Is This a Bubble Chart?

This chart represents a stock that over an eight-month period nearly doubled in value. The euphoria of the run up was something never seen before in recent history. But now, as you can see, the top of this chart is showing some weakness/distribution. The 50-day moving average has been violated, a textbook head-and-shoulders pattern is forming, and the bulls are now running for the exits. Is this the perfect Short Candidate?

Can you name this stock? (Click Read More for the answer)

It’s the Nasdaq (ok, it’s an index not a stock) – Not from the late 90’s, but from TODAY. I flipped the chart upside down, and basically what you have is textbook bubble that has formed over the last eight months. Only this time, it isn’t to the upside, it’s to the downside. So in a sense it’s an Inverse Bubble.

The point being, is that fear can run amuck just as much as greed can and when you have too much of either one, you are bound to see a pretty severe correction in the opposite direction.

So here is what you should take from this:

Don’t be so blind to the direction you are trading that you fail to see the obvious. If you are bearish and after reading this article, you still are unable to take a step back and really think through your rationale for why you are still bearish, then you are probably setting yourself up for disaster (eventually at least). And to the other extreme, are you so scared of going long in this market, that you are unable to take a step back and really think through your rationale for why you continue to hold your money on the sidelines, than you may be missing out on a great opportunity to make some money in this market.

Also worth noting is the oil chart from last year, one that we were consistently categorizing as a bubble:

Makes you think doesn’t it?