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(Will be updated for Monday)
Traders once again tried to artificially boost the market on Friday, and failed. Pre-market enthusiasm and a moderate bounce at the open lasted only until shortly after 10:00 a.m. At that point, all sense of buying momentum had evaporated, signaling traders to reverse and bet on the downside. Nasdaq fell 14 points in half an hour, to its intra-day low, but that was the extent of the selling pressure. Nasdaq recovered a little through the day, closing almost 4 points above the morning low.
Overall, the general attitude seems to be to sell into any rally.
The good news is that even with the selling mood on both Thursday and Friday, most of the gains from Monday through Wednesday remain intact and have resisted selling.
One of the reasons traders love to push stocks up strongly in the pre-market is so that stop and limit orders will be triggered, further boosting the market. Even if such buying doesn’t go very far, at least it gives traders a better starting point for opening short positions.
The 1939 level offered too much resistance for Nasdaq, but the 1929 level provided decent support.
Volume was moderate (1.81 billion shares). Breadth was slightly negative, with 1.02 losers for each gainer. This is a ‘flat’ market with nobody willing to bet heavily on either upside or downside.
According to Thomson Financial I-Watch, institutional investors were net sellers of Lucent (LU), Sun (SUNW), EMC (EMC), Cisco (CSCO), Nortel (NT), and Brocade (BRCD), but net buyers of Oracle (ORCL), Microsoft (MSFT), and JDS Uniphase (JDSU). It was a somewhat mixed day, but mostly institutions were selling into the early rally. Once again, traders artificially pushed the market up in the pre-market, so institutions used that “bubble” as an opportunity to take some profits.
The final (revised) University of Michigan Consumer Sentiment Survey for October registered a modest gain from the preliminary October reading and a moderate gain from the September reading. This was a somewhat positive report. The present conditions index fell moderately from the preliminary ready, but the expectations index rose more strongly than that decline. Please note that there is no clear and indisputable link between consumer confidence reports and future consumer spending.
The Personal Income and Spending report for September registered a modest rise in personal income and a modest decline in personal spending (expenditures or PCE – Personal Consumption Expenditures). This was a mixed report. It’s certainly not good news that spending declined, but there is some volatility. Disposable personal income (DPI) – personal income less personal tax and nontax payments – declined sharply, but that was due to the tax rebate in the previous month. Real DPI (DPI minus inflation) declined sharply. Real PCE (Personal Consumption Expenditures minus inflation) declined moderately. It is real DPI and real PCE that really matter since they measure how much additional spending power the consumer really has and how much they really use. It’s not really possible to draw much of a conclusion about the trend in income and spending from this report due to the dramatic short-term impact of the tax rebate.
The Chicago PMI report for October registered a moderately sharp gain in the Business Barometer for manufacturing in the Chicago area, recovering half of the decline in September. This was a positive report. It does appear that manufacturing is finally gaining some traction, but there is still a fair amount of tentativeness. Production continues to expand and at a moderately faster pace. New Orders continued to expand, and at a moderately faster pace. Unfortunately, Order Backlogs contracted again after rising for two months. Employment is once again expanding and at a moderate pace.
The NAPM New York City Report on Business for November registered a moderate rise in the Business Conditions Index, to the highest level since June. This was a positive report. The Current index rose sharply, to its highest level since November 2002. The Manufacturing index fell modestly. The Non-Manufacturing index rose sharply, to its highest level since November 2002. The Outlook index was unchanged, still suggesting expansion. The report optimistically notes that “Although it may be premature to herald the recession’s end in New York City – especially with the five borough unemployment rate standing at a lofty 8.8 percent – there are some signs that the worst is over, and that the process of building the recovery’s base has begun. For the first time since the spring of last year, New York City purchasing managers are reporting back-to-back monthly improvements in the local business pace; what’s more, the latest monthly findings of the National Association of Purchasing Management-New York (NAPM-NY) suggest that the gains of October were encouragingly broad-based, stretching across the spectrum of manufacturing and service-providing industries. While the city’s economy has, admittedly, experienced “false starts” before, the current upturn in activity that is being reported by the NAPM-NY coincides with several other positive developments. These include the City Comptroller’s estimate that Big Apple employers added 12,300 payroll jobs in September, after seasonal adjustment, the biggest one-month gain since September 2000; the restoration of profitability in the all-important financial services industry and a striking slowing of job losses in the brokerage industry; and the near certainty of fatter Wall Street bonus payments at yearend.”
The Economic Cycle Research Institute (ECRI) Weekly Leading Index (WLI) registered a moderate decline and its six-month smoothed growth rate declined modestly. This was a negative report, suggesting reasonably strong growth in the months ahead, but at a somewhat slower pace than recent growth. What we could be seeing is evidence that Q4 is shaping up to be somewhat less strong than Q3, and then some further moderation of growth in Q1 and Q2 of 2004.
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 2.00% on Friday to 17.15, which is modestly below the midpoint of the low anxiety (moderate complacency) zone (15 to 20). People were a little relieved that the market is keeping most of its recent 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 1.41% on Friday to 16.10.
The Nasdaq-100 VIX (VXN) rose by 0.61% on Friday to 24.89.
The Nasdaq-100 After Hours Indicator had a negative tone for the Friday evening session, closing down 0.21 points, basically flat. People are a little bothered that Nasdaq failed to rally on Thursday and Friday.
[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 rose sharply against the yen and 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 rose very sharply, but is still moderately 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 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.
[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.
MCI gained court approval for its bankruptcy reorganization plan. This is good news and a good example of how companies are making good progress restructuring so that they can once again make a productive contribution to the economy. The company’s debt load will shrink from $41 billion to $5 billion. It’s not yet clear when they will actually emerge or when they will publicly list their new stock.
[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.
We could see some rallying in advance of the big employment report on Friday. People are hoping to see a second consecutive month of employment growth in October, which is a very good sign for the economy going forward.
It’s the start of a new month. Trading can be somewhat atypical the first few days of the month.
Most significantly, the traditional “Sell in May and go away” period is now over. The November to February period traditionally tends to be the strongest portion of the year, assuming we don’t have another war coming up.
My forecast for Monday is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -0.48 on day, moderately 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 267 days (1 year and 17 days). The market now has a longer-term upwards bias despite near-term volatility. The path of the market through the end of the year is of course uncertain, but Nasdaq will most likely be moderately higher at the end of December than where it was at the beginning of November. Nasdaq should break above the 2,000 level fairly soon, so the question is whether we hit 2,100, 2,250, or even 2,500 by the end of the year. 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 12 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 12 days. The correction is probably over, but we need to see confirmation of a new up-leg first. Right now we’re stuck in a trend-less trading range.
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 160 days. Nasdaq is 11 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 59 days old and 11 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. Thursday was Day 5, but Nasdaq declined modestly. Friday was Day 6, but Nasdaq declined fractionally. Monday will be Day 7. 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.
Many people freely acknowledge that the economy is finally showing some real strength, but many of them also suggest that this is just a short-term stimulus-based blip and that we will likely see some real weakness in the quarters ahead as the effects of the stimulus wear off. I don’t agree with that analysis. I agree that there is a near-term over-performance, but I believe that there will be plenty of demand stimulated in coming quarters as business restructuring (e.g., MCI) winds down and new business formation (e.g., venture capital, IPOs, etc.) picks up.
[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 31, 2003 07:33:39 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology