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People seemed willing to explain Monday’s lackluster market performance (low volume) on observance of Yom Kippur. The market got some minor pre-market boost from various tidbits of business news and analyst comments, but that was not enough to give the market much of a solid tone. It did appear that there was probably a modest amount of ‘real’ buying that did give the market a modest boost after some distinct weakness in the morning (even after all the ‘good’ news).
Although Nasdaq opened with a distinctly positive tone, that petered out after a mere five minutes and a bout of selling ensued, taking Nasdaq down 11 points in about as many minutes. But that selling petered out as well and Nasdaq quickly recovered. Trading was rather ‘choppy’ all morning.
The Nasdaq 1888 level offered resistance in the morning, but then offered support in the afternoon after Nasdaq spurted higher around 12:15 p.m. on no apparent news. The 1894 level offered too much resistance in the afternoon.
The good news is that there was little evidence of any significant ‘real’ selling.
Even so, the uneven pace of trading and modest gain left a lot to be desired, so I would rate the day an overall yellow flag. That does not mean that the recent run-up is over, but that we should be somewhat more cautious.
Volume was very light (1.35 billion shares). Breadth was moderately positive, with 1.52 gainers for each loser. With volume so light, we can’t view the moderate gain as much of a ‘positive’.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW), Motorola (MOT), Nortel (NT), Microsoft (MSFT), JDS Uniphase (JDSU), Applied Materials (AMAT), Oracle (ORCL), and Cisco (CSCO), but net buyers of Intel (INTC). Clearly institutions were selling into the modest rally, suggesting that they are beginning to take profits after the recent run-up. But that’s not to say that the recent run-up is over, as institutions frequently need to spread their sales over a number of days, but it is a yellow flag.
No reports on Monday.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 3.32% on day to 19.81, which is modestly below the top end of the low anxiety (moderate complacency) zone (15 to 20). VIX spiked up to 21.18 on the open and moved up to the intra-day high of 21.31 as people worried about the market seeming somewhat overextended, but gradually trailed off as the market seemed to hang in there with no significant ‘real’ selling pressure. The bears will once again beat their drums about the market being filled with the kind of excessive complacency that frequently presages a dramatic market decline. I wouldn’t bet the farm on that outcome, but it is a yellow flag.
The Nasdaq-100 After Hours Indicator had a modestly positive tone for the Monday evening session, closing up 0.03 points, basically flat. People are willing to be somewhat optimistic, but are getting cautious since stocks seem overextended.
[10/7/03] 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 May. 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 modestly against the yen but fell 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 modestly, and is still modestly above the $30 “comfort” level. There was some anxiety about a potential strike in Nigeria, not to mention heightened anxiety in the Middle East, but oil was well off its high for the day, which suggests that short-term speculators behind the recent run-up may be in the mood for profit-taking. 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 rose moderately 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.
Motorola (MOT) announced that they intend to separate their semiconductor operations into a new publicly traded company and will then increase their focus on communications and integrated electronic systems. This does sound like a good move for Motorola, but whether the spin-off is a good investment is another matter. I’m not so sure that the chip sector needs another player to compete for investor interest. Personally, I’d rather see more consolidation and it would have been better if Motorola had sold its chip unit to an existing chip company. One can only surmise that Wall Street convinced Motorola that gullible investors would be willing to pay more than a savvy industry player would.
PeopleSoft (PSFT) announced that license revenue, total revenue, and earnings per share for the quarter ended September 30 are expected to exceed the Company's recently updated guidance.
Goodyear Tire & Rubber (GT) announced that it will be closing its plant in Huntsville, Alabama, which will “affect” about 1,100 “associates”. Some “associates” will be able to shift to other plants, some will take early retirement, and the rest will receive “additional benefits”. As a result, it’s not clear how many of these “associates” will be unemployed in a few months. As usual, this is bad for many of these employees and an additional near-term drag on the economy, but good for the company, shareholders, and the long-term health of the economy.
Insider selling is not necessarily a negative, although cynics and many traders may certainly believe that it is, or at least talk or act as if it was. Unlike normal stock transactions, insiders usually receive stock as a form of deferred incentive compensation through options or grants. So, the only way they can ever gain access to this ‘money’ is through an insider sale of that stock. Sure, sometimes they may be selling due to a lack of confidence in the future of the company, but just as likely they could be selling simply to gain liquidity (cash) to buy a house (or mansion) or yacht or to diversify their ‘wealth’. It’s not so easy to isolate which insider sales are for incidental liquidity and which ones amount to dumping. The cynics and some traders simply do not care and treat it all as dumping. Although insiders do have access to information about the company’s business prospects beyond that available to the average investor, they rarely possess the kind of crystal ball for knowing the future (of the economy, competitors, consumer and business spending changes) that people think they do. Corporate insiders don’t have any special knowledge or skill to help them predict the future of the stock market any better than a rational investor. Given that we’ve finally had a great year recovering from 30 months of bear market, it should be absolutely no surprise that a boatload of insiders would finally like to convert a little of their sweat equity into cash to fund other activities. A lot of stock options and exercised options were probably deep underwater due to the bear market, so it’s only within the past six months or so that exercising options and selling stock made economic sense for a lot of people. Sure, there are probably quite a number of insiders who have sold or will be selling out of fear that maybe the market (as opposed to the insider’s company) is “getting too far ahead of itself”, but that’s a fear that any investor might have and certainly doesn’t depend on secret insider information. Also, insiders have lots of rules to follow, so the safest way for them to sell is gradually over time according to a written plan. That results in more transactions recorded in a number of different periods. We are just two days short of completing the first full year of this new bull market and most of the forecasts are that further improvements in the economy, revenues, and earnings will be coming in the quarters ahead, so it is absolutely ludicrous to believe that most of the current insider selling is due to dumping rather than simply generating a little liquidity after a long drought. Even in a worst case scenario, insider selling is only one factor among many that influences a stock price or the overall market. At worst, heavy insider selling would be a yellow flag, but I would not expect such a yellow flag to trump all the other positive signs in the economy and business environment. Please keep in mind that the ‘phenomenon’ of insider selling is more of a short-term trading issue than a concern for longer-term investors. Traders like volatility, so they are always trying to con people into every imaginable crazy idea for hopping in and out of stocks. The same goes for the bears and cynics, except that they simply want you to sell, sell, sell. The media hops on the bandwagon as well, always in search of any ‘news’ with even the slightest scent of scandal, drama, or extremism that will help attract viewers and sell advertising. Beware of all these agendas and filter the proffered advice accordingly. On the other hand, insider buying is always bullish since there is no other reason for the insider to put money into the company other than to express confidence in its future, although there is always the possibility that the insider is making only a token commitment to help prop up a sagging stock price. In summary, traders may need to worry about insider selling simply because it is treated as negative news, but in general long-term investors need not be concerned. As with any rule there will always be exceptions, but it is always the corroboration of multiple factors that will tell you what is really going on.
From Friday: The CFTC (Commodity Futures Trading Commission) Commitments of Traders report for the week ended September 30 indicated a slight increase in the ratio of open commercial S&P 500 index futures long positions to short positions from 0.994 to 0.995, indicating that “the smart money” is slightly less bearish and have slightly decreased their betting that the S&P 500 index will decline. They’re about as close to neutral as you can get. Traders added some long positions and cut their short positions slightly. Trading of the “e-mini” S&P 500 index futures indicated a moderately sharp increase in the ratio of longs to shorts from 0.54 to 0.75 indicating that amateur traders are moderately less bearish. They added to both their long and short positions, but added four times as many longs. In other words, quite a number of amateurs are bearish, but an increasing number are bullish. Trading of the Nasdaq-100 index futures indicated a slight increase in the ratio of longs to shorts from 0.77 to 0.78, indicating that “the smart money” was still quite bearish, but slightly less so. Traders added modestly to both their long and short positions. Trading of the “mini” Nasdaq-100 index futures indicated a moderately sharp increase in the ratio of longs to shorts from 1.18 to 1.39, indicating that amateur traders were still rather bullish, and much more so. Amateur traders added to both their long and short positions, but added twice as many longs. In general, the “smart money” tends to be more “right” than the amateurs. But, the smart money can be a contrarian indicator as it moves to a limit at which point it will tend to reverse. Also, it is not possible to tell with any certainty whether a position is truly an outright bet or merely a hedge for some other position.
[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.
We’re still out in No Man’s Land without a map. There is little in the way of economic data today, so traders will push the market around for whatever whimsical ‘reasons’ suit their fancy at any particular point in time. Maybe there will be a little more positioning in advance of quarterly reports, but there could just as easily be some profit-taking in advance of the actual news on the theory that people may be taking a “buy the rumor and sell on the news” approach that could lead to some selling pressure immediately after the various reports.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +13 on Monday, moderately above the midpoint 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 249 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 141 days. Nasdaq is 12 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 40 days old and 12 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 at least 1% above the previous peak.
We are still 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 closing high at least 1% 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 was Day 4, but the point gain and volume were too meager to constitute a confirmation. 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. At this point, confirmation would set a new 52-weak closing high (1893 + 19 = 1912).
[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 06, 2003 11:57:25 PM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology