SubscribeRelative Price Strength Predicted the Market Crash of 2000!
There comes a time when greed is almost too good. However, I think the infamous Gordon Gekko would have already been into other money generating vehicles by the year 2000.
At any rate, many technical analysts should have seen the warnings signs. On a ten-year monthly chart of the Dow Jones Industrial Average, you could have used the Relative Price Index to begin shifting your money into more risk averse investments. Although I feel that we are beating a dead horse on the importance of divergences, it is my belief that repetition is truly the mother of learning.
From this chart you will notice that while the Dow Jones Industrial Average was making new highs, while the RSI was trending south. This is another example of what a divergence looks like.
Once the Dow failed to make a higher high, the hint was given that maybe it was time to reduce the large cap positions in your portfolio and to invest in T-Bills, bonds, or other income paying securities instead. These should have been securities that were not highly correlated with the movement of the Dow.
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