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Wednesday's market action smacked of not much more than day-traders doing their thing. Nothing for serious investors to be concerned about. The market ended roughly flat for the day. All that energy expended and so little to show for it. There was some serious selling of Microsoft (MSFT), but if not for that, Nasdaq would have risen for the day.
There was probably also a little changing of the guard as those who had bought into the Fall rally earlier took some profits and latecomers decided to buy the dip. They roughly balanced each other out.
Despite Wednesday's decline, Nasdaq has now closed above its 100-day moving average for EIGHT days straight. And, the 50-day moving average has turned up a little bit further. But, yesterday's fall moves us a bit further from bumping into the 200-day moving average.
I would say that Wednesday marked a real correction to the Fall rally since Nasdaq slipped under its 9-day moving average. That doesn't mean the Fall rally is over, just that the dip is substantial enough to count as a correction. Maybe the cynics will now consider the market properly "disciplined" and allow the rally to continue.
The weekly Jobless Claims report showed an improvement for the FOURTH week in a row. Once again, the report was better than the PhD economists had expected. This was a positive report. Not only did the Initial Claims number fall, but the rate of insured unemployment actually ticked down. The seasonally adjusted Continuing Claims number ticked up slightly, but the unadjusted number actually ticked down.
The University of Michigan Consumer Sentiment Index for November rose more than economists (armed with their PhD degrees) had expected. This was a very positive report. Both the Current Conditions and the Expectations components of the index rose. That's very impressive.
The Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) improved. This was a positive report. The index had declined last week, but this latest report made up for that decline and then some.
We still have a long way to go, but these three reports show that we are definitely making excellent progress.
The Mortgage Bankers Association (MBA) Mortgage Applications Survey showed a moderate decline over last week's activity. This was a slightly negative report, but mortgage activity is still at a very high level. Contrary to recent weeks, mortgages for purchase increased while refinancings fell.
The weekly Oil and Gas Inventories reports released by the American Petroleum Institute (API) and the Energy Information Administration (EIA) were mixed, contradictory, and rather confusing. Still, the good news is that there's plenty of the stuff sloshing around and attempts by OPEC to control output will have limited success at best.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, FELL by 2.35% on Wednesday to 25.32, which is still near the bottom of the moderately high anxiety zone (25 to 30). VIX moved up and bounced around a lot as the market remained in a weakly confused state all day and then fell nicely into the close as the market recovered somewhat. It is very encouraging that VIX held up so well despite the faltering of the Fall rally. People are still prepared to give the Fall rally another chance. The cynics tried to bash the market down, but with minimal success.
The Nasdaq-100 After Hours Indicator started the Wednesday evening session in negative territory, but gradually began trending up and closed up 3.72 points. Yes, the old optimism is back. But the crowd trading in the evening seems somewhat different from the early morning and daytime crowds.
Another sign of the economy bouncing back was Frontier Airlines (FRNT) saying it will add service as bookings have picked up in some of its leisure markets.
Also on the air travel front, on Tuesday, American Trans Air (AMTR) said it expects to gradually recall all flight attendants that have been furloughed after the drop-off in airline traffic following the 9-11 attacks.
Fed Funds Futures suggest a 44% (unchanged) chance of a quarter-point cut in interest rates at the December FOMC meeting. The bond market continues to believe that the economy is on the verge of a recovery and that no additional monetary stimulus is needed.
Oil prices could move up a bit more as it starts to look like non-OPEC producers may cut output. But, it's unclear how much of those cuts will really stick. Oil producers are notorious for cheating on their public commitments. In any case, the resulting price increases will be only moderate and consumers should continue to see reasonably low prices.
Sticking with my new dip-buying philosophy, I picked up a little Dell (DELL) and Oracle (ORCL). These are long-term, buy-and-hold positions, not trading positions. They're in an account I don't look at very often where they can grow over time without me worrying over them on a regular basis.
Today is the big shopping day to kick off the holiday shopping season. Monday we'll get the first preview report of the 2001 holiday shopping season. Nobody is expecting a great holiday shopping season, but since so many people are expecting a lousy season, then maybe the opposite will come to pass.
Maybe the market won't rally today, but I'll be a dip-buyer if it doesn't. Remember that the market closes today at 1:00 p.m. With all the potential excitement in Afghanistan, I wouldn't want to be caught holding short positions over the weekend.
The bottom line: The Fall rally (43 days old) is still intact. A modest dip (say, 5%) is to be expected, but any significant dip should be bought.
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.
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.
Jack Krupansky
Updated: November 22, 2001 11:20:09 PM -0500
Copyright © 2001 John W. Krupansky d/b/a Base Technology