With QQQ in correction territory, all of the typical charts are coming out. We went back to our trusted matrix profile algorithm to see what the future might hold. Note the word "might".
The point is that sharp declines like this typically continue for a little bit. But the comparison to 1980 looks very good. 1980 was characterized by high inflation, a recession, and a crazy high Federal Funds rate. Rates were cut aggressively that year as a result. Looking at the pattern for NASDAQ in 1980, the parallels are quite close actually:
- Currently in a high rate environment (at least relative to the last 15 years).
- Inflation was high, but is coming back down to target levels.
- We expect a rate cutting cycle to start.
Looking at the following graph, it seems that Ed Yardeni's prediction of a tough market for the rest of the summer into Q4 and then new highs, the 1980 comparison could be quite good.
But, this is just one pattern recognition algorithm. It is more anecdotal than predictive.
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Source: Yahoo! Finance, Trend Prophets