Nasdaq Monthly Chart

It seems silly to think that the Nasdaq has been in a bear market since the dawn of the new millennium (eight years) but thats sure what it objectively looks like on this 14 year monthly chart. To put things into context as we begin the third month of 2008 I thought it might be fun to look at some monthly charts, something I rarely do. In all cases you can see that the rally lasting the past five years is clearly over but the S&P 500 and Dow Jones Industrials made new all time highs during this time. The nasdaq on the other hand, got no where near its previous high. In fact is was almost 50% short of that high!

Now there isn't any grande realization I'm trying to discover here and the thought of an eight year old bear market is somewhat alarming. But looking at this chart and setting aside my feeling about the vast improvements in technology during this time, I'd say the last five years were a continuation pattern on a long term decline that began in March of 2000. Just for fun, lets call the recent break in the nasdaq the beginning of the second leg down. The first leg saw an 80% decline in prices which we can use to estimate the size of the second leg down. An 80% decline from the October highs takes us to around 450 on the composite index. Obviously thats crazy talk but it goes to show that this market could potentially fall very far. I'd guess we will head down near the average price in 2004-2006 around 1900-ish then who knows. Things are changing so rapidly with the economy its hard to keep up so I'll just let the charts tell me what to do. Right now the charts are saying things could get very ugly.

Disclosure: I own puts on QQQQ among other things