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Sentiment was somewhat negative for most of the pre-market on Wednesday, but inexplicably went modestly positive shortly before the open. Unfortunately, no significant buying materialized after the open, so traders reversed and bet on the downside. Still, there was no significant amount of ‘real’ selling pressure, with Nasdaq closing at the level it reached at 11:00 a.m. Overall, the trading on Wednesday amounted to only a modest level of profit-taking after the recent run-up. You could call it a bit of “buy the rumor and sell the news” anticipatory selling.
There was too much resistance for Nasdaq at the 1910 and even 1900 levels, but reasonable support at the 1890 level. There seemed to be a moderate amount of support at the 1895 level, but traders opted to take a little more profits in advance of the after-hours quarterly reports.
Nasdaq did manage to pop above it’s September 18th 52-week closing high in early trading, but there simply wasn’t enough ‘buying pressure’ to stay up there.
Volume was moderate (1.79 billion shares). Breadth was moderately negative, with 1.44 losers for each gainer. This was a rather modest sell-off, nothing particularly noteworthy. But, the fact that upwards momentum has dissipated somewhat is clearly a yellow flag.
According to Thomson Financial I-Watch, institutional investors were net sellers of Microsoft (MSFT), Oracle (ORCL), Cisco (CSCO), Applied Materials (AMAT), Brocade (BRCD), Lucent (LU), and JDS Uniphase (JDSU), but net buyers of Sun (SUNW) and Intel (INTC). Institutions sold into any attempts to rally, which is not necessarily a sign that the run-up is over, but simply that institutions would prefer to be conservative and lock in some profits.
The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey registered a sharp rise in applications, with a sharp rise in refinancing as well as a sharp rise in applications to purchase. This was a positive report. Demand for buying homes is still quite strong.
The Wholesale Trade report for August registered a moderate gain in sales of merchant wholesalers (0.4%, with July revised up to 0.5% from 0.4%), a modest decline in inventories (0.2%), and a slight decline in the inventories/sales ratio. This was a somewhat positive, but mixed report. It is a little disappointing that wholesalers are still not comfortable boosting inventories (in anticipation of better business ahead), but that could very well be a side effect of the technology now available for managing inventories and more accurately matching ordering to more accurate forecasts of demand. Actually, inventories were down 1.1% in August if you remove the seasonal adjustment. Sales were down 2.2% ex adjustment.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, rose by 1.72% on Wednesday to 20.15, which is modestly above the bottom end of the moderate anxiety (low complacency) zone (20 to 25). Oddly, VIX rose on the open when the market opened higher and VIX closed lower than it’s open even though the market declined from its open. That suggests that people felt the modest profit-taking was reasonably orderly. The bears will continue to 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 positive tone for the Wednesday evening session, closing up 1.35 points. Yahoo (YHOO) reported better than expected quarterly results.
[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 moderately against the yen and 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 very sharply, and is once again modestly below the $30 “comfort” level. Speculators dumped longs and added to their short positions as the weekly inventory report showed a much larger than expected rise of crude inventories. 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 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.
For the week ending Wednesday, October 8, the Pentagon reports that 3,233 fewer reservists are on active duty, for a total of 166,046. This was moderate decline. The Army, Air Force, Navy, and Marines showed decreases in the number of reservists on active duty. The headcount has declined by 58,482 or 26% from the peak of 224,528 on May 1st. Reserves on active duty have been below 200,000 for 12 consecutive weeks.
[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.
According to CBS.MarketWatch.com, a survey of CIO’s by Banc of America indicates that IT budgets will increase by 2.7% in 2004, up from prior projections of 1-2% growth. The survey also showed that overall business sentiment improved “significantly” over the past month, with 74% of respondents saying the economic outlook is improving over the next six months, up from 58% in the August survey.
[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.
Nasdaq is no longer as heavily ‘overbought’ on a short-term technical basis as it was on Monday, but it is still relatively ‘overbought’, so traders may still be anxious to try to squeeze some profits out of the market before the run-up continues.
The weekly jobless claims report due out today will give us a few more clues about the nature of the recovery. Initial claims could go either way, but I do expect to see a decline, at least once the dysfunctional seasonal adjustment is removed.
There are still plenty of factors that would argue for a continued uptrend of the market, even if traders have their own biases.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -14 on Wednesday, well below 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 251 days, and has completed a full year as of October 8. 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 143 days. Nasdaq is 14 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 42 days old and 14 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. The fact that Nasdaq pulled back just short of the September 18 peak is a yellow flag, but not fatal as long as Nasdaq picks up some steam over the next few days.
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. Wednesday was Day 6, but Nasdaq backtracked. 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 (1,893.78 + 18.94 = 1,912.72).
[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 08, 2003 11:17:37 PM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology