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 ]
Thursday was a day of modest consolidation after the big run-up on Wednesday. The quarterly report from Applied Materials (AMAT) was good, but had already been anticipated by the run-up. The economic reports were okay, but didn’t warrant any additional excitement after the run-up.
Although Nasdaq showed a modest decline for the day, the good news is that Nasdaq closed above its opening level (albeit by a modest 3 points). That’s a positive sign. In addition, Nasdaq closed well above its intra-day low (by 11 points). That’s another positive sign. Sure, the day started with a negative tone and led to some moderate consolidation activity, but the end result was some buying that suggests that people were satisfied that the consolidation may be over.
It’s not clear if the late bounce may have been due to the premature release of Dell’s (DELL) quarterly report. The bottom line is that due to the confusion, it may take another day for the dust to settle.
The Nasdaq 1970 level provided resistance, but the 1958 level offered reasonable support. I suspect that this was just for the day and that Nasdaq could very easily break above or below that range.
Nasdaq volume was moderate (1.86 billion shares). Breadth was slightly negative, with 1.01 losers for each gainer. This was a very modest consolidation, not even close to being a sell-off.
According to Thomson Financial I-Watch, institutional investors were net sellers of Brocade (BRCD), Nortel (NT), and Intel (INTC), but net buyers of Applied Materials (AMAT), Sun (SUNW), Microsoft (MSFT), Cisco (CSCO), JDS Uniphase (JDSU), and Oracle (ORCL). Institutions were clearly buying the dip, strongly suggesting that the market is not about to dramatically fall off a cliff any time in the near future.
The Unemployment Insurance Weekly Claims report registered a moderate rise in initial claims – under 400K for a sixth consecutive week – and a modest rise in continuing claims. This was a somewhat negative, but mixed report, but there is a lot of volatility. Unadjusted initial claims rose moderately sharply to 393K, well below the year-ago level of 427K – and under 400K, albeit only modestly. The 4-week moving average of initial claims declined modestly and is moderately below 400,000 for a sixth consecutive week, and moderately below the level of a year ago. Unadjusted continuing claims rose moderately and are still moderately below the level of a year ago. Adjusted continuing claims are still moderately below the level a year ago. The 4-week moving average of continuing claims declined modestly, and is moderately below the level of a year ago. Initial claims have not yet been safely enough below 400K to challenge the implication that payroll employment may not be growing very much at all (even though overall, household employment probably continues to grow). Unemployment won’t fall significantly until the economy begins to consistently grow at a faster pace and the pace of business restructuring slows down and the pace of business formation picks up. The insured unemployment rate (2.8% or 2.4% unadjusted) is the same as during the same week in 1992 when the economy was recovering from the last recession (2.8% or 2.4% unadjusted). Initial claims were not consistently below 400K in 1992 until October. Initial claims are moderately lower than in the same week in 1992 (366K vs. 374K), and only slightly higher than in 1992 once you strip off the dysfunctional seasonal adjustment (393K vs. 392K.) The talk about continuing claims being at or near a 20-year high is a complete red herring (true, but irrelevant) since it is the insured unemployment rate (see three sentences back) that is important and covered employment has risen by over 21% since 1992 alone. The bottom line is that although the labor market is lackluster, it’s not in too bad shape and not getting seriously worse.
The International Trade in Goods and Services report for September registered a moderate rise in exports but a somewhat larger moderate rise in imports, producing a moderately larger trade deficit. This was a moderately negative report. Exports grew by $2.4 billion versus $4.1 billion for imports. For now, the only way to deal with this “massive” deficit is to continue to strengthen the U.S. economy and then wait for the global economy to pick up and increase demand for our exports. Continuing to improve the attractiveness of investment opportunities in the U.S. also helps.
The Import and Export Prices report for October registered a slight rise in import prices, or a slight decline ex oil, and a modest rise in export prices, or a slight rise ex agriculture. This was a mixed, relatively neutral, but slightly positive report. Exports may finally be seeing a modest benefit of the “weaker dollar”, or maybe the global economy is starting to pick up a little steam. The global economy will pick up as the U.S. economy picks up, but with a delay. Like it or not, we lead the rest of the world.
The weekly Mortgage Bankers Association (MBA) Mortgage Application Survey registered a sharp decline in applications, with a sharp decline in applications to purchase and an even sharper decline in refinancing. This was a negative report, but there does tend to be a lot of volatility. Nonetheless, demand for buying homes is still quite strong.
After the close: AMG Data Services reported that for the week ended Wednesday, November 12, $3.5 billion flowed into equity mutual funds, with two thirds to domestic small-cap, aggressive, and large-cap growth funds. This was a positive report, especially coming on the heels of the recent publicity over mutual fund trading abuses. $353 million flowed into taxable bond funds. $1.8 billion flowed out of money market funds. $198 million flowed out of municipal bond funds, the seventeenth consecutive week of outflows.
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 0.88% on Thursday to 16.84, which is modestly below the midpoint of the low anxiety (moderate complacency) zone (15 to 20). People were relieved to see how little profit-taking occurred after the big run-up on Wednesday. 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 1.67% on Thursday to 16.47.
The Nasdaq-100 VIX (VXN) fell by 0.39% on Thursday to 25.45.
The Nasdaq-100 After Hours Indicator had a negative tone for the Thursday evening session, closing down 4.16 points. There may have been some disappointment that Dell did not offer upside guidance over the current consensus.
[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 moderately sharply against the yen and fell 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 remains moderately above the $30 “comfort” level. Inventory levels were modestly lower, but the main influence on rising prices has been anxiety over the security situation in Saudi Arabia due to the recent terrorist attack. 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 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.
It’s good to hear that the administration is busy at revamping its plans for Iraq. I have mixed feelings about holding an election before a constitution is ready, but it’s workable. As important as a constitution is, the simple act of holding an election may be a more dramatic symbolic act that the average Iraqi can relate to. The sooner the election can be held, the better. The big question may be when the security situation is sufficiently stable to hold elections.
[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 Imperial America: The Bush Assault on the World Order by John Newhouse. Basically, it’s a critique of the Bush administration’s foreign policy and all the opportunities that were ‘squandered’ since 9-11. After the author made his presentation, two panelists offered their own comments. One comment that was repeated several times, and by the author as well, was that the neoconservatives are not really conservatives, but radicals.
I attended a panel discussion at the New American Foundation on the topic of whether the trend towards offshore outsourcing of higher-end tech jobs is a threat to technical innovation and economic prosperity. The discussion was part of a series co-sponsored by the Electronics Industries Alliance (EIA). Mostly the discussion served to raise many questions, but not so much to try to give them definitive answers. Part of the motivation for the series is to attempt to counter protectionist sentiment that has been building in Congress. My view is that it remains to be seen whether the offshoring of jobs is a process that is accelerating or has mostly run its course and will wane as the economy gets stronger and cost-cutting becomes a lower priority. Also, as venture capital investment picks up, many of those tech job seekers will be given lucrative work, but the recovery of venture capital spending will be a gradual process over the next few years.
I attended a book forum at the American Enterprise Institute for Bush vs. the Beltway : How the CIA and the State Department Tried to Stop the War on Terror by Laurie Mylroie. She has written several books about Iraq. In addition to her presentation, comments were given by a former CIA analyst and Richard Perle who is considered one of the key neoconservatives. Ms. Mylroie is also considered to be a neoconservative and has certainly been one of the most strident advocates of regime change in Iraq. She previously published a book which argued that there was a clear linkage between Iraq and the 1993 World Trade Center bombing. Her new book delves into the policy debates and “inter-agency process” that defines how the administration determines foreign policy. Specifically, she shows how the State Department and CIA have an institutional bias against believing that state-sponsored terrorism is the threat we faced before, after, and during 9-11. Her thesis is that the first Gulf War never ended and that 9-11 was a part of the war that Saddam Hussein has secretly waged against the U.S. She also argues that the Anthrax attacks could only have originated from Iraq.
[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 respond to Dell’s quarterly report. Probably with a yawn.
Flip a coin whether we see some more profit-taking today or whether we see another wave of buying. The Nasdaq 2,000 level is only a short distance away, but traders are being very cautious about this significant psychological milestone. The good news is that the latest data from AMG Data Services shows that we had reasonably decent stock mutual fund inflows in the most recent week. Traders can be as cautious as they want, but the rising tide of mutual fund inflows will force their hand, eventually.
Traders and short-term speculators will tend to close out positions (or at least hedge them) in advance of the weekend when anything can happen.
There are a few economic reports due out today, but I’m not so sure that any of them will move the market.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -6 on Thursday, 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 276 days (1 year and 26 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 4 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 169 days. Nasdaq is 5 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 68 days old and 5 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 15 days old and 5 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.
We have a potential new up-leg of the Nasdaq advance starting on Tuesday, November 11 with an intra-day low of 1,924 (approx.). Wednesday was Day 2 of the potential up-leg with a gain of 42 points, but it doesn’t matter what happens on Days 2 and 3 other than to not set a new intra-day low. Thursday was Day 3 with a loss of 6 points, but the intra-day low from Day 1 remained intact. Today is Day 4. On Days 4 through 10 we look for a gain of at least 1% on heavy volume higher than the previous day as confirmation of the up-leg.
The fact that Nasdaq is still 25 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 100 points of decline before a true correction might be indicated. Note that we’re still 125 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 – which rose by $3.5 billion in the latest week.
[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 14, 2003 12:44:04 AM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology