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A hefty portion of the rally on Monday was probably due to short covering, but nonetheless it was a solid rally. Nasdaq set yet another new 52-week closing high. In fact, Nasdaq closed above the previous 52-week intra-day high and set another new 52-week intra-day high. The SIA chip order, ISM, and construction spending reports were certainly the catalysts, but the raw strength of the rally was in large part due to an excess of people who have been betting that the new bull market was overdue for a substantial correction. Many of those people had to cover those bets, hence the sharp jump.
Nasdaq closed less than 2 points off its intra-day high. That’s a good sign.
Most of the Nasdaq gain occurred by 10:30 a.m. and Nasdaq closed only about 4 points above that morning high. That’s not great news. The good news is that Nasdaq was able to keep all but 6 points of the morning gain all through the day until the late afternoon rise into the close.
Volume was heavy (2.06 billion shares). Breadth was very positive, with 2.01 gainers for each loser. This was a very solid rally.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW), Microsoft (MSFT), Nortel (NT), AMD (AMD), JDS Uniphase (JDSU), Intel (INTC), and Oracle (ORCL), but net buyers of Lucent (LU) and EMC (EMC). Institutions were mostly selling into the rally, but they tend to do so after buying recent dips, so that does not suggest that the market is likely to dramatically fall off a cliff any time in the near future.
The ISM Manufacturing Report on Business for October registered a moderate gain in the PMI which is moderately above 50.0 for a fourth consecutive month, indicating that the manufacturing sector is now expanding at a semi-decent pace. This was a very positive report. ISM noted that “This is the best report that we have seen in quite some time in terms of the overall strength of manufacturing. The picture continues to improve, and it appears that manufacturing will finish 2003 on a very positive note, assuming the recent trend continues.” The good news is that Production, New Orders, New Export Orders, and the Backlog of [unfilled] Orders are all growing, and at a faster pace. Unfortunately, employment continues to contract but at a slower pace. Inventories continue to contract but at a slower pace. According to the report, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through October (51.2 percent) corresponds to a 3 percent increase in real gross domestic product (GDP). However, if the PMI for October (57 percent) turned out to be the annual average for 2003, this would correspond to a 5.2 percent increase in GDP.” The real bottom line of this report is that the manufacturing sector showed some additional real improvement in October. We’re still not out of the woods (due to contracting employment), but we’re now making steady progress.
The Construction Spending report for September registered a moderately sharp rise in the value of “construction put in place”. This was a positive report. Private construction rose moderately sharply (up 1.7%), but public construction was unchanged (up 0.02%). Residential was up moderately sharply (1.3%). Manufacturing construction was up very sharply (5.1% or 5.4% over a year ago). Total construction was up 6.5% from a year ago. It’s difficult to get a clear read on where construction spending might be headed over the coming year, but for now it’s holding up nicely.
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 0.35% on Monday to 17.09, which is modestly below the midpoint of the low anxiety (moderate complacency) zone (15 to 20). Despite the nice rally, people are still a bit anxious that the market may be more than a little bit overextended. In other words, people were taking out insurance (buying ‘put’ options on the S&P 100 or 500 index) to lock in gains should a correction occur. But please note that buying such insurance can frequently be a contrarian indicator suggesting that we have a bull market that is trying to climb a wall of worry. 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 2.80% on Monday to 16.55. Clearly people were taking out additional insurance against a market decline.
The Nasdaq-100 VIX (VXN) rose by 1.97% on Monday to 25.38.
The Nasdaq-100 After Hours Indicator had a negative tone for the Monday evening session, closing down 0.18 points, basically flat. There didn’t seem to be much enthusiasm for profit-taking, suggesting that optimism may finally be reviving.
[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 very 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 still well 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 very 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.
[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.
More progress on the corporate restructuring front… Redback Networks (RBAK) filed a pre-packaged bankruptcy reorganization plan that will allow it to blow away its debt and reduce its operating expenses by a third. Conexant (CNXT) is buying GlobespanVirata (GSPN), further reducing the number of companies competing for investor attention. All of this is good news for the overall health of the overall market and the overall economy.
I attended a book forum at the Cato Institute here in Washington, D.C. for A Grand Strategy for America by Robert Art, which proposes that ‘selective engagement’ is the best strategy for U.S. foreign policy. The book is reasonably concise, but still quite dense. It evaluates the pros and cons of various competing possibilities for foreign policy. In addition to the presentation by the author, an expert in defense studies at Cato offered his critique. He didn’t agree with a lot of the author’s points, but most of his criticisms were of other approaches and policies, and he did welcome the book’s contributions to the ongoing debate about the shape of future U.S. foreign policy.
I attended a presentation (lecture) at the American Enterprise Institute on The Vast Right-Wing Conspiracy and its evolution over the past 30 years. Really. AEI is one of the central neoconservative institutions in Washington, but they also seem to enjoy poking fun at the whole concept of The Vast Right-Wing Conspiracy even though they know that they are part of it. The lecturer, the executive editor of Governing Magazine, gave an excellent summary of the evolution of Washington politics, both left and right, starting in 1969. He identified the various milestones in the evolution of the conservative movement in Washington. Even so, this was only a partial history of the movement. One of the most interesting moments was when the lecturer asked this room full of mostly neoconservatives how many thought Bush would have won if he had to run against Clinton in 2000 – nobody raised their hand and their was a moderate amount of snickering and murmuring. And these are a lot of the same people who hate Clinton. There was a fair amount of talk about how the conservatives (including President Bush) need to scrupulously avoid appearing ‘arrogant’ as the election approaches.
[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.
Some profit-taking is possible after Monday’s strong rally, but some follow-through is also possible since we broke above the previous 52-week intra-day high for Nasdaq.
People will be positioning ahead of the Cisco (CSCO) quarterly report which is due out after the close on Wednesday.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +35 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 268 days (1 year and 18 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 set a new 52-week intra-day high of 1,969.26 on November 3. The previous intra-day highs were 1,966.87 on October 15, 1,943.33 on October 14, and 1,940.97 on October 13.
We finally fully recovered from the correction off of the October 15 52-week intra-day high after 13 days. A new up-leg for the advance has been confirmed.
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 161 days. Nasdaq is at its closing peak of 1,967.70 on November 3 (previous peaks were 1,950.14 on October 16, 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 60 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.
We now have confirmation of the potential up-leg that started on Friday, October 24 by closing sharply (24 points) above the intra-day low of 1,841.62. Monday, October 27 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 was Day 7 with a 35-point (1.84%) gain on heavy volume (2.06 billion shares, heavier than the preceding session’s moderate volume of 1.81 billion shares). That’s a good, solid confirmation of the up-leg. 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. This new leg is another minor leg nested within the larger leg that started on August 8.
[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: November 03, 2003 08:35:49 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology