Stocks in the United States aren’t up because of what is happening in New York or Washington DC. They are up despite of what is going on in those places. Stocks in the U.S. are up because stocks all over the world are up. That’s how this works.
So when we are trying to figure out whether the next move in stocks is higher or lower, and whether we should be buying them or selling them, we don’t just want to look within U.S. borders. By doing that we’re missing the bigger picture. We care less about the behavior of stocks in our own country and more about stocks as an asset class.
I’ve been pounding the table bullish because I think stocks are going a lot higher, not just a little higher. One of the biggest reasons is because of what is happening internationally. We’re seeing historic breakouts from major bases all over the place. We’re NOT seeing major tops being completed with downside resolutions. If we were then I would argue that is bearish behavior. Since we’re not and, in fact, we’re seeing the exact opposite, upside breakouts from big bottoms, the path of least resistance is higher, not lower.
Today I wanted to point out two prime examples of important markets coming out of multi-decade bases to new all-time highs: Taiwan and Thailand.
Here is the Taiwan Stocks Exchange Weighted Index just now getting out of this range we’ve been in for 20 years. It would take a failed breakout of unprecedented proportions to invalidate this bullish upside resolution, which I believe is the lower probability outcome:
Thailand is exhibiting similar behavior. We’re now just getting above the highs from the 1990s and coming out of this monster base:
The questions here are simple. Should we ignore the strength coming from these emerging markets and bet that the U.S. and these stocks will move in opposite directions? Do we bet on these breakouts failing and put on bearish positions to take advantage of lower stock prices?
I would answer no to both of these. The way I see it, these markets, and others like Italy and UK, coming out of huge bases is evidence of risk appetite for stocks. These developments also fit with my thesis that stocks can go a lot higher, not just a little higher. People ignorantly suggest that the “stock market” has gone up too fast or is way ahead of itself. But when you do just a little bit of homework, you will find important markets around the world that have done absolutely nothing for decades. In many cases, stocks are just getting going.
See International Chartbook for analysis on the rest of the Countries (Premium)