Continuation from Friday….. (How You Could Have Made A Fortune Shorting The Nasdaq)
That is exactly what happened in early March of 2000. The Nasdaq topped out at around 5,050, declined slightly into the middle of March before bouncing up into a perfect bearish setup by March 24th. An analyst familiar with the cyclical work above would have been aware that if the March bottom of 4,800 was to be penetrated on the downside a bear leg and a possible crash would be in the cards.
As soon as such confirmation was realized, all investors following the “Buy Low, Sell High, Go Short & Cover” investment strategy should have exited their net long Nasdaq positions and reversed their portfolios to net short. Immediately. And indeed, the confirmation was received by the end of March when the Nasdaq broke below its March 17th bottom of 4,800.
Trade #2: Exit long position at 4,750. Reverse course and go short at the same price. Net realized gain up to date 4,030 points or 560%.
As soon as March low was broken on the downside the Nasdaq quickly collapsed by more than 30%, reaching its intermediary bottom by the end of May. Yet, investors familiar with the overall cyclical composition of the market would have been aware that bear market legs do not last 60 days. They would have been aware that this collapse was just the start of a prolonged bear market cycle.
Furthermore, they would have been aware that initial bear market legs tend to last 2-3 years as all previous bear markets had initiated with such prolonged declines. For example, 1900 top to 1903 bottom, 1929 top to 1932 bottom and 1966 top to 1970 bottom. The Nasdaq continued to decline until it reached its bottom of 1,108 on October 10th, 2002. An 80% decline.
By the time October 2002 bottom was reached, analysts familiar with the cyclical work above should have been, once again, on a heightened state of alert. This time around they would have been anticipating and looking for a market bottom. Ready to cover their short positions and to go long at a moment’s notice. Such a confirmation was obtained when the market broke above its down trending trend line in October of 2002.
To Be Continued Tomorrow……
What You Ought To Know About Shorting Nasdaq In March Of 2000 Google