So what’s next for Nasdaq? The history of the index is that long-ish declines create considerable pent-up pressure for reversion. In other words, technology traders are impatient folks and they can’t seemingly resist “buying the dip”.
Let’s leave aside whether that makes any sense (it doesn’t), it is interesting looking back at the last time the Nasdaq Composite declined for more than five consecutive weeks. It was October 2002, and here is what happened:
A fair rejoinder, of course, is that the 20% snap-back rally in October of 2002 was very different from today. Back then stocks had been weak for more than a year, and there was a great deal of fear and consternation in the market. The power of the snap-back was partly a function of the length of the decline, but it also arguably had at least as much to do with the severity of the decline.
Put another way, you’re more likely to see a snap-back rally after three weeks of 5% declines than are are after three weeks of 0.05% declines.