| Read Jack's "diary" of life in Washington, DC after the terrorist attack. Click here. |
My tech stock "safe" signal is still stuck at 0.0 since none of the major tech companies is yet publicly claiming that they have evidence (other than "hope" or "hints") that their business has started to accelerate out of the tech downturn. My "safe" signal requires at least 20% or 1 out of 5 of the top 25 tech companies to signal acceleration. Expect at least two quarters to elapse from the time of the first indications of an upturn and the return of solid growth. The theory is that the stock market should begin a sustainable rally six months in advance of the return of strong growth. Despite recent events, I continue to peg Q2 (May or June) of 2002 as the timeframe for the return of strong growth for the bulk of the tech sector.
Current short-term economic outlook: Recent events will cause a sharp drop in economic activity, but those effects may be short-lived as pent-up demand needs to be satisfied. The economy will be completely up in the air until mid-October. November and December may show the beginnings of recovery, but only to the extent that the "response" to terrorism does not continue to drag down the economy. To get the "pulse" of the economy, focus on employment and income. The government issues unemployment numbers every Thursday. But, don't waste time with these numbers until about mid-October after the new wave of layoffs subsides.
The market action on Tuesday suggested nothing more than daytraders "betting" that maybe some "buyers" might materialize and then the daytraders closing out their bets when the presumed buyers failed to show. Still, I'm pleased that the market hung in there as well as it did.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market,
retreated 5.43% on Tuesday to 42.50, which is still way up there in the panic zone. It jumped up to 46.56 on the open, but then tapered off and was below the Monday closing level by 10:30 a.m. People are simply dumbfounded as to what to expect next. Nobody seems to want to rush to sell right now, but there are plenty of reasons to be cautious about buying.
The Nasdaq-100 After Hours Indicator maintained a positive bias, closing up 1.4 points in the Tuesday evening session. A little stabilizing and a little optimism don't hurt. But they may not help much either.
Genesis Microchip (GNSS) raised it's revenue outlook dramatically. Sometimes a little spark can ignite a blazing rally. We'll see.
TriQuint Semi (TQNT) reaffirmed quarterly guidance and said it was seeing a pickup in demand for its wireless phone business. They also raised their coming quarter earnings outlook. Another little spark.
Fed Funds futures suggest a certainty of at least a quarter-point cut in interest rates at the October 2 FOMC meeting as well as a 52% chance of a half-point cut at the meeting. Futures also suggest a 100% chance of a total of a half-point by the end of the year and even an 8% chance of three-quarters of a point. The likely scenario is a half-point cut at the October FOMC meeting and then rates will stay unchanged for the rest of the year.
The open question remains: What's next? People are feeling that they've seen it all, so what else is there. My conclusion remains the same: In this market, be prepared for anything and everything.
Buyers will mostly just sit tight until there is a combination of clear stabilization of the market and some sense of direction in the response to the terrorist attacks. Could be a few days, a few weeks, or a few months. But there will always be people who either jump the gun before the situation stabilizes, those who panic, and those who are reluctant to capitalize on opportunities even when presented on a silver platter. Every day in the market you get to use your money to "vote" your personal view of the outlook for both individual businesses and the entire economy.
Retail investors may end up in control of the market, deciding whether to redeem more of their mutual fund shares or when to begin buying again. Lots of people are still working, ploughing money into 401(k) funds. Hedge funds, institutional investors, and brokerage firm in-house trading desks are also factors, but I would say it's the collective "wisdom" of the unwashed masses that are going to drive the market (other than minor rallies and corrections.)
I was finally able to buy some LEAP call options on the S&P 500 Tech Sector "Spider" (XLK) yesterday. In fact, these are January 2004 LEAPS rather than my usual 2003 LEAPS. The premium was reasonably low, even that far out. There are no in-the-money strike prices for this option. The lowest, which I bought, was $22 when XLK itself was just below $20. This is very unusual. It may mean that the options firms feel these options are too risky for them and too likely to pay out in a big way. It was very difficult to place the order. The online system would not accept it. My broker couldn't get her computer to accept it. She had to call "trading" and they had to "force" the order through (at 3:59). It was a small order, but it was the entire volume of the day for that particular option. I'm not making any "big bets" right now, this was hardly more than a lottery ticket.
The best news I read yesterday was that the Israelis and the Palestinians may finally be getting closer to pulling back from their escalating violence. A rapprochement might make it easier for the U.S. to develop a broader, sounder coalition against terrorism with the Arab states in that region of the world. Iran and Syria have been heavily involved with terrorists and some "calm" with the Israelis will help. We have enough problems with Iraq without needing to fight a war with Iran and Syria as well.
Despite the fact that the administration has been talking about a "long" and "dirty" war, it is important to realize that the administration is not known for being clear and articulate and their current talk lacks specificity on the long-term "game plan". Yes, the war against terrorism will in fact be never-ending. But the high-intensity response to recent events won't necessarily be a long, drawn-out affair. The initial response might be complete within two months, to be followed by medium-intensity efforts for a few months after that and then the never-ending low-intensity effort to "police" the world and respond to each new flare-up in terrorist activity. Much of the "war" will be diplomatic maneuvering as well as a "carrot and stick" economic "war" (threat of sanctions, promise of aid).
Jack Krupansky
Updated: September 19, 2001 08:19:09 AM -0400
Copyright © 2001 John W. Krupansky d/b/a Base Technology