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Monday was a so-so bounce for Nasdaq. It was probably mostly short-covering by people who had been riding the recent correction downwards and who simply hopped off when the momentum shifted. As pleasant as the point-gain was, it was rather meager relative to the open (7 points) and well off the intra-day high (by 8 points), suggesting that quite a number of people viewed the early rally as an opportunity to sell rather than a sign of a new up-leg. The bottom line is that people are now quite cautious and want to see some real strength before diving deeper into the market.
Nasdaq hit its intra-day high shortly after 10:00 a.m. and by noon had given up all of the post-opening gains. Sometimes it does take a while to rebuild confidence, especially since Nasdaq is still reasonably near its recent 52-week high and therefore considered to be over-extended by many people.
Volume was rather light (1.51 billion shares). Breadth was strongly positive, with 1.90 gainers for each loser. This was a modest bounce, but volume was too light to call it a strong rally, so we can’t yet say whether this was simply a dead-cat bounce/sucker’s rally or the real thing.
According to Thomson Financial I-Watch, institutional investors were net sellers of Cisco (CSCO), Nortel (NT), Microsoft (MSFT), Intel (INTC), and Brocade (BRCD), but net buyers of EMC (EMC), Sun (SUNW), JDS Uniphase (JDSU), and Oracle (ORCL). It was a mixed day, but institutions did a fair amount of selling into the rally, which is what they tend to do after buying recent dips.
The New Home Sales report for September registered a modest decline. This was a slightly negative report, but still better than consensus. Housing demand continues to be strong and continues to confound and befuddle even the best of economists.
The Existing Home Sales report for September registered a sharp gain to yet another record high. This was a very positive report. Economists continue to be completely baffled by the strength of housing demand. But, economists also continue to be quite confident that demand will recede in the coming months. There is concern that rising 10-year Treasury interest rates will begin pushing people out of the housing market. The strong September sales were probably due to purchases committed a couple of months ago when mortgage rates were lower. What economists are not doing a very good job at all at is forecasting how homebuyers will react to the potential for rising rates. My suspicion is that more fence-sitters will be more inclined to jump in sooner rather than wait for rates to rise even further. But my real suspicion is that mortgage rates are so low that even moderate increases in rates simply aren’t a big economic factor for most homebuyers.
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, rose by 0.90% on Monday to 19.10, which is only modestly below the top end of the low anxiety (moderate complacency) zone (15 to 20). Despite the market bounce, people are still anxious that the recent correction may not be over yet. 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 rose by 1.92% on Monday to 18.05.
The Nasdaq-100 VIX (VXN) rose by 2.63% on Monday to 26.12.
The Nasdaq-100 After Hours Indicator had a negative tone for the Monday evening session, closing down 1.9 points. There was no particular news to account for the decline. People are still cautious and the meagerness of the bounce on Monday did not sooth much anxiety at all.
[10/24/03] 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 sharply against the yen but rose 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 moderately sharply, and is now slightly below 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 fell moderately. 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 panel discussion at the American Enterprise Institute here in Washington, D.C. on international trade policy and antidumping in particular. Panelists gave a summary of the overall problem of unfair trade practices, responses to them, and difficulties with so-called ‘trade remedies’, and then discussed solutions to the problems. Panelists and members of the audience were involved on all sides of the problem. The whole area is a political mess where economics is merely an afterthought. The real bottom line is that the various trade remedies are mostly cures that are worse than the disease, but when various constituencies are feeling pain, the politicians have little choice but to respond.
I also attended a panel discussion at AEI of two proposals for privatization of the housing government sponsored enterprises (GSEs). Various private sector banking interests have been clamoring for some time to eliminate the subsidies and implied guarantees that give Fannie Mae, Freddie Mac, and the Federal Home Loan Banks an unfair advantage in the home mortgage market. It’s all rather complicated, but the basic idea is to restructure the way these GSEs work so that the private sector can accomplish the same tasks in the future. It may take five to ten years to complete the effort, and that is only after Congress decides that it has the political will to move forward. There are various efforts underway to ‘improve’ the regulation of the GSEs, but there does not appear to be very much consensus for completely revamping them, at this time.
I attended what was billed as a debate between Bill Clinton and Bob Dole at the Kennedy Center. It wasn’t quite a debate, but did give both of them a chance to talk about anything and everything that interested them. The ‘surprise’ introductions added to the show. Their wives introduced them, but swapped introductions, with Hillary introducing Bob Dole and Elizabeth Dole introducing Bill. A lot of serious points were made, but only between a ton of jokes. I’m not sure how people outside Washington would perceive this, but it was classic inside Washington, where even the most sacred of cows were slaughtered, to the great amusement of all in attendance. The debate was actually the latest in a distinguished speaker series put on by the Center for Association Leadership. The show was a welcome relief from the strained repetition of politics as covered by the mainstream media. Some of the jokes were so funny (in an inside Washington kind of way) that people were wiping away the tears. Like when conservative Republican Robert Dole joked that he once confided in Rush Limbaugh that he was always nervous before public speeches and Rush told him that he “had a little secret”. Just about everybody got the joke and were laughing hysterically, but Dole added that “it was too late, the drug store was closed.” Clinton even poked fun at some of his own travails. Clinton is a good speaker, but Dole really did have more jokes and humor. Having these guys and their wives as introducers made it a very worthwhile evening. It was expensive though, with the cheapest seats at $55 and the cheapest I could get at the last minute cost me $82. I won’t do this kind of thing on a regular basis, but this indeed was a once in a lifetime experience (much as my $2,400 one-way trip on the Concorde back in 1983 was once-in-a-lifetime), and therefore worth every penny. It turns out that the show was broadcast on C-SPAN, so you can probably see it for yourself for free at www.cspan.org.
[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.
The market will spend the day first on Fed Watch and then gyrate for the rest of the afternoon after the 2:15 p.m. FOMC announcement. There probably won’t be any big surprises here. The market could rally simply because the news is out of the way.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +17 on Monday, well 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 264 days (1 year and 13 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 8 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. The sell-off has shown that this was a near-term market ‘top’.
We have been in a correction off of that 52-week intra-day high for 8 days.
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 156 days. Nasdaq is 7 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 55 days old and 7 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.
Friday, October 24 was Day 1 of a potential up-leg, with Nasdaq closing sharply (24 points) above the intra-day low of 1,841.62. Monday was Day 2, with a moderate point-gain on light 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 is 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.
I would estimate that there were 50 to 125 points of ‘trading froth’ in Nasdaq at its intra-day peak of 1,966.87 on October 15, so I would estimate that as of Monday’s close there are up to 41 points of ‘trading froth’ left that short-term speculators could burn through without suggesting that a ‘significant’ correction was in progress. But it’s possible to lose more than that if a larger than typical crowd of short sellers crawl out of the woodwork.
[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 27, 2003 11:55:06 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology