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Despite the meager point gain (4 points), Wednesday was actually a decent day for Nasdaq, with the sharp gains from Tuesday remaining completely intact. Traders tried their darnedest to push the market down, but it simply wouldn’t stay down.
The Nasdaq-100 Pre-Market Indicator (PMI) was down 5 points and Nasdaq opened down 7 points. Nasdaq fell another 2 points in the first 15 minutes of trading, but that was the end of the selling pressure and Nasdaq trended up (albeit in a choppy manner) for the rest of the day. There was a nice recovery bounce by shortly after 10:00 a.m. Traders pushed it back down by shortly before 11:00 a.m., but not far enough to set a new low, setting the stage for the gradual uptrend.
The 1937 level provided significant resistance for Nasdaq, but the 1926 level offered reasonable support.
It was good to see that Nasdaq closed less than a point below the intra-day high.
Volume was almost heavy (1.96 billion shares). Breadth was moderately positive, with 1.61 gainers for each loser. It’s difficult to rate the quality of the trading on Wednesday since the point-gain was so meager while the volume was reasonably strong.
According to Thomson Financial I-Watch, institutional investors were net sellers of EMC (EMC), Microsoft (MSFT), Nortel (NT), Intel (INTC), and Applied Materials (AMAT), but net buyers of Sun (SUNW), JDS Uniphase (JDSU), Lucent (LU), and Cisco (CSCO). It was a mixed day, with institutions doing some selling of some stocks into the rallies and buying other stocks on the dips, strongly suggesting that the market is not likely to dramatically fall off a cliff any time in the near future.
The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey registered a moderate decline in applications, with a sharp decline in refinancing being outweighed by a sharper decline in applications to purchase. This was a mixed, but relatively negative report, but there does tend to be a lot of volatility (both measures moved the opposite direction last week). Nonetheless, demand for buying homes is still quite strong.
From Monday: The Wal-Mart (WMT) Weekly Retail Sales Update indicated that sales remained on track to meet its October forecast of 3-5% growth. This was a positive report. The company indicated that it remains “pleased” with sales of products linked to Halloween. Above-normal temperatures in parts of the United States drove sales of lawn and garden merchandise, paint, and other warm-weather goods.
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 3.87% on Wednesday to 17.15, which is modestly below the midpoint of the low anxiety (moderate complacency) zone (15 to 20). People were somewhat relieved that the market refused to give back any of Tuesday’s gains. 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 2.32% on Wednesday to 16.43.
The Nasdaq-100 VIX (VXN) fell by 1.12% on Wednesday to 24.72.
The Nasdaq-100 After Hours Indicator had a negative tone for the Wednesday evening session, closing down 1.26 points. There was no particularly negative news to account for the decline, with quite a number of moderately decent quarterly reports, so it was probably simply due to anxiety that maybe the market might be a bit overextended again and maybe people were a little cautious ahead of the big GDP report due out today.
[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 slightly 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 very sharply, and is now moderately below the $30 “comfort” level. The weekly inventory reports showed that there is plenty of oil. 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 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 29, the Pentagon reports that 1,289 fewer reservists are on active duty, for a total of 157,605. 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 66,923 or 30% from the peak of 224,528 on May 1st.
[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 hearing of the House Science Committee here in Washington, D.C. on the topic of NASA organizational and management challenges. It may sound like a boring or dry topic, but the issue of how to build a “culture of safety” at NASA is the top priority, even more important than simply fixing the shuttle. There were two panels. The first consisted of four heads of organizations that are intensely concerned with safety: the Navy nuclear program, the navy submarine safety program, the Air Force space launch program, and DuPont. Each offered insight into the organizational and management principles that they use to assure that safety is given top priority even when schedule and budget pressures are intense. The second panel consisted solely of the chairman of the Columbia Accident Investigation Board, who offered a very brief summary of some of the board’s finding on management and answered questions. One lingering area of confusion is the depth of the meaning of ‘independence’ and the extent to which safety issues are pursued by a separate organization or absolutely integrated in the line organizations. The Navy nuclear program takes the latter approach, but that may only be practical for a relatively small organization. In my view, that may be the heart of the problem: NASA, or at least the space shuttle program, may simply be too big. My personal view is that short of privatization (which is not being considered), the only solutions may be to either dramatically raise the budget (not very likely), or simply tolerate a higher level of risk as was recently exemplified with the NASA decision to go ahead with sending a fresh team of astronauts to the space station even though some NASA technical experts dissented from approving the mission.
[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 are a bunch of interesting economic reports today, with the most attention to be given to the advance estimate of Q3 GDP and the weekly unemployment claims report. Both could move the market. People could also position ahead of some interesting economic reports that will be coming out on Friday, including the Chicago PMI, the NAPM NY, Personal Income and Spending, and the Michigan consumer sentiment survey.
We’re at the last two trading days of October, so there could be some atypical volatility. Sometimes there is atypical trading of mutual funds near the end of October.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +4.30 on day, very 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 266 days (1 year and 15 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 10 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 10 days. The correction is probably over, but we need to see confirmation of a new up-leg first.
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 158 days. Nasdaq is 9 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 57 days old and 9 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. Tuesday was Day 3 with a really solid rally on heavy volume, but even that doesn’t count as confirmation of a new up-leg since it is not uncommon to see strong dead-cat bounces on days 2 and 3 of a potential up-leg. Wednesday was Day 4, but the gain was too meager to constitute confirmation. Today is Day 5. 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’m not going to offer any forecast for Q3 GDP, but I will suggest that people need to examine the report more closely than simply looking at the headline number. Look at nominal GDP growth rather than real GDP which subtracts the very modest inflation. Next, divide by 4 to get the actual growth in Q3 rather than the annualized headline number. So, 6% would really be 1.5% for the quarter. Finally, people should subtract out the one-time tax rebate fiscal stimulus. I don’t have a good estimate, but $100 billion would correspond to approximately 4% of quarterly GDP. Annual GDP as of Q2 was about $10 trillion ($10.8 trillion). That puts quarterly GDP at about $2.5 trillion. 1% of that would be $25 billion. The bottom line is that the GDP calculation is so complicated and layered that it’s difficult to get any real meaning out of it. It’s simply a ‘general feel’ for how the overall economy is doing. The real bottom line is that you shouldn’t pay too much attention to a single quarter of GDP (especially when one-shot stimulus was involved). Q1 through Q4 in 2004 will be far more important than what happens in Q3 or even Q4.
[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 29, 2003 08:01:16 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology