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 ]
Tuesday was a classic “throw in the towel” sell-off – except that volume wasn’t very heavy. Nasdaq started the day with a moderate amount of optimism, but it gradually deteriorated straight through the day, with no meaningful attempt to bounce back. In fact, Nasdaq closed at it’s intra-day low. There was no clear culprit for the sell-off. Sure, there were plenty of suggested excuses, but the only thing that stands up to close scrutiny is that there was a modest amount of real selling pressure that caused people to step back and simply wait until the selling pressure convincingly abates. The selling later in the day could in fact have been due to ‘stop’ orders being triggered and causing a cascade of selling.
It’s very possible that mutual fund redemptions could have accounted for part of the decline. Mutual fund money flows are not large enough and consistent enough to provide a steady influence on the market. Tuesday could have been another one of those occasional days when there was enough selling pressure from funds to keep the market on a downwards course. It’s also possible that some funds were selling to meet redemptions, but then the investors may take the cash and then turn around and dump it into another fund (such as a safe index fund) on future days.
It’s also possible the people simply weren’t ready to jump on the rally bandwagon again yet, and the initial buying petered out and caused people to reverse and bet on a further decline.
The optimistic view of the day’s decline is that it was a good solid, air-clearing sell-off that assured that all the weak hands had sold and that all the aggressive shorts were fully invested. In that scenario, there may be nobody left to do any selling, so people will reverse and bet on the upside and cover their shorts.
In any case, rest assured that the sky is not falling. The volatility crowd is always ready to spin even the tiniest and remotest of negatives into the threat of impending doom.
Nasdaq volume was almost heavy (1.90 billion shares). Breadth was moderately negative, with 1.60 losers for each gainer. This was a moderate sell-off, but the breadth was too moderate to warrant more than a moderate yellow flag.
According to Thomson Financial I-Watch, institutional investors were net sellers of Microsoft (MSFT) and AMD (AMD), but net buyers of Sun (SUNW), Oracle (ORCL), Cisco (CSCO), Intel (INTC), Nortel (NT), EMC (EMC), and HP (HPQ). Institutions were buying the dip, strongly suggesting that the market is not likely to fall dramatically off a cliff any time in the near future.
The Consumer Price Index (CPI) report for October registered no change in consumer prices, and only a modest rise ex food and energy (“core” inflation). This was a neutral, somewhat positive report, with no evidence of either excessive inflation or deflation. The good news is that it allows the Fed to keep interest rates low (and steady) for an extended period of time.
The National Association of Home Builders (NAHB) Housing Market Index (HMI) for November registered a modest decline, but is still above the September level and near its highest level since December 1999. This was a modestly negative report. The “present conditions” (current home sales) index declined slightly. The six-month expectations index declined modestly. The traffic of prospective buyers index declined moderately. Demand for housing is still very strong despite the recent interest rate fluctuations. Even the best of economists continue to be completely confounded and befuddled by the strength of the housing market.
The BTM/UBSW Weekly Chain Store Sales Snapshot registered a moderately sharp decline (0.8%) compared to the prior week. This was a negative report, but there is a lot of volatility, especially shortly in advance of the start of the holiday shopping season. Sales were up a strong 6.2% over a year ago. BTM is forecasting 4% growth in November compared to a year ago.
The weekly Reuters Instinet Redbook Sales Average report registered a sharp decline in chain store sales (2.9%) for the first two weeks of November compared to the corresponding weeks of October, but registered a relatively sharp gain (3.9%) for the week ended November 15 compared to a year ago. This was a mixed report. The report notes that “Consumers continue their cautious spending, buying the lowest-price items available and retailers are conservative about the holiday outlook as they compete on price, putting continuing pressure on margins.”
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered a slight gain to -17 from -18 (out of a range from -100 to +100). This was a modestly positive report, but we are still stuck in a narrow, flat range. There was a 2% improvement in the consumer view of the overall economy, but a 1% decline in how consumers feel about their own finances, and no change 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 5.74% on Tuesday to 19.90, which is only modestly below the upper end of the low anxiety (moderate complacency) zone (15 to 20). People are beginning to wonder when the sell-off will end. The rapid rise late in the trading session was essentially a spike, but may or may not be enough to signal the kind of capitulation that marks the end of a decline. 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 2.74% on Tuesday to 19.11.
The Nasdaq-100 VIX (VXN) rose by 6.62% on Tuesday to 29.65.
The Nasdaq-100 After Hours Indicator had a mixed tone for the Tuesday evening session, closing up 1.31 points. People are anxious that the sell-off has continued so long, but they’re also cautiously optimistic.
[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 sharply against the yen and fell very sharply against the euro. There was a lot of chatter about reasons for the fall, but it was probably mostly due to short-covering on top of excessive speculation. Some of the chatter related to a new tariff on clothing imported from China, but that’s an overreaction. Sure, tariffs are ‘bad’, but the net impact will probably be quite minimal. This is a great example of how the volatility crowd takes the tiniest molehill and babbles as if it were an insurmountable mountain. Besides, the steel tariffs will probably be going away soon enough, so at worst this would be a net wash. 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 well above the $32 “anxiety” level. Mostly this is due to short-covering on top of an excess of speculation. There is no shortage of oil to justify the price rise, but momentum speculators are intent on exploiting volatility. There is lots of chatter about a shortage of heating oil this winter, but it’s all just idle speculation designed to boost volatility, and there is no evidence of an actual shortage. 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, but still fell short of the mystical $400 level. 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 “crackdown on insurgents” continues. That’s the only ‘message’ that will work. We’ll have to see if the U.S. can keep up this ‘message’ until it finally succeeds in wiping out the insurgents.
[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.
CIENA (CIEN) is redeeming $48 million of convertible notes to cut their interest expenses. This is a good deal and a good sign and suggests that the company is feeling more optimistic and more confident about their business. Issuing of convertible debt is a bad sign, but redeeming them before maturity is a good sign. They’ll take a one-time earnings hit for the redemption, but then earnings will benefit from the lowered interest expense. Also, dilution of per-share earnings goes down after the redemption.
[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.
Although additional profit-taking is certainly possible, the market is quite overdue for a significant bounce. There may finally be enough shorts back in the market leaning too far to the downside so that a moderate rally could kick off a cascade of short-covering.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -28 on Tuesday, only moderately above the lower 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 279 days (1 year and 29 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 7 days off its 52-week intra-day high of 1,992.27 on November 7.
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 172 days. Nasdaq is 8 days off its closing peak of 1,976.37 on November 6 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 71 days old and 8 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 18 days old and 8 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 clearly ‘broken’, but not completely dead. 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 to invalidate the potential new up-leg of the Nasdaq advance that started on Monday, November 17 with an intra-day low of 1,890.72 due to setting a new intra-day low of 1,881.75 on Tuesday. We now look for the start of another new potential up-leg.
We have a potential new up-leg of the Nasdaq advance starting on Tuesday, November 18 with an intra-day low of 1,881.75 (also the closing level). Wednesday will be Day 2, but it doesn’t matter what happens on Days 2 and 3 other than to not set a new intra-day low. 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 111 points off its recent 52-week intra-day high is a very clear yellow flag and suggests that the recent run-up is now in a near-term ‘consolidation’ mode. That does not mean that a full-blown correction is necessarily likely. We are probably in a short-term trading range. There may have been as much as 125 points of ‘trading froth’ at the peak, so we could see up to another 14 points of decline before a true correction might be indicated. Note that we’re still 40 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 18, 2003 08:21:56 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology