It’s Not Just Us
It’s Not Just Us by Michael Carr, CMT
The Olympic Games, soccer matches and other sporting events tend to highlight nationalism as fans cheer for their country’s athletes. In this case, the nationalism is intentional.
Stock market investors also tend to be nationalists and focus on their country’s stock market, even though many may not realize it.
There’s no harm in stock market nationalism. It even makes sense because we tend to accumulate and spend wealth in our home countries. But even if we invest 100% in the U.S., our analysis can benefit from a global perspective.
As U.S.-based investors, we know that our country’s stock markets are at new highs. The question we need to ask is: “Are we alone?”
The rest of the world has something to say about that…
A Global Boom
Based on this chart of the Dow Jones World Stock Index, which includes stocks from dozens of countries, global stock markets are in an uptrend. The index’s recent breakout to new highs is confirmed by momentum, which is shown at the bottom of the chart.
To focus on the long-term trend, the chart uses monthly data. This allows us to analyze momentum since most momentum indicators, such as the popular moving average convergence divergence indicator, which is shown here, are generally only reliable on weekly or monthly charts. While these indicators are commonly applied to daily charts, there is really no evidence they work in the short term.
While the chart above shows prices of global stocks are breaking out to new all-time highs and are most likely in a bull market, we also need to know whether or not the rally is broad-based.
In 1999, for example, stock market indexes reached new highs, but just a few stocks were moving up. All of the gains in indexes were due to large gains in relatively few Internet stocks. As that sector climbed, other sectors were moving lower, indicating the rally was doomed.