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Nasdaq continues to struggle to find its ‘true’ direction, managing to creep higher, but without any conviction. We’re now only 9 points off the recent 52-week closing high. It is very possible that this lack of conviction is strictly on the part of traders and that continued inflows to stock mutual funds are gradually forcing the market higher whether traders and fundamentalists like it or not. If so, that’s a bullish sign.
Nasdaq closed about 3 points below its intra-day peak which occurred shortly after noon. Actually, it’s unclear what the official high for the day was since it is reported as 1,952.48, but there is no such data on the chart and the noon peak looks to be around 1,944. Sometimes you do see some spurious trades that mess up the statistics. A chart of the Nasdaq-100 index (NDX) does in fact short a very sharp, momentary blip up to 1429 from the nominal noon peak of approximately 1424. A chart of the Nasdaq-100 Index Tracking Stock (QQQ) does not show such a blip. It’s somewhat unfortunate because such a sharp, temporary move higher might have triggered some program trades (to sell) which are sensitive to sharp, sudden upward swings.
Volume was almost moderate (1.71 billion shares). Breadth was moderately positive, with 1.37 gainers for each loser. Although the gain was welcome, this was not a strong rally due to mediocre volume and breadth.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW), HP (HPQ), Texas Instruments (TXN), Intel (INTC), Applied Materials (AMAT), JDS Uniphase (JDSU), Micron (MU), and EMC (EMC), but net buyers of Oracle (ORCL). Institutions were clearly selling into the modest rally, but they frequently do so after buying recent dips, so there is no reason to worry about a dramatic market decline any time in the near future.
The BTM/UBSW Weekly Chain Store Sales Snapshot registered no change compared to the prior week. This was a slightly negative report, but there is a lot of volatility. Sales were up a decent 4.6% over a year ago. Sales slowed at department stores, but sales at discount stores continued to be strong, especially for electronics and entertainment goods. BTM lowered their October forecast to 3% growth compared to a year ago (previous forecast was 3.5% over a year ago.)
The weekly Reuters Instinet Redbook Sales Average report registered a moderately sharp rise in chain store sales (1.2%) for the three weeks ended October 18 compared to the same weeks in September. This was a positive report. Sales at major retailers were up 3.5% for the week ended October 11 compared to a year ago (they were up 3.6% a week ago).
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered no change at -19 (out of a range from -100 to +100). This was a neutral report, but does indicate some stability. There was a 1% gain in the consumer view of the overall economy, but a 1% decline in how consumers feel about their own finances, and no change in how consumers view the buying climate. 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.
NOTICE: I am still using the “old” VIX even though CBOE began offering the “new” VIX on September 22nd. 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 old CBOE Market Volatility Index (VIX), which measures the level of anxiety in the market, fell by 7.54% on Tuesday to 17.82, which is only modestly above the midpoint of the low anxiety (moderate complacency) zone (15 to 20). People were relieved that the market hung in there and even moved up moderately. But, it’s also possible that people are dumping the old VIX and shifting to the new VIX. 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 new VIX fell by 6.28% on Tuesday to 16.55.
The Nasdaq-100 VIX (VXN) fell by 1.74% on Tuesday to 24.35.
The Nasdaq-100 After Hours Indicator had a negative tone for the Tuesday evening session, closing down 4.14 points. I’m not so sure whether the decline was due exclusively to disappointment in Amazon’s (AMZN) outlook or simply to a general feeling that the market is looking overextended again. Part of it is that people may be worried that the market will respond to Amazon as negatively as it responded to eBay’s (EBAY) quarterly report.
[10/22/03] 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 April. 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 but rose modestly 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 moderately, and is only 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 very sharply. Most of that gain was probably simply short-covering. The ‘gold bugs’ are chattering that “a case is building” that inflation will be rising. Dream on. 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.
I attended a briefing on Iraq at the American Enterprise Institute (AEI) here in Washington, D.C. There was a panel discussion followed by a short briefing by Senator Mitch McConnell of Kentucky who recently traveled to Iraq and Afghanistan. The general view was that the media are not giving a balanced view of what is actually going on in Iraq, with too much of a focus on ‘bad’ news and little attention to ‘good’ news. That said, one of the conservative panel members (director of the shadowy Project for the New American Century) was quite critical of the current military efforts to fight the insurgency in Iraq. My overall impression was that the U.S. is basically stumbling only and probably will eventually stumble on the ‘right’ solution, but the path will likely be very bumpy indeed.
I also attended a panel discussion at AEI on the topic of what institutional investors are looking for in securities trading systems. A survey of institutional traders by Greenwich Associates was presented and then critiqued. The general view was that the current focus on “best execution” is not what institutional investors are looking for. They want anonymity, low market impact, price improvement, certainty of execution, and only lastly fast execution. A lot of interest was expressed in trading off the exchange (ECNs or “upstairs” brokers), but a lot of traders also like the “human touch” of working with an exchange specialist. There was a lot of resentment about the NYSE, including general feelings that NYSE specialists do a lot of (illegal) front-running and that there is a clear conflict of interest since specialists can trade for their own benefit. The general feeling was that specialists and market makers add no value for highly liquid stocks like IBM and Intel, but do help for smaller stocks. The belief is that they are willing to put in the effort for smaller stocks only because they make up for them with outsize profits on the large stocks.
[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.
There could be some reaction to the quarterly report from Amazon, but it really shouldn’t be the overall driver of the market.
Traders will continue to struggle to find the market’s ‘true’ direction, but the true direction over the coming weeks will be determined by the money flows of stock mutual funds.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +16 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 260 days (1 year and 9 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 than where it was at the beginning of August. 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 4 days 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. Traders are acting as if that were a near-term ‘top’ for the market. It could take another four days to prove or disprove that thesis.
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 152 days. Nasdaq is 3 days off 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 51 days old and 3 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, 2002.
Monday, October 20 was Day 1 of a potential up-leg, with Nasdaq closing well above the intra-day low of 1,905.39. Tuesday was Day 2 with a moderate gain on moderate volume, but it doesn’t matter what happens on days 2 and 3 as long as a new intra-day low is not set. Today will be Day 3. 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 21, 2003 11:04:00 PM -0400
Copyright © 2003 John W. Krupansky d/b/a Base Technology