I'm sure most of you know and understand the dot-com bubble.
If not, The dot-com bubble was a rapid rise in U.S. technology stock equity valuations fueled by investments in Internet-based companies during the bull market in the late 1990s.
The bubble grew because of fad-based investors, they heard something about the internet and saw the future - they saw an opportunity to make money and be on the ground floor.
The value of equity markets grew exponentially during the dotcom bubble, with the Nasdaq rising from under 1,000 to more than 5,000 between 1995 and 2000.
Then there was a dark turn as the market went full-on bear after the bubble burst in 2001.
The Nasdaq, which rose five-fold between 1995 and 2000, saw an almost 77% drop, resulting in a loss of billions of dollars - yea billions with a B.
But why did this happen? We still use the internet today - more than ever before actually...
So why did this go down in history as a bubble and not a boom?
Well, the 90s were a period of rapid technological advancement in many areas. But it was the commercialization of the Internet that led to the greatest expansion of capital growth the country ever saw.
The bubble that formed over the next five years was fed by cheap money, easy capital, market overconfidence, and pure speculation.
(are you starting to see a parallel to anything today?)
Just like today, investors tend to be both confident in their speculation at the start of a trade, then they become skittish once their money is actually on the line (who isn't, I'm not knocking on them for it).
This is what causes a market boom to become a bubble - and burst - as it just takes a few large sell orders to scare folks out of the market, which is exactly what happened in 2000...
The dot-com bubble burst when capital began to dry up.
In the years before the bubble, record-low interest rates (just like we saw a few years back), the adoption of tech (more on this in a moment), and interest in technology companies allowed capital to flow freely.
Valuations rose and money eventually dried up. This led companies, many of which didn't even have a business plan or product, to collapse, causing the market to crash.
The danger of a bubble it is are notoriously hard to recognize when it's inflating but tends to lead to a "Well, duh" moment after it bursts.
That leads us to today...
There is a new Tech bubble in town, and it's showing signs of being even more vicious than the dot-com bubble. But, if you play your cards right, you can ride it to the highs and play it for the downside when the market turns back around.
If you haven't put the puzzle together yet (that's okay, the hints were subtle), I'm talking about A.I.
Even the mention of A.I. has inflated stocks to an unreasonable level, and I want to be sure that both you and I are able to get ahead of this and make some outstanding profits along the way.
So, get your pen and paper to take some notes, because I've recorded a quick video breaking down everything you need to know:
The post "The next market bubble is ready to burst" appeared first on Penny Hawk.
About the Author
Chris Johnson (“CJ”), a seasoned equity and options analyst with nearly 30 years of experience, is celebrated for his quantitative expertise in quantifying investors’ sentiment to navigate Wall Street with a deeply rooted technical and contrarian trading style.