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Wednesday was a ‘stabilization’ day for Nasdaq, a time for the dust to settle. Nasdaq opened near flat, with little in the way of either buying or selling pressure. There was a very modest positive tone by 10:00 a.m., but no buyers materialized when the ISM services and factory orders reports came out, so traders reversed and bet on the downside. Nasdaq fell 25 points by 11:00 a.m., but the selling pressure (probably mere day trading) petered out and Nasdaq meandered upwards for the rest of the day. Nasdaq’s ability to bounce completely back from the morning weakness is a good sign.
People were probably rather cautious ahead of the Cisco (CSCO) quarterly report.
Volume was almost heavy (1.98 billion shares). Breadth was slightly positive, with 1.02 gainers for each loser. The modest gain on near-heavy volume suggests that there is enough upwards buying pressure to keep Nasdaq from falling off a cliff.
According to Thomson Financial I-Watch, institutional investors were net sellers of EMC (EMC), Oracle (ORCL), and Cisco (CSCO), but net buyers of Sun (SUNW), Microsoft (MSFT), Nortel (NT), Lucent (LU), Intel (INTC), and JDS Uniphase (JDSU). Institutions were buying the dip, strongly suggesting that the market is not about to dramatically fall off a cliff any time in the near future.
The ISM Non-Manufacturing (Services) Report on Business for October registered a moderate rise in the rate of growth of business activity/production and remains at a very high level indicative of solid growth. This was a positive report. Production continued to increase, and at a moderately faster pace. New Orders continued to increase, and at a moderately faster pace. New Export Orders continued to increase, and at a moderately faster pace. The Backlog of [Unfilled] Orders continued to increase, but at a slower pace. It’s good news that the order backlog is still growing since it is the ‘reserve’ that gives businesses confidence that they can increase production without needing to worry about occasional dips in new order flow. The really good news is that employment expanded moderately after contracting in September, and has now expanded for a four out of the past five months.
The Factory Orders report for September registered a moderately sharp rise in shipments, a moderate rise in new orders, a slight rise in unfilled orders, and a moderate decline in inventories. This was a positive report. The rise in unfilled orders is a healthy sign for the future. Shipments for nondefense capital goods rose sharply, even ex aircraft. New orders for nondefense capital goods rose sharply, even ex aircraft. Shipments for computers rose moderately sharply, new orders rose modestly, and unfilled orders rose sharply. Shipments for semiconductors were down very sharply, but up sharply ex the seasonal adjustment. Please note that there tends to be a lot of monthly volatility for orders and shipments, primarily since few customers buy durable goods on a nice, smooth monthly cycle.
The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey registered a moderate rise in applications, with a sharp rise in applications to purchase, but only a slight rise in refinancing. This was a positive report, but there does tend to be a lot of volatility. Nonetheless, demand for buying homes is still quite strong.
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 0.80% on Wednesday to 17.56, which is only modestly above the midpoint of the low anxiety (moderate complacency) zone (15 to 20). VIX did spike up to 18.35 as the market was falling in the morning, but fell off as the market recovered in the afternoon. People are a little more anxious, waiting to see a strong bounce after Tuesday’s weakness. 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 1.87% on Wednesday to 16.86.
The Nasdaq-100 VIX (VXN) fell by 1.91% on Wednesday to 25.20.
The Nasdaq-100 After Hours Indicator had a very positive tone for the Wednesday evening session, closing up 12.98 points. Cisco (CSCO) had a solid quarterly report, soothing a lot of nerves.
[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 moderately 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, and is now modestly above the $30 “comfort” level. Speculators had been betting on a larger inventory build, so they were forced to cover short positions when the weekly report showed a more modest build of inventories. 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, November 5, the Pentagon reports that 3,002 fewer reservists are on active duty, for a total of 154,603. 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 69,925 or 31% 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 mini-conference at the American Enterprise Institute here in Washington, D.C. on the topic of dynamic scoring for evaluating the fiscal impact of budget proposals. The current approach is known as static scoring and merely quantifies the certain costs and certain revenues of a proposal. Dynamic scoring attempts to evaluate the costs and revenues that might flow from changes to behavior of taxpayers based on implementation of a budget proposal. The primary interest is for tax cuts which look very bad if scored statically, but may look much better when dynamic scoring is used to evaluate how the tax cut might stimulate the economy.
I attended a presentation at the New America Foundation on the topic of how frustrations of soldiers in Iraq and their families at home may be creating a whole new category of swing voters who might tip the upcoming election. Whether this really does become a problem in the 2004 election depends on how Iraq pans out over the next 12 months. That’s a lot of time and a lot can go well or horrible. Either way, it’s too soon to tell.
I attended a presentation at the Brookings Institution which discussed the latest release of a nationwide poll of American voters by the Pew Research Center on the issues that shape the political landscape going into the 2004 election. Pew runs this poll every four years. It’s a very sophisticated, in-depth poll, but the whole thing can be summarized by the subtitle of the report: “Evenly Divided and Equally Polarized”. They have been doing this poll since 1987. They conducted 80,000 interviews over the past three years and 4,000 over the summer and fall of 2003. They have plenty of graphs to show how attitudes have been evolving over the years. Click here to check it out yourself.
[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 respond to Cisco’s (CSCO) quarterly report from Wednesday evening. It was a good solid report, but the question is whether people will sell into the rally or whether the rally forces a lot of short covering.
The weekly jobless claims report will provide another few clues about the economy. It could go either way due to volatility and seasonality, but the overall trend should remain downwards, at least once the dysfunctional seasonal adjustment is removed. This report may or may not move the market, but people will certainly continue to position themselves ahead of the big employment report due out on Friday morning. I wouldn’t expect many people to want to be very short going into the employment report.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +1.41 on Wednesday, modestly 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 270 days (1 year and 20 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 1 day off its 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 163 days. Nasdaq is 2 days 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 62 days old and 2 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.
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 9 days old and 2 days 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.
Cisco is making good progress, but revenue is not quite growing at a strong enough pace to say that they are completely out of the woods (i.e., ‘safe’ from a relapse after a modest mini-boom due to pent-up demand). As Cisco CEO John Chambers put it, “The recovery appears to be slowly gaining momentum but is still fragile in the minds of our customers.”
[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 05, 2003 11:03:51 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology