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Tuesday was simply some modest profit-taking after the recent run-up. A lot of people may have been content to sit on the sidelines and wait for the dust to settle to see how much or how little profit-taking developed before deciding what to do. Some of the profit-taking may simply be due to short-term momentum speculators setting fairly tight stop-loss orders that got triggered and caused a minor cascade of selling. Some of the selling may have been renewed short-selling by cynics who believe that the market is way overextended (and overvalued) and way overdue for a significant correction.
Nonetheless, Nasdaq set a new 52-week intra-day high of 1,996.08, 4 points above the previous high of 1,992.27 on November 7. It was disappointing that the response to hitting the new high was a sell-off of 16 points, but that’s not unusual or necessarily any more than a moderate yellow flag.
Nasdaq volume was moderate (1.82 billion shares). Breadth was very modestly negative, with 1.11 losers for each gainer. There was nothing truly noteworthy of this modest profit-taking.
According to Thomson Financial I-Watch, institutional investors were net sellers of Intel (INTC), AMD (AMD), Cisco (CSCO), and Applied Materials (AMAT), but net buyers of Microsoft (MSFT), Sun (SUNW), JDS Uniphase (JDSU), Oracle (ORCL), and Lucent (LU). It was a mixed day, with some institutional selling into the intra-day rallies and some buying of the dips. There was nothing to indicate that the market might be likely to dramatically fall off a cliff any time in the near future.
The BTM/UBSW Weekly Chain Store Sales Snapshot registered a slight decline (0.1%) compared to the prior week. This was a negative report, especially since it included the day after Thanksgiving. I would surmise that the higher post-Thanksgiving sales were outweighed by the lack of sales on Thanksgiving itself and on Wednesday when so many people were traveling. Still, sales were up a strong 5.2% over a year ago. BTM is still forecasting 4% growth in November compared to a year ago. Unfortunately, BTM will be terminating this report on December 9.
The weekly Reuters Instinet Redbook Sales Average report registered a sharp decline in chain store sales (2.8%) for the four weeks of November compared to the corresponding weeks of October, but registered a relatively sharp gain (4.4%) for the week ended November 29 compared to a year ago. This was a mixed, but rather negative report. The report notes that “More consumers seem to be taking advantage of deals to shop on-line, lured by free shipping, avoidance of retail sales taxes and crowds as well as easy price comparisons” and that department stores struggled through the holiday weekend, particularly with apparel, although discounters reported solid gains.
After the close: The weekly ABC News/Money Magazine Consumer Comfort Index registered a moderate gain to -11 from -13 (out of a range from -100 to +100), the highest level since August 2002. This was a positive report, further suggesting we may have finally broken out of the narrow, flat range we’ve been stuck in for months. There was no change in the consumer view of the overall economy, a 1% improvement in how consumers feel about their own finances, and a 2% improvement in how consumers view the buying climate. 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 2.82% on Tuesday to 16.42, which is in the lower half of the low anxiety (moderate complacency) zone (15 to 20). People were a little discouraged by the fact that the market failed to follow through on Monday’s rally. 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 2.98% on Tuesday to 16.27. New VIX once again moved in the opposite direction from old VIX. People were probably relieved that the market held so much of Monday’s gains. On Monday they had pushed VIX up despite the rally, probably worrying that significant profit-taking would ensue.
The Nasdaq-100 VIX (VXN) rose by 1.64% on Tuesday to 26.72.
The Nasdaq-100 After Hours Indicator had a positive tone for the Tuesday evening session, closing up 1.18 points. People were almost ready to believe that the modest profit-taking on Tuesday might yield to a continuation of Monday’s rally.
[11/29/03] The fed funds futures market suggests that the Fed will leave the fed funds target rate unchanged for the rest of the year, but possibly raise the fed funds target rate by a quarter-point in April or 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 is once again moderately above the $30 “comfort” level. Most of the rise was probably simply due to speculators betting that the weekly inventory report would indicate “a significant drawdown.” 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 modestly and is above $400 for a second day. 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.
[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 panel discussion on Iraq at the American Enterprise Institute here in Washington, D.C. This was part of a regular series of “briefings” on Iraq. The panelists included former Senator Fred Thompson, who is now a visiting fellow at AEI, the Washington Bureau Chief of the Al Hayat Arab International Daily newspaper, and with a keynote address by Bernard Kerik, the former police commissioner from New York City who was Iraq’s interim Minister of Interior and advisor who worked to reconstitute the Iraqi police force. They also had an expert to discuss the current military assessment. There was a lot of interesting material here, including background, context, and personal anecdotes, but not much about future direction other than the need to remain committed and continue to slog away.
PepsiCo (PEP) will be cutting 750 jobs as part of a restructuring. That is bad for those employees, but is good for the company. This further demonstrates how the business restructuring process continues. It will contribute a short-term drag on the economy, but be good for the longer-term health of the economy. This type of restructuring will yield a more sustainable economic recovery.
Hytek (HTEK) will be cutting 10% of its workforce. The same comments apply.
From Monday (and would have been out on Friday if not for the holiday): The CFTC (Commodity Futures Trading Commission) Commitments of Traders report for the week ended November 25 indicated a very slight increase in the ratio of open commercial S&P 500 index futures long positions to short positions from 0.950 to 0.953, indicating that “the smart money” is very slightly less bearish and have very slightly decreased their betting that the S&P 500 index will decline. Traders added moderately to their short positions, but added even more to their long positions. Trading of the “e-mini” S&P 500 index futures indicated a sharp increase in the ratio of longs to shorts from 0.94 to 1.01 indicating that amateur traders switched from being modestly bearish to slightly bullish. They added modestly to their long positions, but cut their short positions very sharply. Trading of the Nasdaq-100 index futures indicated a slight increase in the ratio of longs to shorts from 0.72 to 0.73, indicating that “the smart money” was still quite bearish, but slightly less so. Traders added very slightly to their long positions and cut their short positions modestly. Trading of the “mini” Nasdaq-100 index futures indicated a sharp decrease in the ratio of longs to shorts from 1.34 to 1.17, indicating that amateur traders were still somewhat bullish, but significantly less so. Amateur traders cut their long positions moderately but added sharply to their short positions. The other way of reading the Nasdaq-100 mini is that the majority bulls took some profits and the minority bears bet more heavily that the market would decline. Note that this was before the latest market run-up. In general, the “smart money” tends to be more “right” (eventually) than the amateurs. But, the smart money can be a contrarian indicator as it moves to a limit at which point it will tend to reverse. Also, it is not possible to tell with any certainty whether a position is truly an outright bet or merely a hedge for some other position (e.g., you own some stock but you short some futures as “protection” from a market decline). And finally, we don’t know what traders were up to during the days since last Tuesday.
[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.
We could see some more profit-taking, but not necessarily.
The ISM Services report could move the market.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at -10 on day, 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 288 days (1 year and 38 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 very soon, so the question is whether we hit 2,100 or 2,250 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 16 days off its 52-week intra-day high of 1,992.27 on November 7, but only by less than 13 points. Nasdaq set a new 52-week intra-day high of 1,996.08 on December 2, 4 points above the previous high. We need to track both of these intra-day highs until Nasdaq manages to close above the old high for a least a couple of days. Technical traders will begin chattering about Nasdaq establishing a “double top”, a bearish sign, so we do need to give this a yellow flag.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 has run for 181 days. Nasdaq is 1 day off its closing peak of 1,989.82 on December 1 for the up-leg and for the overall post-October 2002 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 80 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 27 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. This leg is now mostly recovered, but it won’t be fully recovered until it closes above the previous peak of 1,976.37 for at least two more days and sets a new closing peak at least 1% above that old peak (1,996.13).
The Nasdaq correction off the intra-day high of 1,992.27 on November 7 is now 16 days old. It reached an intra-day low of 1,878.07 on Friday, November 21, a decline of 114 points or 5.73%. It may be over, but we do need to see a new 52-week closing high above that old intra-day high.
The confirmed minor up-leg of the Nasdaq advance that started on Friday, November 21 with an intra-day low of 1,878.07 is now 7 days old and 1 day off its closing peak.
The fact that Nasdaq is still 13 points off its recent 52-week intra-day high is a moderate yellow flag and suggests that Nasdaq still hasn’t broken out of its near-term ‘consolidation’ phase. That does not mean that a full-blown correction is necessarily likely. We may still be 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 112 points of decline before a true correction might be indicated. Note that we’re still 138 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 were inflows of $2.1 billion in the most recent week and $3.5 billion in each of the two weeks before that.
[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: December 02, 2003 08:41:08 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology