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(Will be updated for Monday)
Most of the sharp Nasdaq gain on Friday was due to positioning by traders in the pre-market, clearly in response to the much better than expected employment report. Out of the day’s Nasdaq gain of 44 points, only 16 of those points came after the open and Nasdaq closed 11 points off the intra-day high. There was probably a fair amount of selling into the rally and a fair amount of short-covering that was boosted by momentum day traders. As dramatic as the overall gain was, it just didn’t have much of a feel of ‘real’ buying.
The 1890 level provided significant resistance for Nasdaq.
Volume was heavy (2.01 billion shares). Breadth was strongly positive, with 2.2 gainers for each loser. This would have been a very strong rally, except for the fact that much of the point-gain occurred in the pre-market and there was a fair amount of selling off the intra-day peak.
According to Thomson Financial I-Watch, institutional investors were net sellers of EMC (EMC), Sun (SUNW), Cisco (CSCO), Oracle (ORCL), Nortel (NT), Brocade (BRCD), JDS Uniphase (JDSU), Siebel (SEBL), and Intel (INTC). Clearly institutions were selling into the rally, but they frequently do that after buying recent dips, so it’s not necessarily a sign that the market might be setting up for a dramatic decline in the near future.
The Employment Situation report for September registered a modest rise in nonfarm payroll employment and no change in the unemployment rate. This was a somewhat positive, but still mixed report, but one ‘good’ month does not establish a trend. The headline job gain was 57,000, which is statistically insignificant. Ex the seasonal adjustment, we gained 490,000 nonfarm payroll jobs, which is statistically significant. The 93,000 headline decline for August was revised down to a loss of 41,000 jobs, meaning that payroll employment is above the level in July. Manufacturing lost another 29,000 jobs, or 58,000 ex adjustment. Temporary help (a leading indicator of future employment) was up 33,200 (or 70,800 ex adjustment). Although the unemployment rate was unchanged, there was still an increase in unemployment of 68,000, but that was really a reduction of 394,000 ex adjustment. There was a reduction of 257,000 in the number of people who were no longer in the labor force, but that was really a gain of 1.07 million ex adjustment. The population grew by 272,000. Household employment fell by 52,000, but ex adjustment declined by 406,000, but is higher than a year ago by 354,000 (peak to-date was in July). Hourly earnings fell slightly, and the average weekly earnings fell modestly. The average workweek was unchanged, but the average manufacturing workweek rose modestly. Manufacturing overtime also rose modestly, which is a harbinger of employment improvement going forward. Computer and electronic product firms saw a loss of 3,800 jobs or 8,000 ex adjustment. The household survey covers the calendar week containing the 12th of the month, and the payroll survey covers the pay period that includes the 12th. Please note that employment is a lagging indicator for economic activity and won’t show any dramatic growth until GDP growth kicks up above 4% for several quarters (assuming productivity remains high). Despite the heartening appearance of the headline number, the labor market is actually doing merely ‘okay’ for right now since output is still picking up at a relatively gradual pace.
The ISM Non-Manufacturing (Services) Report on Business for September registered a moderate decline in the rate of growth of business activity/production, but remains at a very high level indicative of solid growth. This was a mostly positive report. Production continued to increase, but at a moderately slower pace. New Orders continued to increase but at a slower pace. New Export Orders continued to increase but at a slower pace. The Backlog of [Unfilled] Orders continued to increase, and at a faster pace. That’s great news since the backlog is the ‘reserve’ that gives businesses confidence that they can increase production without needing to worry about occasional dips in new order flow. Bad news is that employment contracted modestly after having expanded for a three consecutive months.
The Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) registered a moderate decline, and its six-month smoothed growth rate declined slightly (and is now 8 weeks off its peak). This was a somewhat negative report, but the WLI is still indicating at least moderate economic growth in the months ahead.
From Wednesday: The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey registered a modest rise in applications, with a moderate rise in refinancing balancing a moderate decline in applications to purchase. This was a positive, but mixed report. Nonetheless, demand for buying homes is still quite strong.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 7.07% on Friday to 20.49, which is only modestly above the lower end of the moderate anxiety (low complacency) zone (20 to 25). People were relieved to see the market rally so strongly. VIX fell as low as 20.04 around 2:30 p.m. as the market was near its intra-day peak, but then rose moderately as some profit-taking ensued.
The Nasdaq-100 After Hours Indicator had a negative tone for the Friday evening session, closing down 0.42 points. This was simply a little profit-taking after a stronger than expected surge during the day. But it does suggest that people are once again wondering whether the market has rallied “too far too fast”, again.
[10/3/03] The fed funds futures market suggests that the Fed will leave rates unchanged for the rest of the year, but possibly raise rates by a quarter-point in July. Fed funds futures are at best accurate no more than six weeks out, so those longer-term moves are purely speculative, at best.
The dollar rose moderately against the yen and rose very sharply against the euro. The dollar is quite sound and no true investor should lose any sleep worrying about whether the dollar is ‘weak’ or ‘strong’ on any given day, week, month, quarter, or year.
The price of oil rose sharply, and is now modestly above the $30 “comfort” level. Speculators are now betting on a stronger economic recovery that they feel would boost demand for energy. There was also some chatter about Tropical Storm Larry impacting ports in the Gulf of Mexico. In any case, the price of oil continues to be relatively well-behaved and no true investor should lose any sleep worrying about it.
The price of gold fell very sharply. In any case, there is nothing about the current price of gold that should give any true investor any reason to lose any sleep.
[7/29/03] The relative calm continues. Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents.
[7/29/03] 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. Investors should always be prepared to buy any dip caused by panicky reactions by traders to any incidents or rumors of incidents.
[7/29/03] As messy as the mopping-up phase of the war continues to be, great progress is indeed being made and there is little need for true investors to fret over the negative news that so captivates the media. Over time, the economic impact of the war will be a large net positive, even if there is some short-term negative impact.
Tellabs (TLAB) announced that it plans to close its development center in St. Laurent, Quebec, Canada, by mid-2004 and reduce its worldwide workforce by about 370 employees. This is of course bad news for those employees and yet another drag on the labor market, but is good news for shareholders and good news for the overall economy in that the company will now be better positioned to make a more productive contribution to the economy going forward.
Eastman Chemical (EMN) said that it expects global work force reductions of approximately 600 employees through a combination of attrition over the next six to nine months and involuntary separations in the remainder of 2003. Some of the “separations” have already taken place. Same story: a short-term drag on the economy, but the company and the overall economy will be in a stronger position going forward.
I still haven’t finished my trip report for the VentureOne venture capital conference, but you may click here to read my unfinished draft. I expect to revise the draft for Monday.
[6/25/03] I have suspended my dollar-cost averaging investment plan since my exposure to the market is now about where I want it to be.
Now that we’ve recovered most of the losses from the recent mini-correction, we’re once again back in a “new ball game” with no ‘map’ to tell us where is market is likely to head in the weeks ahead. On the one hand we could see some continued momentum trading, and on the other hand we could see renewed interest in profit-taking. I lean towards a further move upwards.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +44 on Friday, only moderately below the upper end of my range of -40 to +50.
The confirmed bull market for Nasdaq that began on October 9, 2002 (and was confirmed on June 16, 2003) has run for 248 days. The market now has a longer-term upwards bias despite near-term volatility. The path of the market through the early fall is completely uncertain, but Nasdaq will likely be higher at the end of October. The important thing is that we continue to see inflows into equity mutual funds while the economy, revenues, and earnings continue to incrementally improve.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 (and was confirmed Monday, March 17) has run for 140 days. Nasdaq is 11 days off its closing peak (1,909.55 on September 18 – previous peaks were 1,888.62 on September 8, 1,868.98 on September 4, 1,852.90 on September 3, 1,841.48 on September 2, 1,810.58 on August 29, 1,800.18 on August 28, 1,782.13 on August 27, 1,777.55 on August 21, 1,761.11 on August 19, and 1,754.82 on July 14) for the up-leg and for the overall post-October bull market. That closing peak is also the current 52-week closing high.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, August 8 with an intra-day low of 1,640.88 is now 39 days old and 11 days off its closing peak. This is a minor leg nested within the larger leg that started on March 12 which is itself nested in the larger advance that started on October 9. This leg is still somewhat ‘limp’, and will be so until it sets a new closing high.
We are now in a minor correction off the September 18th 1,909.55 closing high. We do seem to be recovering nicely from the correction, but the process won’t be complete until we set a new high above the level where the correction started. Wednesday, October 1st was Day 1 of a potential up-leg, with Nasdaq closing well above the intra-day low of 1784 (approximately). Thursday was Day 2, but it doesn’t matter what happens on days 2 and 3 as long as a new low is not set. Friday was Day 3 and we saw a really nice gain, but it doesn’t matter since that was another one of the days on which the market tries to find its feet before we really see a confirmation. Monday will be Day 4, and on days 4 through 10 we look for a confirmation of the new up-leg with a 1% gain on higher volume than the previous day.
[8/19/03] The latest economic data continues to support the thesis that the U.S. economy is solidly into a gradual, zigzag, underappreciated, stealth recovery. What’s different lately is that there is now a slowly rising chorus of people basically saying “You know, this economy does seem to be improving and faster than we thought.” The recovery hasn’t been and won’t be as sharp as for a ‘traditional’ recovery, but will end up being far more durable and sustainable. The two key factors driving (or slowing for now) the pace of the recovery are the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses.
[9/1/03] Our Tech Stock ‘Safe’ Signal is still stuck at 0.00 (no safety) since none of the big tech companies are even hinting that they are seeing any significant improvement in demand. There does seem to be some sense of stabilization and a modest hint of improvement, but no clear and decisive indication of a dependable ramp up in revenues and earnings.
[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: October 04, 2003 12:25:16 AM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology