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Tuesday was a good test of the resilience of the market. On a day that started with a distinctly negative, profit-taking tone, the market surprised people and fought off that negativity and staged a modest rally. Nasdaq is now a mere 1.70 points below the 52-week closing high of 1,909.55 on September 18th.
There was no particularly negative news to account for the pre-market negativity, but rather there was simply a fair amount of anxiety on the part of traders (as opposed to true, long-term investors) that maybe the market was once again a bit too over-extended. The traders tried their darnedest to push the market down, but it simply wouldn’t go down very far at all and not for very long either.
After a mid-day rally petered out (after struggling with the Nasdaq 1900 level), there was a sudden, sharp decline shortly before 2:00 p.m., but even that selling petered out so quickly that traders finally got the message that the underlying market was not in the mood for a sell-off. Nasdaq bounced 23 points off that afternoon low into the close. Some of that bounce may have been short-covering that will come back once the run-up runs out of steam.
The bottom line is that traders feel that the market is somewhat ‘overbought’ on a short-term technical basis (that’s why they bet on a down-move in the pre-market), so clearly the up-move was due to upwards ‘forces’ other than traders. The primary upwards force is probably additional money flowing into stock mutual funds.
Volume was moderate (1.82 billion shares). Breadth was moderately positive, with 1.46 gainers for each loser. This was yet another mediocre rally, nothing that we should treat as a strong positive.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW) and Brocade (BRCD), but net buyers of LookSmart (LOOK), Oracle (ORCL), Microsoft (MSFT), Applied Materials (AMAT), Intel (INTC), Cisco (CSCO), and JDS Uniphase (JDSU). Institutions were buying the dips, strongly suggesting that the market is not about to dramatically fall off a cliff any time soon.
The Consumer Credit report for August registered a modest rise in outstanding consumer credit. This was a slightly positive report. Expansion of consumer borrowing is normally a key part of a recovery, but since we haven’t had a massive correction of consumer debt due to bankruptcies, we wouldn’t want to see a huge rise of consumer debt here. Note that home mortgages are not counted as “consumer debt”.
The BTM/UBSW Weekly Chain Store Sales Snapshot registered a sharp rise (1.4%) compared to the prior week. This was a positive report. Sales were up a decent 4.8% over a year ago.
The weekly Reuters Instinet Redbook Sales Average report registered a sharp decline in chain store sales (1.3%) for the month of September compared to August. This was a negative report, but probably reflects more of a seasonal difference, volatility, and Hurricane Isabel. Sales at major retailers were up 3.1% for the week ended October 4 compared to a year ago (they were up 3.2% a week ago).
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered a slight decline to -20 from -19 (out of a range from -100 to +100). This was a slightly negative report, but the index is simply bouncing up and down in a narrow range with no trend. The decline was due solely to a 2% decline in how consumers view the buying climate, but there was actually a 1% improvement in the consumer view of the overall economy and no change in how consumers feel about their own finances. Consumer confidence may still be in somewhat of a limbo state as everyone waits to see what happens next in the economy, the workplace, and the stock market – and wondering what’s really going on in Iraq. Please note that there is no clear and indisputable link between consumer confidence reports and future consumer spending.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, was unchanged on Tuesday at 19.81, which is modestly below the top end of the low anxiety (moderate complacency) zone (15 to 20). VIX spiked up to 20.83 on the weak market open, but then declined as the market recovered. 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 negative tone for the Tuesday evening session, closing down 0.65 points. People are basically optimistic, but also feel that the run-up is somewhat over-extended. In other words, people are clueless as to where the market will head next.
[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 fell sharply against the yen and fell moderately 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 fell modestly, but is still modestly above the $30 “comfort” level. 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 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.
[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.
Sentiment is in a limbo state with many market participants completely unsure what direction the market will head next. There is some ‘rationale’ for more profit-taking, but there is too much optimism about the future of the economy and overall business prospects for people to feel comfortable betting that the market will decline. The path of least resistance is up, albeit cautiously.
There is plenty of chattering that the market is now “depending” on Q3 earnings to “justify” the run-up in 2003, but that’s complete nonsense. Traders may be thinking that way, but they don’t control most of the money that is in the market. True investors are placing their bets based on where the economy, corporate revenues, and corporate profits will be in six to twelve months.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +14 on Tuesday, 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 250 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 142 days. Nasdaq is 13 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 41 days old and 13 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 of 1,909.55.
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. Tuesday was Day 5, but the moderate point gain and moderate volume were not enough to signal 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 (1907.85 + 19.08 = 1926.93).
[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 07, 2003 11:13:03 PM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology