Hi everyone, I posted this earlier today:
Let me try to encapsulate thoughts now that we head into the end of month three of an amazing rally that took the NAZ further above its 200 MA than ever before, the issue, it seems to me, is mood and not charts. Most technicians totally flunked in predicting the recent move. One of them, testifying in Barron's, said that he thought the NAZ would go to around 3500 and correct. I moved out of the market, except for small caps, in mid December and focused on opportunistic shorting which has had mixed results - mostly very small gains.
The best explanation I've heard for it is that "you get these huge sustained moves whenever there is a major shift in earnings news..." But even if this is true I think the real driving force is some sort of "tech euphoria" that supports the new paradigmers, plus the fact that the rest of the world is pulling out of a slow patch and earnings all over are booming.
Two brokers rang me yesterday to talk about the AOL deal, and I told them I thought it was fundamentally very bearish for the Nutters because finally the big, half-fantasy stocks like AOL, YHOO and maybe AMZN had to be measured by the same yardstick the TWXs of the world get measured by and that the pressure would be on these guys to join the real economy - and of course get their stock price evaluated in that context.
What happens to the other pure or mainly fantasy stocks like ARBA, CMRC, EMLX etc depends on how far they are can be kept away from the reality - the further away E day (earnings day), the more they can get pumped up. But there isn't a single co. that can't be rapidly ripped off or canibalized by new and old competition - which will happen if the stock price really does reflect the marvellous market it is supposed to.
So anyway, the short answer to the question is "mood." When you feel that the tech dream of the last 3 months is starting to feel a bit stale - as it will when reality strikes (earnings, the necessity of paying with monopoly money for a real world acquisition), then the correction will be in mid-stride. There's no reason or technical measurement that can indicate or be used to argue against the current explosion until the teenager euphoria wears thin. And that's why I think AOL should send a shock wave out to the big Nutters, who in turn may transmit their realism down the fantasy food chain... But since I haven't heard anyone say this sort of thing yet it may be premature.
Thomas/DPPL |
