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(Updated since Saturday – changes marked with [ * ])
Although technically Nasdaq hit yet another 52-week closing high (1,915.31) on Friday, it was actually another yellow flag day since Nasdaq closed below its opening level (albeit by a mere 21 cents) and well below its intra-day peak (1,921.14) and the gain for the day (3.41 points) was less than the decline off the peak (5.83 points). Once again, we had a situation where traders bid Nasdaq up in the pre-market, only to see people sell into the rally once the market opened.
The 1920 and 1916 levels provided significant resistance for Nasdaq, but the 1906 level provided good support.
Volume was very light (1.46 billion shares). Breadth was modestly negative, with 1.15 losers for each gainer. This was very lackluster trading, basically people waiting for some ‘catalyst’.
According to Thomson Financial I-Watch, institutional investors were net sellers of Intel (INTC), Nortel (NT), Sun (SUNW), JDS Uniphase (JDSU), Cisco (CSCO), Brocade (BRCD), and EMC (EMC), but net buyers of Oracle (ORCL) and Juniper Networks (JNPR). Institutions sold into the rally, but that’s what they tend to do after buying recent dips, so it doesn’t mean that the market is about to dramatically fall off a cliff any time soon.
The Producer Price Index (PPI) report for September registered a moderate rise, or no change ex food and energy. This was a mostly neutral, but mixed report, with no signs of either accelerating inflation or deflation. Intermediate goods prices (a good surrogate for future consumer inflation) declined slightly, but rose slightly ex food and energy.
The International Trade in Goods and Services report for August registered a moderate decline in exports and a somewhat larger moderate rise in imports, producing a slightly smaller trade deficit. This was a slightly positive report. For now, the only way to deal with this “massive” deficit is to continue to strengthen the U.S. economy and then wait for the global economy to pick up and increase demand for our exports. Continuing to improve the attractiveness of investment opportunities in the U.S. also helps.
The Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) registered a sharp gain to its highest level ever, and its six-month smoothed growth rate rose slightly (but is now 9 weeks off its peak). This was a positive report, indicating at least moderate economic growth in the months ahead.
[ * ] Sunday: The Machine Tool Consumption report for August registered a moderately sharp rise (16.6%) in demand for machine tools over July, but was modestly lower (3.2%) than in August 2002. This was a mixed, but somewhat positive report. The Association for Manufacturing Technology said that “August orders and increased output among many of our customers appear to be signaling an end to the decline in manufacturing technology investments”, and that “While a capital spending recovery has not yet begun, better times certainly seem to be on the horizon.” Demand for machine tools is supposed to be a leading indicator for the manufacturing sector.
[ * ] Sunday: The biweekly Lundberg Survey of Gasoline Prices registered a moderate decline (3.93 cents) in the average retail price of a gallon of self-serve gasoline for the two weeks ended October 10th. This was a positive report, but Lundberg believes that the rate of decline is slowing and that gasoline prices may begin to move up as oil prices have moved up. Gasoline is still 8.7% more expensive than a year ago.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 1.74% on Friday to 19.24, which is modestly below the top end of the low anxiety (moderate complacency) zone (15 to 20). People were modestly relieved that the market hung in there after the recent strong gains. The bears will continue beating 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 Friday evening session, closing up 3.82 points. There was no particular news to account for the optimism, but maybe people simply felt that the weakness on Friday was a little too much unwarranted profit-taking in advance of the big wave of quarterly reports coming up.
[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 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 rose very sharply, and is now moderately above the $30 “comfort” level. Although concern about heating oil was given as the reason for the spike, most of the gain was probably short-covering and simple momentum speculation and likely to peter out and reverse soon enough. 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.
The CFTC (Commodity Futures Trading Commission) Commitments of Traders report for the week ended October 7 indicated a modest decrease in the ratio of open commercial S&P 500 index futures long positions to short positions from 0.995 to 0.968, indicating that “the smart money” is modestly more bearish and have modestly increased their betting that the S&P 500 index will decline. Traders dumped some long positions and added to their short positions by about the same amount. Trading of the “e-mini” S&P 500 index futures indicated a moderately sharp increase in the ratio of longs to shorts from 0.75 to 0.94 indicating that amateur traders are moderately less bearish. They added modestly to their short positions, but boosted their long positions more sharply. 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 modest increase in the ratio of longs to shorts from 0.78 to 0.81, indicating that “the smart money” was still quite bearish, but modestly less so. Traders cut both their long and short positions, but cut significantly more short positions. Trading of the “mini” Nasdaq-100 index futures indicated a moderate decrease in the ratio of longs to shorts from 1.39 to 1.26, indicating that amateur traders were still rather bullish, but moderately less so. Amateur traders cut their long positions significantly and increased their short positions moderately. In general, the “smart money” tends to be more “right” (eventually) 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.
Although Columbus Day is a “legal” holiday on Monday, the stock market will be open, but trading could be a little lighter since the Treasury market will be closed. There is some limited interaction between changes in treasuries (e.g., yield for the 10-year T-note) and demand for stocks.
With the quarterly reporting season now upon us, it is difficult to say whether traders will take more profits ahead of the reports, or whether they will extend their positions as each report ‘proves’ that business is picking up. The real wildcards are the shorts who need to decide whether to dig their holes even deeper, putting incremental downwards pressure on the market, or whether to start climbing out of their holes, putting upwards pressure on the market. And of course there will be some economic reports that will continue to reflect the zigzag nature of the recovery. Stock analysts will continue to pick and pan stocks, but none of that will cause any durable effect. Geopolitical events will form a backdrop, but probably be even less interesting than events in the world of baseball. None of this stuff really matters very much to the overall market trend since it is the money flows for stock mutual funds that will determine the overall pressure on the market over the medium term. That said, it really is a crapshoot to judge whether the balance between buyers and sellers will favor the upside or downside in the coming days.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +3 on Friday, slightly 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 253 days (1 year and 2 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 145 days. Nasdaq is at its closing peak (1,915.31 on October 10 – previous peaks were 1,911.90 on October 9, 1,909.55 on September 18, 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 44 days old and at 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 (1,909.55 + 19.10 = 1,928.65).
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 (1,909.55 + 19.10 = 1,928.65).
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. Thursday was Day 7, but the closing point gain was somewhat short of 1%. Friday was Day 8, but the gain was too meager. 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. Until we get confirmation, Nasdaq is unlikely to move comfortably above the low 1900 level in a sustainable manner.
[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 12, 2003 11:57:04 PM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology