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The market continued to muddle along on Thursday with only a moderate gain for Nasdaq, but nonetheless Nasdaq set yet another 52-week closing high (1,950.14).
The economic reports were reasonably decent, but sentiment was heavily tinted with the old “too far, too fast” concern that the market may be somewhat ‘overextended’.
Once again, traders tried their darnedest to push the market down, but they failed. Pre-market sentiment was moderately negative and led to a 7-point Nasdaq decline at the open. Nasdaq lost less than another 2 points before setting its intra-day low a mere 10 minutes after the open, and trended upwards lazily for the rest of the day.
The 1950 level offered moderate resistance, but Nasdaq still managed to close slightly above it (by a mere 14 cents). The 1930, 1936, and 1940 levels provided decent support. Nasdaq closed only 1.62 points off its intra-day high.
Volume was moderate (1.74 billion shares). Breadth was moderately positive, with 1.37 gainers for each loser. This was not a very strong rally.
According to Thomson Financial I-Watch, institutional investors were net sellers of EMC (EMC) and Microsoft (MSFT), but net buyers of Sun (SUNW), Cisco (CSCO), Intel (INTC), Oracle (ORCL), Nokia (NT), Nextel (NXTL), and Nortel (NT). Institutions bought the dips, strongly suggesting that the market is not about to dramatically fall off a cliff any time soon.
The Unemployment Insurance Weekly Claims report registered a modest decline in initial claims – under 400K for a second consecutive week – and a moderate rise in continuing claims. This was a mixed, but somewhat positive report. Unadjusted initial claims rose moderately to 363K, moderately below the year-ago level of 386K – and well under 400K. The 4-week moving average of initial claims declined modestly and is now modestly below 400,000 for a second consecutive week, and moderately below the level of a year ago. Unadjusted continuing claims rose modestly and are still only modestly above the level of a year ago. Adjusted continuing claims are now only slightly above the level a year ago. The 4-week moving average of continuing claims rose modestly, but is only modestly above the level of a year ago. Initial claims have not been safely enough below 400K to challenge the implication that payroll employment may not be growing very much at all (even though overall, household employment probably continues to grow). Unemployment won’t fall significantly until the economy begins to grow at a faster pace and the pace of business restructuring slows down and the pace of business formation picks up. The insured unemployment rate (2.9% or 2.4% unadjusted) is slightly better than during the same week in 1992 when the economy was recovering from the last recession (3.0% or 2.4% unadjusted). Initial claims were not consistently below 400K in 1992 until October. Initial claims are only modestly higher than in the same week in 1992 (384K vs. 374K), and only modestly higher than in 1992 once you strip off the dysfunctional seasonal adjustment (363K vs. 354K.) The talk about continuing claims being at or near a 20-year high is a complete red herring (true, but irrelevant) since it is the insured unemployment rate (see three sentences back) that is important and covered employment has risen by over 21% since 1992 alone. The bottom line is that although the labor market is lackluster, it’s not in too bad shape and not getting seriously worse.
The Industrial Production and Capacity Utilization report for September registered a moderate gain in production (although August was revised from a slight gain to a slight decline) and a modest gain in capacity utilization. This was a positive report. Manufacturing production rose moderately, but after August was revised downwards modestly. Production of business equipment rose moderately. The good news was that high-tech production did quite well, although home electronics did decline moderately after a very strong August. Information processing rose moderately sharply. Computer and electronic products rose sharply. The special category for selected high-technology industries registered a sharp gain. Communications equipment declined sharply, but after a sharp gain in August. Computers and office equipment rose sharply. Semiconductors and related electronic components rose very sharply. Consumer goods rose sharply, but due to a very sharp rise in autos. Nondurable consumer goods declined modestly.
The Manufacturing and Trade Inventories and Sales report for August registered a modest decline in sales (of distributive trade and manufacturers’ shipments, and now including semiconductors), a moderate decline in inventories, and a modest decline in the inventories/sales ratio. This was a somewhat negative report. It is a little disappointing that inventories are not rising (which would indicate optimism about future demand), but it’s expected at this stage of a gradual recovery and also likely due to all the technology for better forecasting sales and managing inventories. The good news is that lower inventories imply a need for higher production in the future to satisfy demand.
The Consumer Price Index (CPI) report for September registered a modest rise in consumer prices, but only a slight rise ex food and energy (“core” inflation). This was a neutral, somewhat positive report, with no evidence of either excessive inflation or deflation. The good news is that it allows the Fed to keep interest rates low (and steady) for an extended period of time.
The National Association of Home Builders (NAHB) Housing Market Index (HMI) for October registered a moderate rise to its highest level since December 1999. This was a positive report. The “present conditions” (current home sales) index rose moderately. The six-month expectations index rose moderately. The traffic of prospective buyers index rose moderately. Demand for housing is still very strong despite the recent interest rate fluctuations. Even the best of economists continue to be completely confounded and befuddled by the strength of the housing market.
The Philadelphia Fed Business Outlook Survey for October registered a sharp rise in the pace of general business activity to a pace that indicates a relatively solid expansion. This was a positive report. According to the report, “Activity in the region’s manufacturing sector improved notably this month.” The pace of New Orders rose sharply. The pace of shipments rose sharply. Unfilled orders continue to expand and at a modestly faster pace. Employment is now expanding at a modest pace. The average employee workweek is expanding and at a moderately faster pace. More overtime is a leading indicator for future employment gains. Six-month expectations for the level of general business activity declined moderately, but are still very strongly positive. Expectations for both new orders and shipments declined moderately sharply but are still strongly positive. Expectations for unfilled orders declined moderately but are still quite strong. Building an order backlog (also known as a ‘pipeline’) is a necessary step to getting to sustainable growth where manufacturers can afford to continue production even during brief slack periods. Expectations for employment improved moderately sharply and are quite positive. Expectations for the average workweek declined sharply, but are still reasonably positive and may simply indicate an intent to shift from overtime to new hiring. Expectations for capital expenditures rose moderately and are somewhat positive.
After the close: AMG Data Services reported that for the week ended Wednesday, October 15, $1.76 billion flowed into equity mutual funds, with over half flowing into domestic aggressive and small-cap growth funds. This was a modestly positive report, enough to keep the tide rising gradually under the market, but not enough to give the market a consistently strong upwards trend. $148 million flowed into real estate funds. $535 million flowed into taxable bond funds. $9.7 billion flowed out of money market funds. $216 million flowed out of municipal bond funds, the thirteenth consecutive week of outflows. $216 million flowed into international and global debt funds – a play on the ‘weak’ dollar.
NOTICE: I am still using the “old” VIX even though CBOE began offering the “new” VIX on September 29th. The old VIX is based on options for the S&P 100 index whereas the new VIX is based on options for the more popular S&P 500 index. I’m still investigating how to switch over to the new VIX and how that relates to historical data.
The CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 0.73% on Thursday to 19.12, which is modestly below the top end of the low anxiety (moderate complacency) zone (15 to 20). People were a little relieved that the market was able to hang in there even in the face of IBM’s ‘bad’ news. 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 negative tone for the Thursday evening session, closing down 5.74 points. People were disappointed in the guidance from eBay (EBAY).
[10/16/03] 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 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 moderately, but is still moderately 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 modestly. 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.
The new UN Security Council resolution on Iraq is a huge leap forward. While not an end-all or cure-all, it does put a lot of bad feelings behind us and open a lot of doors for the future. It’s unlikely to change the current mess on the ground in Iraq very much for a number of months, but it is still quite a milestone which will ultimately be seen as a critical turning point. The U.S. will continue to shoulder the lion’s share of the military and reconstruction burden, but that gives us de facto control and the ability to assure that Iraq evolves into a productive, functional, and sustainable democratic economy in as short a timeframe as is humanly possible.
[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.
Traders may be in the mood to take some more profits, but it is worth noting that the latest mutual fund data from AMG indicates that there is still a fair amount of money flowing into stock mutual funds that should continue to keep the tide rising up under the market.
Traders and short-term speculators will tend to close out positions (or at least hedge them) in advance of the weekend when anything can happen.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +11 on Thursday, 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 257 days (1 year and 6 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.
Nasdaq is 1 day off its 52-week intra-day high of 1,966.87 on October 15. The previous intra-day highs were 1,943.33 on October 14, and 1,940.97 on October 13. The fact that Nasdaq managed to close above the previous intra-day peak is a positive sign.
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 148 days. Nasdaq is at its closing peak of 1,950.14 on October 16 (previous peaks were 1,943.19 on October 14, 1,933.53 on October 13, 1,915.31 on October 10, 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 48 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, 2002.
Tuesday, October 14 was Day 1 of a potential up-leg, with Nasdaq closing well above the intra-day low of 1,922.82. Wednesday was Day 2, with a modest loss, but it doesn’t matter what happens on days 2 and 3 as long as a new low is not set. Thursday was Day 3, but the gain was too small and on too low volume to be confirmation and days 2 and 3 don’t matter anyway. Today is Day 4. 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 17, 2003 12:36:27 AM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology