given what we know today, the period of consolidation/indecisiveness that occurred for several months in the DIA/TLT ratio appears to have resolved itself in a bullish manner. In 2007, the DIA/TLT ratio peaked several months before the S&P 500 - in 2018 it is still making new all-time highs.

short-takes-10-01-2018-dia-tlt.png

How Does The Nasdaq Compare To The Major Peak In 2000?

This week’s video takes a fact-based look at the Nasdaq dating back to 1984. 2018 is compared to both bullish and bearish periods. After reviewing the facts, you can draw you own conclusions.

What About Valuations?

Below is a headline warning about valuations in 2011. Needless to say, a lot of good things have happened in the stock market since 2011.

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As shown in previous weekly videos, if you walk through history step-by-step it's difficult to see how valuations are helpful in making investment decisions - in fact, it is possible to make the case that they can be harmful:

CAPE: How Helpful Is The Shiller PE

VALUATIONS: Is It Really Different This Time?

STANDARD PEs: Useful Timing Tools For Stocks?

Valuations became an issue in both 2000 and 2007, an issue that was reflected in all the charts as the markets peaked. If/when valuations become a problem in the coming days/weeks/months/years, deterioration will begin to show up in the hard data, charts, and in asset class behavior - that may happen, but it has not happened yet. We will continue to take it day-by-day with an open mind.

How About Monday's Erratic Price Action?

The weekly and quarterly charts covered in this post and video are not significantly impacted by day-to-day volatility, which is another way of saying one day does not make a trend.

Disclosure: I am/we are long SPY, QQQ.