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Not bad. The reaction to the lack of good news from Applied Materials (AMAT) was milder than could have been expected. Some unsettling early-morning rumors about an explosion and a train wreck also failed to put much of a dent in Nasdaq.
Mostly, Thursday's trading action looked more like day-trading than any major buying or selling. For example, the dramatic recovery from 9:50 a.m. to 10:55 a.m., a swing of 40 points, followed by a sell-off and then a slight recovery, was a classic example of momentum buying followed by profit-taking and short-selling and then short-covering. Literally, nothing for a true investor to be concerned with.
Nasdaq has now closed above its 100-day moving average for four days straight. Obviously momentum has weakened, but that could be temporary. The inability of an "overbought" market to sell off to any significant extent is rather encouraging, except to the cynics. Most sensible people are happy to see the market trade in a narrow range for a little while.
The Jobless Claims report for the week ended November 10 showed a slight decline in Initial Claims. This was a positive report, despite the fact that Continuing Claims continue to rise. I'm optimistic because the pace of layoffs is slowing. It will be several months before we see continuing claims begin to fall, but that's typical of any recovery.
The Business Inventories report for September showed a significant decline in inventories, but a very dramatic decline in sales that gave a worse than expected inventory to sales ratio. The economists think this is a very bad report, but I think sales are already beginning to pick up so that the sales to inventory ratio will be more reasonable within a month or two. So, I'd rate it a neutral report and look forward to a much better November report.
The Philadelphia Fed Survey for November showed a decline in manufacturing activity. It was a smaller decline than expected, but still indicates that the manufacturing sector is contracting. This was a negative report. Who knows, we might not see an upturn in manufacturing until January.
The Oil and Gas Inventories reports from the Energy Information Administration (EIA) and the American Petroleum Institute (API) were somewhat contradictory. Both showed higher heating oil inventories and lower gasoline inventories, but EIA shows less crude oil and API shows more crude oil. In any case, there's plenty of oil sloshing around, so I'd rate this a mildly positive report.
I'm not sure what to think about the big drop in oil prices, yet. It might just be a temporary aberration while OPEC gets its act together. Or maybe we're back to the glory days of the Fall of 1998. Lower oil prices are like a big tax cut, provided the prices stay low for a while. For now, a little caution and patience is called for before we all become too wildly exuberant. Still, the drop is great news for consumers and businesses alike.
The dramatic fall in bond prices is another one of the late developments that needs to be monitored for a little while longer before drawing any conclusions. A rise in long-term rates is not good since it raises the cost of borrowing for corporations and possibly consumers as well. The weakness of treasuries in the past few sessions may be more of a repositioning or re-establishing of short positions (which are needed when large corporate bind offerings are being placed), rather than a long-term trend. Stay tuned.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, FELL by 2.87% on Thursday to 27.79, which is right in the middle of the moderately high anxiety zone (25 to 30). This is slightly below the closing level at the end of August. VIX rose modestly at the open, but by 10:30 a.m. had declined below the Wednesday closing level. VIX bounced around a fair amount as the market gyrated in confusion before settling a little into the close. This is a very good level for VIX to be at given the combination of anxiety about near-term issues and optimism about the long-term outlook. It is notable that VIX declined moderately despite the weakness in Nasdaq. Essentially, people are quite pleased that the Fall rally is hanging in there without any dramatic sell-off, yet.
The Nasdaq-100 After Hours Indicator started the Wednesday evening session with a slight positive bias and then reversed and headed south, closing down 3.69 points, as traders were disappointed that Dell Computer (DELL) wasn't able to offer us a rosy enough outlook. The good news is that Dell had a fairly reasonable outlook, just not quite as good as the market had hoped. But, I'm not convinced that the after hours crowd is currently in-sync with the daytime crowd, so we could still a rally in relief that Dell didn't dump really bad news on us.
AMG Data Services reported Thursday evening that for the week ended Wednesday, November 14, $844 million flowed INTO equity funds. That's not much, but at least there is still money going into stocks. And, even more importantly, there are not major outflows. $1.8 billion flowed INTO taxable bond funds. Junk bond funds had their largest INFLOWS since January. Plenty of money sloshing around. If only stocks were really considered "safe".
Fed Funds Futures suggest an 41% (down from 56%) chance of a quarter-point cut in interest rates at the December FOMC meeting. The futures market is predicting that there MIGHT be a quarter-point cut in December or January. These guys are really beginning to believe that the economy is in much better shape than even most optimists believe. But, the bond market is in a state of flux, so these futures predictions may be rather suspect. And, it all depends on how the short-term economic data comes in over the next few weeks.
I did pick up some more January 2003 LEAP call options on the Nasdaq-100 Index Tracking Stock (QQQ) just after the open when it was clear that the market was in knee-jerk reaction mode.
The Fall rally is still intact. A little breather or trading in a narrow range is not at all unusual in a rally. A trading range helps establish a base for a more substantial rally. We're only 5.26% below the magic 2000-point level for Nasdaq, so we really need a good base or else we really could have a massive sell-off if we sprint the remaining distance and run out of steam from over-exertion. But, we may not have a choice since sidelined money may get anxious and jump in before a good base is firmly established. Another week at the 1900 level would be ideal.
Today is a Friday during a "war", so short-term traders may buy or sell to close positions. With Nasdaq still in its "overbought" condition, I would guess there are some people with short positions that need to be bought back. Who wants to be short if there's even a slight chance that what's-his-name might get caught or killed. According to some people, the Taliban could be history by Monday morning.
The investigation into Monday morning's plane crash seems to have zeroed in on wake turbulence as a cause of the plane's vertical stabilizer being sheared off. Nothing final yet, but they can't find any marks on the tail to indicate that anything other than air pressure could have broken it off. Still, better to keep an open mind and let the investigators do a professional job. In any case, the stock market seems to have concluded that the crash really was a freak accident.
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 relatively strong growth for the bulk of the tech sector.
Short-term economic outlook: As November progresses we will gradually start to see the first signs that the economy is beginning to recover. Not a large increase, but at least the trend will not be downward. Some indicators will continue to decline, even as others begin to stabilize and some even begin rising. December will be a little better. But, October was probably bad enough that Q4 will "print" as a decline in GDP. Employment will continue to fall until GDP finally breaks above the rate of productivity growth, sometime in Q1 of 2002.
Jack Krupansky
Updated: November 16, 2001 12:52:07 AM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology