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Monday was a mixed day, with early weakness followed by a modest bounce for the rest of the day. Although there was little buying, there wasn’t much more selling either.
Nasdaq hit its low for the day at 11:20 a.m. and then trended up almost 10 points for the rest of the day. There appeared to be some modest dip buying.
The bounce may have been due to relief that holiday retail sales weren’t even worse than they were.
Volume was very light (1.03 billion shares). Breadth was moderately negative, with 1.56 losers for each gainer.
According to Thomson Financial I-Watch, institutional investors were net buyers of Sun (SUNW), Cisco (CSCO), Intel (INTC), JDS Uniphase (JDSU), Nortel (NT), Micron (MU), Applied Materials (AMAT), AT&T Wireless (AWE), and Oracle (ORCL). Institutions were busy doing a little dip buying.
The Wal-Mart (WMT) Weekly Sales Update reported no change that it still expects total U.S. same-store sales for the five-week period ending January 3 to be up 2% to 3%. Sales were strongest in home furnishings, electronics, toys, health and beauty and seasonal items. Gift card sales were “very strong.” Gift cards are only counted as sales revenue as they are redeemed, so this suggests a shifting of some holiday retail sales into Q1 or beyond.
The Federated Department Stores (FD) Weekly Sales Update reported it expects sales for the November- December shopping period ending January 4 to be down about 4.5%, well below its previous forecast (of flat to down 2.5%).
After the close: The Target (TGT) Weekly Sales Update reported that sales came in well above its expectations last week, but were not strong enough to offset disappointing results earlier in the month. Sales in the week ended December 28 were buoyed by strength in pharmacy, entertainment, toys and consumable products, but sales for the four-week period to date were still well below target, dragged down by slow sales of men’s and women’s apparel and sporting goods.
The Semiconductor Industry Association (SIA) Global Sales Report (GSR) for November global chip sales registered a modest gain. This was a slightly positive report. The SIA said that “November sales of the global chip industry underscore the healthy recovery that has been building momentum through out this year” and that “The wireless sector continues to be the strongest single market.” The semiconductor products that benefit from the strength of the wireless sector are led by Flash and Digital Signal Processors, which were up 6.6% and 3.7% in November. In addition, Wi-Fi has begun to contribute to the strength of this market. Furthermore, the computer segment continues to show growth with microprocessors up 0.5% and DRAM’s increasing by 5.8%.
The Chicago Purchasing Managers Index (CPMI) Business Barometer for November registered a moderate decline, but is still indicating modest growth. This was a mixed, but slightly positive report. Production and new orders are still growing, but below the pace of November. The order backlog continued to contract, but at a slower pace. One bright spot was that employment finally showed some growth for the first time since March 2000. This report covers the Midwest region, but people try to extrapolate it to the entire country.
The Existing Home Sales report for November registered a moderate decline. This was a slightly negative report, but sales are still at quite a high level.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 4.66% on Monday to 32.56, which is slightly above the midpoint of the high anxiety zone (30 to 35). People were a little relieved that the market did not fall dramatically and even bounced a little from the intra-day low of the morning.
The high level of VIX remains a contrarian bullish indicator, but the market could decline further before rallying again.
The Nasdaq-100 After Hours Indicator had a negative tone for the Monday evening session, closing down 1.21 points. There was no obvious news associated with that decline. There was a sharp 3-point decline shortly after 5:00 p.m., again with no obvious news. It may have been simply a rumor or some misinterpretation of some otherwise benign report.
[UPDATED 12/31/02] The Fed funds futures market suggests that the Fed might have to lower rates further in March unless the economy shows some significant improvement over the next two months.
Fed funds futures suggest an 18% chance of a quarter-point rate cut by the January FOMC meeting. In other words, futures indicate that the Fed will not cut rates through the January 28/29 FOMC meeting.
Fed funds futures suggest a 57% chance of a quarter-point rate cut by the March FOMC meeting. In other words, futures indicate that the Fed is somewhat likely to cut rates at the March 18 FOMC meeting.
Fed funds futures suggest an 87% chance of a quarter-point rate hike by the May FOMC meeting. In other words, futures indicate that the Fed will raise rates at the May 6 FOMC meeting (assuming a cut in March).
The dollar fell sharply against the yen and fell moderately against the euro. Speculators are still at work. There was probably a fair amount of short-covering as well.
[UPDATED 7/23/02] There are still no signs of any economic fundamentals that would make either Europe or Japan dramatically more attractive than the U.S. for long-term investment. Rather, the relative weakening of the dollar has been primarily driven by speculative currency trading and sentiment (such as the accounting scandals) and that sentiment will most likely reverse over the coming months as the forces depressing sentiment dissipate.
[UPDATED 7/23/02] In any case, the dollar is still quite sound and no true investor should lose any sleep worrying about potential negative implications from a weaker dollar. And, a weaker dollar will boost U.S. exports.
The price of oil fell sharply, but is still moderately above the psychological $30 level. There was heavy profit-taking as at least a few people suddenly realized that the strike in Venezuela could start to falter in the coming weeks – or at least OPEC could begin to take up the slack.
[UPDATED 7/23/02] In any case, the price of oil price continues to be well-behaved and no true investor should lose any sleep worrying about it.
The price of gold fell sharply.
To understand some of the sentiment that has been driving interest in gold in recent weeks, here’s what one COMEX gold floor broker had to say: “So many people believe that within three months there's going to be another major terrorist attack in New York… Once Bush bombs Iraq, as if that's a foregone conclusion, they're going to attack us -- so many are thinking that way.” I don’t agree with that prognosis, but I accept that it is what a lot of people do believe – or at least that is the line of crap that a lot of traders and commodity ‘advisers’ are pitching to many naïve investors.
[UPDATED 7/23/02] In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
[UPDATED 7/6/02] The relative calm continues.
[UPDATED 7/23/02] Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
[UPDATED 10/14/02] The eerie calm continues. There may continue to be attacks or alleged attacks abroad, but the U.S. “homeland” may be relatively immune, at least for now.
[UPDATED 7/23/02] Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
Three more helicopters have arrived in Baghdad. Crews are undergoing local flight training.
Some more inspectors arrived and some others left, leaving a net total of 110 with 100 for UNMOVIC and 10 for the IAEA.
[UPDATED 12/30/02] My assessment is that there is virtually no chance of an all-out military conflict any time before two weeks after the January 27 inspection deadline (as the UN Security Council must meet and haggle again) and only a 20% chance in 2003. Saddam Hussein intends to stay in power, so that will force him to cave and give up his weapons programs to avoid a war with the U.S. If there is to be an all-out war with Iraq, it would happen in the winter of 2004, not this winter.
[UPDATED 9/16/02] The bottom line is that investor concern over the sluggish economic recovery and weakness in corporate revenue and earnings growth still weigh more heavily on the market than all the other non-economic factors. Traders merely use Iraq, et al as excuses for any market weakness.
Click here for our more extensive commentary on The Iraq Problem.
Click here for our more extensive commentary on Technology.
No activity.
[UPDATED 8/5/02] Check out our book list.
[UPDATED 7/23/02] Absolutely nothing more is needed at this point other than to simply let the current market-driven corrective processes play themselves out.
Click here for our more extensive commentary on financial reform.
Click here for our more extensive commentary on The Telecom Problem.
…
No activity.
Certainly people will be anxious for signs whether the October recovery is going to hold up or continue to unravel.
Trading will most likely be light all week due to the holiday season.
Although it is a full day for the market despite being New Years’ Eve, many people will leave early (at least in spirit), if they haven’t left already.
People will be on high alert for any Q4 warnings since the end of the quarter is nigh.
There will also be anxiety over holiday retail sales.
Although Iraq and other geopolitical concerns may grab headline attention, the real concern of the market will be the economic and business outlook.
There might be a little window dressing since it is the final trading day of the month, quarter, and year.
My forecast for today is that Nasdaq will close in the range -30 to +40. Nasdaq came in at -9 on Monday, well below the midpoint of my range of -30 to +40. The market continues to be so crazy that it could go either way, but I still believe there is a longer-term upwards bias even if the near-term bias is all over the map.
[UPDATED 12/31/02] The October recovery is 56 days old, but the correction off the peak is now 21 days old. Nasdaq is looking quite ragged but still retains all of the October gains even though almost all of the November gains are gone. It may or may not completely unravel. I’ll give the market four more days (I add a day if Nasdaq rises at least 1% and subtract a day if it declines at least 1%) before concluding whether we’re truly back to a bear market or just in a trading range (or, heaven forbid, starting on a new bull market). Nasdaq did close up 10 points from its intraday low on Monday, so that counts as an initial bounce. Now we wait three to nine days for a follow-through bounce (without a new low below the initial bounce low) to tell us whether we just set a new intermediate low on Monday.
[UPDATED 9/25/02] Technically, we are back in a bear market (as of Monday, 9/23) since we have broken below the July 24 low. But whether we continue downwards depends on whether the recent declines were driven by ‘real’ selling or simply due to short-selling. Short-sellers do eventually have to buy their borrowed shares back. The lofty level of the market Volatility Index (VIX) suggests that professional investors are bracing for the worst. That sounds bad, but frequently, those precautions are a harbinger of a turn in the market. The only question is whether the turn occurs within the next few days, a few weeks or a few months.
[UPDATED 8/22/02] The incredible level of disbelief in the current rally strongly suggests that a contrarian bullish view may be appropriate. It’s the exact flip-side of where we were in April and May of 2000 when people refused to belief that the bull market was over and that a bear market had begun.
[UPDATED 6/24/02] Regardless of how crazy the market behaves, the economic recovery is well underway. Market participants may not yet be ready to acknowledge the recovery, but it is inevitable, even if the timing is uncertain. There are more than enough differences in the current market cycle than any in recent memory, but inevitably the market will rise as people anticipate earnings growth down the road. Investing for the long term is still an excellent strategy even if it feels painful in the near term.
[UPDATED 6/24/02] The market will rally when the selling peters out. The market religiously obeys the law of supply and demand, but many buyers have a habit of waiting until the sellers exhaust themselves.
[UPDATED 12/26/02] Forecast for Nasdaq in 2003: 2800 at end of year, 1800 at mid-year, 1600 at end of first quarter. This presumes that the majority of tech companies return to solid revenue and earnings growth. Once tech starts moving up, there will be a truly mind-boggling number of short positions to cover. The majority of mutual funds that want to stay in business and attract new funds will have no choice but to head back to techland.
[UPDATED 12/18/02] There seems to be some amount of consensus that the economy will continue to grow at a sluggish pace in the first half of 2003, but then accelerate in the second half of the year. Of course, that’s what people said about 2001 and 2002. Part of this new consensus is an expectation of war with Iraq in Q1, possibly spilling into Q2, but then the economy would pick up after Iraq is out of the way. I don’t concur with the consensus on Iraq, but I am fully prepared to assume growth in Q1 and Q2 may be no more than modest. On top of this economic expectation, we layer an expectation that the stock market is typically expected to react six months in advance of economic changes.
[UPDATED 11/30/02] I rate the probability of serious deflation in the U.S. over the coming year at 1 in 1,000 (0.1%). It’s easy to make a hypothetical case for deflation – in any economy – by simplify hypothesizing that a whole bunch of factors all turn south and policymakers do all the wrong things. Fortunately, that’s not likely to happen in the U.S. Sure, there are plenty of sectors where prices have come down either to excess capacity or suppressed demand, but capacity has a way of adjusting and suppressed (or pent-up) demand eventually has a way of reasserting itself. Policymakers are well aware of previous episodes of deflation, so there is little reason to believe that they will make “all the wrong moves” needed to force the economy into a deflationary depression. In truth, we are actually looking at a higher risk of inflation next year since prices of intermediate goods have risen at ever higher rates for each of the five past months. In short, don’t make the mistake of assuming that hypothetical, theoretical, potential disasters are the likely scenario.
[UPDATED 11/9/02] The ECRI Weekly Leading Index (WLI) tells us that the economy is starting to pick up a little. Not enough to make people happy, but enough to offer encouragement that neither a double-dip recession nor deflation are in our cards.
[UPDATED 12/16/02] The economy is looking even more mixed than before. Although there are plenty of signs of weakness, there are increasingly tantalizing tidbits of improvement. The bottom line is that the economy is hanging in there and even growing a little, even if it is not up to its full potential.
[UPDATED 11/7/02] I’ve decreased my estimate of the probability of a double-dip recession to 10% (from 20%) due to hefty half-point Fed rate cut. I still think a double-dip is unlikely, but I do want to quantify my beliefs as well as risks.
[UPDATED 6/24/02] There is absolutely no question that the economic recovery in the U.S. is going at a somewhat slower pace than had been expected by this point in time, but the recovery is well along nonetheless. We are still winding our way through an extended turning point, but virtually every day brings news that we are making incremental progress, even as there are still plenty of negative data points as well. Impatient observers fail to recognize that turning points are bumpy affairs and that negative data points do not necessarily mean that something has gone wrong.
[UPDATED 6/24/02] Spending on technology has picked up only modestly, at best. And the telecom sector continues to decline. That said, the recovery is in fact well along, with the manufacturing sector leading the way. Manufacturers have plenty of excess capacity so that they can increase production without spending too much and without needing to hire many workers, yet.
[UPDATED 6/24/02] Even as unemployment continues to rise modestly, actual employment has already begun to rise, although at a very modest pace. The average paycheck has also been rising, and at a rate faster than inflation. That combination of more people working with larger paychecks means that overall national income is rising, which is a very good thing and will continue to fuel consumer spending.
[UPDATED 6/24/02] Companies are reluctant to dramatically increase their spending on technology until they become more comfortable that ‘final demand’ is increasing at a dependable pace. Demand is increasing, but at a slow enough pace that companies are proceeding with great caution. But as each day goes by, an additional increment of that caution evaporates. It may be as painful as watching grass grow or watching paint dry, but investors can be sure that their patience will be rewarded. Sure, it will take some time to get back to ‘normal’, but that result is inevitable even if the timing is uncertain.
[UPDATED 12/9/02] I don’t yet have a forecast for Q4 GDP. The accounting is so inscrutable as to defy any rational forecast. People expect economic activity to slow dramatically from the pace of Q3, so real GDP growth in the range of -1.5% to 3.5% (midpoint of 1.0%) is possible. A survey of economists by The Economist shows an expectation for real GDP growth in 2002 of 2.4% (low of 2.3 to 2.6), which implies Q4 GDP growth of -0.7% (low of -1.1 to 0.1). The same survey forecast real GDP growth of 2.6% in 2003 (low of 2.0 to 3.3). There was no hint or suggestion of deflation in these survey results. In fact, The Economist poll for consumer prices forecast a gain of 2.1% in 2003.
[UPDATED 12/4/02] Even Stephen Roach, the gloom-and-doom economist from Morgan Stanley, is forecasting real Q4 GDP growth of 1% (as of 12/2/02). He had been adamant that the economy would have a double-dip recession, but now admits that we have escaped two “double-dip alerts” this year. He does still expect that there will be more double-dip scares in the months and quarters ahead. He is a very smart former-Fed economist and even though I don’t share his gloominess, at least he does offer a solid lower bound for the likely performance of the economy.
[UPDATED 11/27/02] A panel of professional forecasters of the National Association for Business Economics (NABE) estimates that real Q4 GDP should grow at a rate of 1.4%. Q1 GDP should grow at a 2.5% rate. Full year 2003 GDP should grow at a rate approaching 3%. The survey was taken from November 9th to 14th.
[UPDATED 12/21/02] The Blue Chip economic forecasters group has estimated real Q4 GDP growth at 1.4%.
[UPDATED 12/18/02] The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) is still uncertain whether the recession truly ended of whether the end was merely temporary with a second dip to follow. In their words (as of December 7), “The behavior of the economy this year indicates that the decline in activity that began last year may have come to an end. But recent data show that additional time is needed to be confident about the interpretation of the movements of the economy last year and this year.”
[UPDATED 8/14/02] We are still in the turning point where the view in front of your nose is mixed and confusing. Recent economic reports have been weak or mixed, so we probably need another month of data to be able to see where we are going. For me personally, it’s a no-brainer that we very close to the final edge of the turning point, but so many people have lost confidence that they need a truly monumental level of evidence to believe again. But that’s always the way it is with turning points: it’s darkest before the dawn.
[UPDATED 8/24/02] I’ve reset the Tech Stock ‘Safe’ Signal back to 0.00 since it has the last change is over six weeks old. There needs to be a sense of ‘freshness’ to the outlook for tech business that simply isn’t there right now.
[UPDATED 12/21/02] Our ‘safe’ signal requires at least 20% (1 out of 5, or 10 out of 50) of the top 50 tech companies to signal acceleration. Expect one or 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 four to six months in advance of the return of strong growth. Many companies are still trimming Q4 forecasts, and virtually nobody is beating the drum for a great Q4 or Q1. And nobody has any real sense of visibility into Q2. That said, if you want to get the early stock market gains, you'll have to jump the gun and get in before our signal triggers. But if you do, you have to be prepared for some significant volatility and possibly some big losses. You have to decide for yourself whether you want safety in the short run or higher potential returns in the long run.
[UPDATED 9/14/02] For our complete list of resources, click here.
[NEW 5/25/02] DISCLAIMER: I cannot and do not offer any recommendations of stocks to buy or sell. I may on occasion discuss companies that I am considering or myself have bought or sold, but the reader must do their own research before making their own purchase or sale decision. It is never a good idea to buy a stock just because someone else tells you to or even merely mentions a company in a favorable light.
Jack Krupansky -- The Unrepentant Optimist (Click here for Jack's Bio)
Updated: December 30, 2002 11:37:23 PM -0500
Copyright © 2002 John W. Krupansky d/b/a Base Technology