Our daily stock market commentary and views on the economy and geopolitical events are posted weekdays and Saturday by 12:30 a.m. ET.
[ Market Activity | Economic Reports | Anxiety (VIX) | After Hours | Fed Futures | Dollar | Oil | Gold | Geopolitical Situation | Terrorism | Iraq | Books | Reform | Telecom | Technology | Miscellaneous | My Investments | Outlook for Today | Bottom Line | Economic Outlook | Tech Stock 'Safe' Signal | Resources | Disclaimer | Archive | Charts | Adages | Glossary | Lore | Search | Payment - Please! | Contact Us ]
Superficially it looked like a great rally for Nasdaq on Wednesday with a 2% gain and very positive breadth, but volume was too lackluster to technically classify it as a strong rally. It was merely a classic ‘relief’ bounce, with most of the gain probably due to short-covering. That said, the catalyst for the gain was probably a moderate amount of mutual fund inflows that caught the shorts leaning too far in the wrong direction.
I read some commentary that suggested that “The bulls charged out of the gate at the open”, but that’s not what happened. The Nasdaq-100 Pre-Market Indicator (PMI) was up a modest 3.68 points at the open, and Nasdaq opened up a modest 5.22 points and was up only a moderate 16 points by 10:00 a.m. Rather than “charging”, Nasdaq incrementally and gradually rose through the day. There was very little in the way of corrective action all day, suggesting that a combination of ‘real’ buying and short-covering were fueling the gains.
The rally was certainly a welcome relief, but does not signal that the recent consolidation is truly over. Nasdaq hasn’t reached its recent 52-week high closing level.
After several days of declines, it was only natural to expect some kind of decent bounce eventually. Whether we see some significant follow-through is a separate question. Mostly it will depend on whether mutual fund inflows resume and at a consistent enough pace to keep the shorts on the run.
Nasdaq volume was moderate (1.82 billion shares). Breadth was strongly positive, with 2.96 gainers for each loser. This would have been a strong rally if not for the wimpy volume.
According to Thomson Financial I-Watch, institutional investors were net sellers of Sun (SUNW), EMC (EMC), Intel (INTC), Brocade (BRCD), Cisco (CSCO), JDS Uniphase (JDSU), and Oracle (ORCL), but net buyers of Microsoft (MSFT) and Nortel (NT). Institutions were clearly selling into the rally, but they typically do so after buying on recent dips, so there is no reason to worry that the market might dramatically fall off a cliff any time in the near future.
The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey was delayed a day due to the Veteran’s Day holiday.
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 5.61% on Wednesday to 16.99, which is modestly below the midpoint of the low anxiety (moderate complacency) zone (15 to 20). VIX actually opened up to 18.32 and moved up to 18.56 in spite of the positive tone in the market, but gradually fell off as the day progressed and the tone of the rally only got stronger. 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 4.50% on Wednesday to 16.75.
The Nasdaq-100 VIX (VXN) fell by 3.77% on day to 25.55.
The Nasdaq-100 After Hours Indicator had a mixed tone for the Wednesday evening session, closing up 3.6 points. The positive tone was due to a solid quarterly report from Applied Materials (AMAT). The negative tone was due to concern that the strong rally during the day may have been mostly a dead-cat bounce that could evaporate just as quickly as it came. There’s a fair amount of optimism out there, but also a fair amount of anxiety that the market may be more than a bit 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 rose moderately against the yen, but fell 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 rose moderately sharply, and remains moderately above the $30 “comfort” level. There is increasing anxiety over the safety of the Saudi oil facilities as a result of recent terrorist activity. 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 very sharply. Traders and speculators are getting really excited about the prospect of gold breaking above $400, but it’s not clear how much of current prices is due to real demand versus all the speculative trading. 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.
Senator McCain says that “Time is not on our side.” That is complete rubbish. Time is on our side. We also have to make all the right moves, but time is what gives us the opportunity to do so. A few days after 9-11, I heard Newt Gingrich express a similar sentiment: “Time is always on the side of evil. That is an important premise of history.” Newt does know his history, but that still doesn’t validate his interpretation. Besides, there are so many examples of how patience led to the success of good over ‘evil’: the American Revolution, the Civil War, World War I and II, and the Cold War. Politicians worried about winning the next election might not believe that time and patience are on their side, but that’s a different story. The American people (and the Iraqi people as well) may be losing patience with the progress in Iraq, but that’s just part of the process. Sometimes progress in difficult matters is a slog. That’s life, but patience is usually rewarded. That’s not to say that we don’t need to radically change our approach in Iraq, but simply that a lot of really good people are hard at work on the problem and the pressure is on them to do whatever it takes to achieve success. I personally wouldn’t expect too much in the next few months, but six months from now we will be looking at truly dramatic progress. We have met great progress to-date, but much more is still needed.
For the week ending Wednesday, November 12, the Pentagon reports that 420 fewer reservists are on active duty, for a total of 154,183. This was modest decline. The Army, Navy, and Marines showed decreases in the number of reservists on active duty, but the Air Force was unchanged. The headcount has declined by 70,345 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 book forum at the Cato Institute here in Washington, D.C. for Black Ice: The Invisible Threat of Cyber-Terrorism by Dan Verton. The book lays out in detail many of our vulnerabilities to cyber-terrorism in our information infrastructure. Not just attacks on computers, but also the fact that so much of our physical infrastructure is controlled by networked computers, plus a lot of movement to wireless networks. There is no single, magic bullet solution, but there are still far too many technology groups that simply aren’t doing enough of even the simple and obvious changes to prevent terrorist attacks on our information infrastructure. Viruses and worms are one thing, but financial networks, communications networks, and power grids are another thing. My overall impression is that a lot of these things are real problems that do need to be addressed over time, but I don’t subscribe to the suggestion that we are at risk to an imminent grave threat to our entire infrastructure. One saving grace for the internet and all the other specialized networks is that there is so much diversity of technology and usage that there are few, if any, real “choke points” that a terrorist could attack and cause some sort of great calamity. With all the amateur hackers running around, there are large numbers of system administrators who are constantly watching for intrusions. Sure, terrorists could succeed at attacking some number of points in our information infrastructure, but the damage would be limited. In any case, developers of technology do need to do a much better job of designing in security, redundancy, scalability, robustness, and fault-tolerance right from the early stages of their designs.
[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.
People will react to the good quarterly report from Applied Materials (AMAT), although it can be argued that the report was anticipated by the strong rally on Wednesday, so some profit-taking could ensue.
People will also position in advance of the quarterly report from Dell (DELL) due out after the close. It can be argued that the strong rally on Wednesday may have anticipated the Dell report, so it’s possible for some profit-taking for this reason as well. The big question mark for the Dell report is whether they grew solely by stealing market share from competitors or whether they may finally be seeing a decent up tick of demand, including increased spending on corporate IT.
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.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +42 on day, only moderately below the upper end 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 275 days (1 year and 25 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 within the next few weeks, 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 3 days off its 52-week intra-day high of 1,992.27 on November 7. The previous intra-day highs were 1,977.91 on November 6, 1,971.38 on November 4, 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 168 days. Nasdaq is 4 days off its closing peak of 1,976.37 on November 6 (previous peaks were 1,967.70 on November 3, 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 67 days old and 4 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 14 days old and 4 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. This leg is still on the verge of being ‘broken’ due to the decline off of the recent 52-week intra-day high. It won’t be ‘recovered’ until it closes above the previous peak for at least three days and sets a new closing peak at least 1% above the old peak.
The fact that Nasdaq is still 19 points off its recent intra-day high is a moderate yellow flag and suggests that the recent run-up may now be in a near-term ‘consolidation’ mode. That does not mean that a full-blown correction is necessarily likely. There may have been as much as 125 points of ‘trading froth’ at the peak, so we could see up to another 106 points of decline before a true correction might be indicated. Note that we’re still 131 points above the starting level of the most recent minor up-leg that started on October 24. The big wildcard remains mutual fund money flows.
General Electric’s (GE) CEO Jeff Immelt says that “The economy is recovering.” He says that “We feel it every day. I see more and more positive signs. It’s feeling better. We see it in our short-cycle orders.” GE’s short-cycle businesses such as plastics, appliances, lighting and specialty materials, which are more sensitive to short-term economic fluctuations, are closely watched by some because they are seen as providing a barometer for the economy. Plastics, for instance, are considered a leading economic indicator by company executives because its products are used in industries ranging from automobiles to compact discs.
[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 12, 2003 11:56:53 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology