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"March 2005 Stock Market Review"

[written March 4, 2005]

Look at the world markets. The current line on CNBC, which is merely a report of what has happened in the near past, and not a predictor of the future, is that Europe is slumping, the U.S. is plugging along just fine, and Asia is roaring. But those observations are mainly based on the economic numbers themselves, not on how the stock markets themselves are doing. If you look at the world indices, the picture is: almost every major trading country in the world is experiencing rallying. One notable laggard is Asia, and in particular, China, which, as The Economist recently explained, needs stock market reform badly to unlock its massive economic growth to investment.

Here's some indices as examples. They've crossed the 200 day moving averages to the upside, which signals that the bear market is over and momentum is moving to neutral, and, given some more time, bullish.

The Naz is much weaker than the rallying Dow right now. Perhaps because the world market is opening up, which is good for companies with a large international presence like the Dow components?

Dow Jones

NASDAQ

NASDAQ 100

Great Britain

Germany

Shanghai

Russia

France

Egypt

I've simplified my trading strategy. I believe in candlestick charting for spotting the ends of trends, and I like trendlines for figuring out momentum changes and build-ups of energy that will lead to volatility. All the other indicators people use seem to me to be really misleading, open to interpretation, and highly inconsistent. I don't like financials too much unless there's a gross mis-statement of earnings. The most important thing to me is looking at internals, seeing whether the company will actually beat its competitors and run a tight ship. I know Buffett looks at things this way too -- most people judge a stock by past performance, which is completely wrong because you should be looking at companies' product lines and industries they participate in, to figure out future success.

In late 2003, AMD's stock began outperforming INTC's. It's above its 200dma and trying to rally off its 50dma.

AMD

Microsoft has been churning in its software development. The XBox however has become THE console that everyone wants to own. People are hacking it to make it into their own home media centers. The games load fast, the graphics beat the other consoles, and XBox Live caught on with Halo 2. MSFT now has a dividend, which is highly appealing, but it needs to kick itself into high gear to stave off competition in web services, e-mail, web browsers, and everything else online, which is where the money will be (as opposed to, say, desktop office suites and operating systems), as more processing, production, and actual work is done through web-based software like on yahoo or blogger or php-based suites or google.

MSFT has been trading in a range for a long time -- but the 50dma is about to cross the 200dma.

Microsoft

So look at Google. It's doubled in price and in my opinion is currently digesting all the insider shares that are no longer locked out of the market. I think Google will be one of the most dominant media companies in the world eventually. I think it will pioneer what we've been waiting to come for over a decade -- an online computer that we crunch our lives through more than we do through our own computers. Finally thin clients will become a way of life. Cellphone/PDA/computers will be miniaturized and our data and personal configs and processing power will be moved to the web. Google has a massive cluster of computers and is working on ways to integrate all forms of data. I want to buy more Google!

Google

EBAY had a huge rally, but is getting hit now. I don't know why -- competitors are still soft in online auctioning -- but EBAY's chart now looks bearish in the short-term. The dojis in the last couple weeks show weakness in the bounce.

EBAY

Citigroup is rallying through its 50dma in an attempt to turn up again.

Citigroup

The market doesn't care about rising oil prices. It doesn't care about an environment where interest rates are rising. It doesn't care about the double deficit. The only thing that spooked the market lately was when South Korea was misquoted as saying it would sell dollars. I'd remain bullish until other countries start saying they won't support our debt any more. It sounds like the market's waiting for them to say that too. But until then, green light?

And here's the 30-year yield curve. It's in a downtrend. The 10-year vs. 30-year yield curve is flattening -- money isn't very useful in bonds and money markets right now.

30 year yield

Finally, areas that could have massive growth:

  • GPS: Companies like Trimble envision a world where everything has a GPS locator and RFID.
  • Wireless: Third-world technology jumps, and metro cities installing repeaters into lightposts.
  • Data feed subscription: real-time quotes exist already, but how about feeds for TV, music, even personal data?
  • Auto: Electric cars or other alternatives will reinvigorate the auto industry's development cycle and sales.


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