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Mark Twain once said that "History never repeats itself, but it does often rhyme."
There are several periods in the market's history that have followed that saying to a "T".
And when that happens, there's always an opportunity to profit.
Believe it or not, the years 1634 through 1636 are singing in perfect harmony with the current trends in Artificial Intelligence or "AI". That's right, AI stocks are following a pattern that dates back almost 400 years.
That pattern will provide prepared investors with what may be the last opportunity to grab AI stocks before they make their real move.
That's right, I said real moves. We've not seen anything yet.
Microsoft (MSFT) shares are up 40% this year. But there's more.
Alphabet (GOOGL) shares are trading 50% higher for the year, but there's more.
NVIDIA (NVDA) shares are up more than 200% this year. But there's more, a lot more.
There's more because of what tulip bulbs did almost 400 years ago.
Here's the chart. You may have seen it before, maybe not. But this is the pattern that all innovation-driven bubbles follow.
Tulipmania - as it is referred to as - is considered one of the most famous market bubbles.
Those with a keen eye may have even caught it hanging in the background during some of my live sessions.
The drivers of the Dutch Tulip Market Bubble are the same that drove the .COM bubble and then the 2007 housing bubble.
They're the same drivers that are now building the AI Bubble.
Investor sentiment and psychology is at the heart of the pattern. That sentiment is fed by the evolution of this technology and its adoption into the marketplace and economy.
That's the reason that this pattern hasn't changed after almost 400 years. You can't change the psychology of investors. It's coded into our "trading minds".
Here's the chart of NVIDIA following that same pattern.
So far, two of the more notable "phases" of the rally have played out. The "Awareness Phase" and the "Media Attention Phase".
The media attention phase is one of what I refer to as the "tipping points" for a stock (or market) as this is when the average investor is made aware of an innovation and the opportunity to invest in its future.
We've seen that play out perfectly over the last year. Everything from headlines in the media to tracking the count of how many times the term "AI" is mentioned in an earnings conference call (chart below).
And then there's the media mentions.
This media attention has put AI on the investing radar of the average investor, driving prices to their second of three peaks.
The next move will be lower according to history, and that's where the real opportunity will present itself.
Follow me on this, because it leads to that opportunity I'm talking about.
We're hearing rumbles of a bubble in AI as the media compares the recent rally to what we saw in the late 1990s as the .COM b…
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About the Author
Chris Johnson is a highly regarded equity and options analyst who has spent much of his nearly 30-year market career designing and interpreting complex models to help investment firms transform millions of data points into impressive gains for clients.
At heart Chris is a quant - like the "rocket scientists" of investing - with a specialty in applying advanced mathematics like stochastic calculus, linear algebra, differential equations, and statistics to Wall Street's data-rich environment.
He began building his proprietary models in 1998, analyzing about 2,000 records per day. Today, that database, which Chris designed and coded from scratch, analyzes a staggering 700,000 records per day. It's the secret behind his track record.
Chris holds degrees in finance, statistics, and accounting. He worked as a licensed broker for 11 years before taking on the role of Director of Quantitative Analysis at a big-name equity and options research firm for eight years. He recently served as Director of Research of a Cleveland-based investment firm responsible for hundreds of millions in AUM. He is also the Founder/CIO of ETF Advisory Research Partners since 2007, noted for its groundbreaking work in Behavioral Valuation systems. Their research is widely read by leaders in the RIA business.
Chris is ranked in the top 99.3% of financial bloggers and top 98.6% of overall experts by TipRanks, the track record registry of financial analysts dating back to January 2009.
He is a frequent commentator on financial markets for CNBC, Fox, Bloomberg TV, and CBS Radio and has been featured in Barron's, USA Today, Newsweek, and The Wall Street Journal, and numerous books.
Today, Chris is the editor of Night Trader and Penny Hawk. He also contributes to Money Morning as the Quant Analysis Specialist.