Asset bubbles have historically unwound in stages, with the areas of greatest speculation falling first. Such was the case in the Tech Bubble during the late ’90s, when the dot-com heavy NASDAQ Composite Index sank over -34% in five weeks after its March 2000 peak.
We designed the InvesTech Canary Index to provide a similar early warning that conditions could be getting dicey – just as miners used a canary to warn of dangerous gases when descending into the coal mine in the early 1900s. Our Canary Index, comprised of approximately 20 of the hottest, most speculative, and overvalued stocks in the market, registered prescient warning signals by breaking down in 2021 ahead of the 2022 bear market.
Keep a close eye on our Canary Index, if it breaks below its major support level (red line on graph) and if InvesTech’s new Artificial Intelligence Index sends a similar warning signal, it could confirm that the speculative peak has passed. This would carry negative implications for the broader stock market, similar to the early warnings given by these high-risk issues prior to the 2022 market top.