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Tuesday was a day of minor ‘consolidation’ for Nasdaq. After recent gains, a little profit-taking was to be expected.
It’s difficult to say if some of the pullback was anxiety over the Cisco (CSCO) quarterly report due out after the close on Wednesday.
For reasons unknown, traders pushed stocks down in the pre-market, causing Nasdaq to open down six points. There was only modest selling pressure after the open, with Nasdaq losing only another six points by shortly after 10:00 a.m., but that was the low for the morning and a strong rebound ensued. Nasdaq was back in positive territory by 11:30 a.m. It set a new 52-week intra-day high a few minutes later, but this was mere day trading which quickly petered out and led to a reversal. Nasdaq was back in negative territory by noon and just kept on tumbling to its intra-day low shortly after 2:00 p.m. This decline was also mostly just day trading, leading to a moderate rebound into the close. Nasdaq closed less than four points below its open, so there really wasn’t much at all in terms of selling pressure while the market was open. Nasdaq closed about 4 points above the intra-day low, but 13 points below the intra-day high. This latter fact is a moderate yellow flag, suggesting a moderate willingness to sell into rallies rather than to try to ride the momentum higher.
Part of the decline may simply have been cynics re-opening short positions after being forced to close them during Monday’s rally.
Volume was heavy (2.07 billion shares). Breadth was only very slightly negative, with 1.003 losers for each gainer. This was not a strong sell-off due to the modest point loss and the almost balanced breadth, but the heavy volume is a second yellow flag, suggesting a significant lack of confidence in the ability of the market to advance much further from here.
According to Thomson Financial I-Watch, institutional investors were net sellers of EMC (EMC), Sun (SUNW), Nortel (NT), and Texas Instruments (TXN), but net buyers of AMD (AMD), JDS Uniphase (JDSU), Lucent (LU), Intel (INTC), and Microsoft (MSFT). Although it was a mixed day with some selective dumping of stocks, institutions were mostly buying the dip, strongly suggesting that the market is not likely to dramatically fall off a cliff any time in the near future. This at least partially cancels the yellow flags for the day.
The Challenger Announced Layoffs report for October registered a very sharp rise in announced layoffs (up 125%). This was a negative report, but there does tend to be a lot of volatility and seasonality from month to month. The count was actually modestly below the level of a year ago when it rose 151% over the prior month. There is no seasonal adjustment in this report. In summary, although this report was a disappointment, there is no reason to raise any alarm. The simple fact that the rise was less than the rise a year ago is a real positive.
The BTM/UBSW Weekly Chain Store Sales Snapshot registered a moderate rise compared to the prior week. This was a positive report, but there is a lot of volatility and this doesn’t erase all of the decline in the prior week. Sales were boosted by last minute shopping for Halloween-related supplies and would have been even stronger if not for warmer weather and forest fires. Sales were up a decent 5.1% over a year ago. BTM lowered their October forecast to 2.5% growth compared to a year ago (previous forecast was 2.5% to 3% over a year ago.)
The weekly Reuters Instinet Redbook Sales Average report registered a sharp rise in chain store sales (1.1%) for the month of October compared to September. This was a positive report. Sales at major retailers were up 3.4% for the week ended November 1 compared to a year ago (they were up 3.3% a week ago). Sales would have been even stronger if not for Halloween-related events and the California fires.
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered no change at -18 (out of a range from -100 to +100). This was a neutral report, but at least confidence is not getting worse. We are still stuck in a narrow, flat range. There was no change in the consumer view of the overall economy, but a 1% decline in how consumers feel about their own finances and a 1% gain 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, rose by 1.93% on Tuesday to 17.42, which is only modestly below the midpoint of the low anxiety (moderate complacency) zone (15 to 20). People grew only modestly more anxious as a result of the market’s failure to build on the prior gain. 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 was unchanged on Tuesday at 16.55.
The Nasdaq-100 VIX (VXN) rose by 1.22% on Tuesday to 25.69.
The Nasdaq-100 After Hours Indicator had a negative tone for the Tuesday evening session, closing down 0.09 points, basically flat. People are torn between growing optimism about the economy and business prospects, but uncertainty over whether the market may be overextended.
[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 very sharply against the yen and fell moderately 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 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 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.
Clearly there is a critical need for the military authorities in Iraq to dramatically change or accelerate their counter-insurgency tactics or possibly even their overall strategy. Something is not working, and the result is unnecessary deaths and injuries, not to mention unnecessary anxiety. I fully support efforts to rehabilitate Iraq, but there is simply no excuse for treating soldiers as mere cannon fodder.
[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 the Microsoft Court of Appeals hearing here in Washington, D.C. It was actually two distinct cases, joined at the hip. First was the appeal of the DOJ settlement by two trade groups – Computer & Communications Industry Association (CCIA) and Software & Information Industry Association (SIIA) – whose membership is weighted by Microsoft’s competitors. Second was the appeal of the litigated judgment of the non-settling states by the Commonwealth of Massachusetts. The appeals were heard ‘en banc’, which means the entire appeals court, which was six judges since some were recused. Each side of each case got 40 minutes, causing the hearing to run from 9:30 a.m. until about 12:45 p.m. with a 10 minutes break in between the cases. That’s a lot of arguing for an appeal. The judges asked lots of questions, frequently interrupting the lawyers in mid-sentence, rarely letting them talk for more than a single minute at a stretch. The two trade groups were represented by Judge Robert Bork, whose failed nomination to the Supreme Court was such big news so many years ago. There were about 70 people in line for the hearing which was held in the large ceremonial courtroom. Afterwards, partisans from each side were buoyant and claimed that their side had won based on the questions that were asked, but anybody with experience (including Bork himself) will tell you that you can’t really tell which way a judge is leaning based on their questions. It seemed to me that both sides got just as many hardball and softball questions, as if the judges wanted all parties to feel equally good – and bad – about their performance. In other words, the judges were unwilling to tip their hats to any party. There were lots of questions about the ‘fruits’ of the illegal conduct, what they were, and whether Microsoft was giving them up. Microsoft’s opponents seemed to argue semi-persuasively that Microsoft was getting off too easy, but DOJ and Microsoft argued equally persuasively that the district court judge carefully followed the instructions for remedy previously issued in the case by the Court of Appeals. So, it’s all up in the air. It’s unlikely that a ruling will be issued within a month, and then the holidays come (December), so we may have to wait until January for a ruling, but who knows. There seems to be a moderate expectation that the case(s) may be ‘remanded’ back to the district court for specific tweaking. Or, the court could simply issue instructions to the district court for how to interpret the case as it is monitored going forward. In any case, I heard nothing that would suggest that investors should worry about anything at all.
[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 will inevitably be some positioning in advance of the Cisco (CSCO) quarterly report due out after the close today. Cisco should have decent results, but isn’t likely to tell us that visibility and corporate spending are improving dramatically. Still, the market really wants to hear Cisco say that they are seeing at least a slight up tick in demand. I would say that Cisco CEO John Chambers will most likely throw people at least a modest bone to chew on and be at least somewhat happy about.
The ISM services and factory orders reports will give us a couple more clues about the economy. Whether the market will respond or yawn is another matter.
People will also continue to adjust their positioning for the big employment report on Friday.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -10 on Tuesday, well 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 269 days (1 year and 19 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 1,971.38 on November 4. The previous intra-day highs were 1,969.26 on November 3, 1,966.87 on October 15, 1,943.33 on October 14, and 1,940.97 on October 13.
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 162 days. Nasdaq is 1 day off 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 61 days old and 1 day 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.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, October 24 with an intra-day low of 1,841.62 is now 8 days old and 1 day off its closing peak. This is a minor leg nested within the larger leg that started on August 8 which is itself nested in the larger advance that started on March 12. Multiple nested up-legs are a sign of deep strength in the market.
[11/5/03] The latest economic data continues to support the thesis that the U.S. economy is solidly into a gradual, zigzag, underappreciated, stealth recovery. The Q3 GDP report certainly convinced a lot of people that the economy is stronger than previously thought, but the cynics continue to promote the idea that the recent strength was almost solely due to short-term fiscal stimulus. I disagree. I believe that the economy would have been reasonably strong without the stimulus (ala Q2) and that we will see incremental improvement (compared to Q2) over the next four quarters. Some people will be shocked or raise alarm when Q4 comes in ‘weaker’ than the ‘artificially sweetened’ Q3, but there is no reason for alarm. That’s part of the zigzag process. The two key factors driving the pace of the recovery will continue to be the ongoing process of shutting down or restructuring ‘problem’ businesses and the pace of the formation of new businesses which will create new jobs.
[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 04, 2003 11:00:28 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology