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Thursday was one of those in-between days when people are waiting for the dust to finish settling after a decline and unsure whether the market really is ready to bounce.
The jobless claims report was a little disappointing, but only modestly and not in a way that would challenge the essential character of the recovery, so I would not blame the lackluster gain for the day or the afternoon weakness on the economic data.
Although the Nasdaq gain for the day was rather modest (9 points), the gain off the intra-day low (26 points) suggests a fair amount of buying interest. We could be seeing a bit of “changing of the guard” as short-term momentum speculators bail out (or go short) and longer-term investors buy the dips. This is a common occurrence when the market is preparing for a new up-leg.
Nasdaq volume was very heavy (2.12 billion shares). Breadth was modestly negative, with 1.15 losers for each gainer. This was a mixed day, combining a sell-off with a rebound.
According to Thomson Financial I-Watch, institutional investors were net sellers of Cisco (CSCO), JDS Uniphase (JDSU), and Oracle (ORCL), but net buyers of Microsoft (MSFT), Intel (INTC), Sun (SUNW), ADC Telecom (ADCT), HP (HPQ), and Applied Materials (AMAT). It was a split day, with institutions selling into the early recovery, but then buying the afternoon dip. There was more than enough institutional buying to strongly suggest 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 – but still under 400K for an ninth consecutive week – and a modest rise in continuing claims. This was a mixed, but somewhat positive report, but there is a lot of volatility. The headline numbers did move in the wrong direction, but only modestly and the current levels remain moderately bullish. Unadjusted initial claims declined sharply to 357K, and are well below the year-ago level of 386K – and still well below 400K. The 4-week moving average of initial claims rose modestly but is still well below 400K for an ninth consecutive week, and moderately below the level of a year ago. Unadjusted continuing claims declined sharply 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 (moving average is 363K, which is still somewhat above 350K) 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 (2.7% or 2.4% unadjusted) is slightly better than during the same week in 1992 when the economy was recovering from the last recession (2.8% or 2.3% unadjusted). Initial claims were not consistently below 400K in 1992 until October. Initial claims are moderately higher than in the same week in 1992 (365K vs. 341K), and moderately sharply higher than in 1992 once you strip off the dysfunctional seasonal adjustment (357K vs. 317K.) The talk about continuing claims being 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.
After the close: AMG Data Services reported that for the 4-day week ended Wednesday, December 3, $2.6 billion flowed into equity mutual funds, with 85% going to domestic funds. This was a positive report, especially coming on the heels of the recent publicity over mutual fund trading abuses. Although this is not a lot of money, it keeps accumulating and provides a rising tide under the market that will continually surprise the short-sellers and technical traders and speculators. $821 million flowed into taxable bond funds. $6.3 billion flowed into money market funds. $105 million flowed out of municipal bond funds, the 20th consecutive week of outflows. $142 million (per week over the past four weeks) flowed into gold and natural resources funds, the highest rate on record.
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 1.60% on Thursday to 16.56, which is in the lower half of the low anxiety (moderate complacency) zone (15 to 20). People were a little concerned that the market did not bounce more strongly. 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 1.98% on Thursday to 16.30. People were a little more relieved that the market was able to bounce back from the recent sell-off.
The Nasdaq-100 VIX (VXN) fell by 1.94% on Thursday to 26.81. People were a little more relieved that the market was able to bounce back from the recent sell-off.
The Nasdaq-100 After Hours Indicator had a negative tone for the Thursday evening session, closing down 9.63 points. There was disappointment that Intel (INTC) disclosed a big write-down and that Intel didn’t up the upper end of their revenue forecast – they only upped the lower end of the range. Otherwise, Intel’s outlook is still quite decent. After-hours traders can have exaggerated reactions to news, and those reactions don’t necessarily transfer reliably to the next day’s trading.
[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 was little changed against the yen and 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, and remains moderately above the $30 “comfort” level. 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.
[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.
The infamous steel tariffs are now gone. Whether they really served any useful purpose is a matter of debate, but the economy will work more efficiently without them. Regardless of what the volatility crowd chatters, there is no “trade war” brewing and talk of “rising protectionism” is just that: idle chatter.
[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 is still somewhat in a state of disarray and confusion, not sure whether it wants to resume the advance or correct more deeply. You might as well flip a coin.
People may respond to the Intel mid-quarter update. Intel is doing fine, but a large write-down and lack of more upside seemed to surprise some people. If there is a strong dip at the open because of this news, we could quickly see an exhaustion of selling followed by a good bounce. The volatility crowd likes to exploit bad news, but the rest of the market will tend to take things in stride or even view a dip as a buying opportunity.
The big catalyst for the day will be the monthly employment report. Employment could grow or shrink by as much as 250,000. People may be expecting a gain in the range of 100K to 175K, but all bets are really off. The seasonal adjustment simply isn’t that accurate or reliable. Based on jobless claims in October and November, we could well see a nice gain in jobs. Please note that the cut-off for the employment surveys is the 12th of the month, so this report doesn’t tell us anything about or depend on the second half of the month.
It’s a Friday, so traders will tend to close (or hedge) positions in advance of the weekend when anything can happen.
My forecast for today is that Nasdaq will close in the range -40 to +50. Nasdaq came in at +9 on Thursday, modestly above 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 290 days (1 year and 40 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 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 18 days off its 52-week intra-day high of 1,992.27 on November 7. Nasdaq is 2 days off its 52-week intra-day high of 1,996.08 on December 2. Nasdaq is 1 day off its 52-week intra-day high of 2,000.92 on December 3. We need to track all three of these intra-day highs until Nasdaq manages to close above them for at least a couple of days. Technical traders will be chattering about Nasdaq establishing a “triple top”, a rather bearish sign, so we do need to give this a relatively severe yellow flag.
The confirmed up-leg for Nasdaq that began with the intraday low of 1,253.22 on March 12 has run for 183 days. Nasdaq is 3 days 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 82 days old and 3 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 29 days old and 3 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 not fully recovered, and it won’t be fully recovered until it closes above the previous peak of 1,976.37 for at least three 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 18 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.
We have a secondary correction off the intra-day high of 2,000.92 on December 3 that is now 1 day old. It reached an intra-day low of 1,942.67 on Thursday, December 4, a decline of 58 points or 2.91%. 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 9 days old and 3 days off its closing peak. The fact that Nasdaq is 32 points off the intra-day peak for this new leg would suggest that this new leg may already be broken. Give it a couple more days before deciding for sure.
We now have yet another potential up-leg of the Nasdaq advance starting on Thursday, December 4 with an intra-day low of 1,942.67 and a bounce of 26 points into the close. We now wait for confirmation of this potential up-leg. We ignore Days 2 and 3 of the up-leg as long as a new intra-day low is not set. Then on Days 4 through 10 we look for a gain of at least 1% on volume higher than the previous day to signal confirmation.
The fact that Nasdaq is still 32 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 93 points of decline before a true correction might be indicated. Note that we’re still 90 points above the starting level of the most recent confirmed minor up-leg that started on November 21. The big wildcard remains mutual fund money flows – which were inflows of $2.6 billion in the most recent week, $2.1 billion the previous 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 05, 2003 07:58:20 PM -0500
Copyright © 2003 John W. Krupansky d/b/a Base Technology