Dow at all time highs, Nasdaq down over 10%:

Obviously stuff like this doesn’t happen very often, at least as it pertains to the Dow and the Nasdaq. So it’s difficult to take much from this data point because it happens so infrequently. Something is only predictive of future market direction if it is repeatedly shown to be true.

I was, however, able to find a similar data point, although it’s with the Nasdaq and the S&P 500. Back in 2000, the tech bubble peaked on March 11. It would go on to drop over 40% in the next three months:

The S&P 500, however, was within spitting distance of all-time highs as late as September 1, 2000. It technically peaked along with the Nasdaq on March 11, but it didn’t roll over into a true bear market until September 2000:

As you can see from the first chart, the Nasdaq rallied a bit in the late summer of 2000, but by September 1, it was still down over 18% from its March high. The S&P, however, was within a couple of percentage points of its all-time high.

This chart shows the massive divergence in performance between the Nasdaq and the S&P 500 in 2000:

The blue on the bottom is the Nasdaq, the orange is the S&P. You can see that in late May, the Nasdaq was down like 37% while the S&P was unchanged.

The point here is, the Nasdaq peaked and entered its bear market well before the S&P 500 did back in 2000. It was a gap of nearly 6 months.

And remember, for the people who say you need a recession to have a bear market, consider that the recession of the early 2000s officially began in March 2001. That was a full year after the tech bubble peaked.

It could well be the case today that the Nasdaq is the canary in the coal mine here, the first warning sign of an impending broader market meltdown.

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