As we near the end of a wave 2, the extreme bullishness reflects a higher level of the same bullishness that got us into the mania in the first place. Mutual funds and day traders are buying because everyone else is & they don't want to be left behind - significantly, not because their analysis of individual stocks or of the market says to do so. It is goin' up 'cuz it's goin' up.
The ewavers are saying the end of the uptick may be with us, and the big wave 3 of 3 is coming. So continue to watch the recent highs like a hawk, since if wave 2 has topped yesterday's highs wil hold. But the market is behaving corrective and may still be in the wave (2) from October. Rather than having topped in Dec, we might be in a long ABC wave 2 since Oct. Possible turn date is the next fib date of around May 31. STU thought it would be a bottom; may instead be a top, of wave (2). THEN the big 3 of 3 starts.
The strongest bullish case can be made in the Nasdaq. Its drop from Mar00 to Oct03 parallels the drop of the Dow in 1929 - 1932 eerily. There are indications of a bottoming of tech. VC investments in new deals are up since 4Q02 - up quite a bit. Enterprise software budgets are being set right now for 2004, and early reports are for a return to buying. Anecdotally, at Valley events six months ago, half the people were unemployed and looking. Today, they are still unemployed, but they hand over business plans, not resumes. Best way to find a job is create one!
It feels a lot like 1994, when the Web was young and VCs were stingy. No one can make money in the Internet! they said, to the extent they knew what it was. Today, the contours of Web 2.0 are emerging, and the VCs again are stingy and say No one can make money in WiFi, or Blogging, or Web Services!
And yet, it was reported that around 200 dot-coms have emerged from the wreckage, 1/3 of which are profitable now and 1/2 are expected to be profitable by year end. Remarkable! After the PC mania ended in 1983, around 40 companies emerged and around 20 became enormously successful - Sun, Dell, Compaq, Microsoft, Oracle, Adobe to name a few. This time it looks like a 5x bigger success pool.
Why is the Smart Money smart? Because it is contrarian. It buys in when the herd is out, and it stays out when the herd rushes in. The general malaise over tech belies the unnoticed success of the 200 dot-coms. It overlooks the continued march forward of Moore's Law. And it ignores the entrepreneurial spirit, which is alive and well despite the dearth of IPOs, the depression of valuations, and the deer-in-the-headlights look on the marginal VCs. Watch this space for developments. Yelnick will continue to report from the tech Ground Zero, Silicon Valley.
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